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Posted on August 1, 2012 | Posted in Collections

 We know that the garden variety of a guarantee of an obligation is governed by the Limitations Act, 2002 (the “Act”). In effect, a two-year limitation period applies. What happens when the guarantee is contained in a mortgage? Does the Act apply or does the Real Property Limitations Act (the “RPLA”) apply? The RPLA stipulates a ten-year limitation period. The question was answered in Equitable Trust Company v. 2062277 Ontario Inc., a 2012 decision of the Ontario Court of Appeal.


A corporation had given a mortgage to a financial institution (the “FI”). Two individuals also signed the mortgage. The mortgage document referred to them as “principal debtors and not as surety”, as “guarantors”, and as “covenantors”.

The mortgage went into default and the FI commenced an action against the mortgagor and the two individuals. The individuals argued that the FI commenced the action outside of the two-year limitation period of the Act and brought a motion for summary judgment based on facts that were not in dispute.


The individuals had to demonstrate that the Act, and not the RPLA, applied. If the RPLA applied, the individuals were liable because the FI commenced its action well within the ten-year limitation period under the RPLA.

The Act, by its own terms, does not apply to proceedings in which the RPLA applies. The RPLA applies to covenants contained in a mortgage. Accordingly, the FI argued that its action was a simple action against the mortgagor and the individuals on covenants contained in the mortgage. The individuals agreed that the mortgage was not a demand mortgage, but argued that their covenant was a demand guarantee and that the Act governs all guarantees.

As to the individuals’ covenant, the motions judge interpreted the mortgage document to hold that the covenant was not a guarantee and was not a demand obligation. The judge held that there was no necessity to make a demand under the mortgage and that the individuals were both covenantors and guarantors.

As to the applicability of the RPLA, the motions judge held that the applicability of the Act is not determined on the basis of whether the obligation is or is not a demand obligation, but whether it is a cause of action to which the RPLA applies. Since the obligations of the corporation and the individuals arose out of the mortgage documents, the RPLA applied to them.

Accordingly, the judge dismissed the motion of the individuals for summary judgment. The individuals appealed to the Court of Appeal.

On Appeal

The Court assumed, without deciding, that the covenant was a guarantee and, in effect, said “So what!” Previous jurisprudence never stated that all guarantees were to be dealt with under the Act. The case on which the individuals relied dealt with an ordinary guarantee that was not related to real property. Once the guarantee is part of a mortgage, it delivers its effect from the document of which it forms a part. That document was a mortgage that fell squarely within the RPLA.

The Court also noted,If (the individuals’) argument were accepted, it would do no favour to persons who have guaranteed a mortgage debt. Confronted with a shorter limitation period for the guarantee than for the mortgage debt, mortgagees would undoubtedly sue and attempt to collect on the whole debt outstanding rather than proceeding, as (the FI) did in the case at bar, to realize on the security in the real property and then suing only for any deficiency.”

     The Court dismissed the appeal and awarded costs of $6,000.00.


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