Ontario Court of Appeal Holds that Applicable Limitation Period On Stand-Alone Guarantees of Amounts Owing on Mortgages is Ten Years

In Hilson v. 1336365 Alberta Ltd. the Ontario Court of Appeal considered whether the applicable statutory limitation period for a claim on stand-alone guarantees of amounts owing on mortgages was ten years pursuant to the Real Property Limitations Act or the two-year period in the Limitations Act, 2002

The case dealt with an appeal by the defendants from a trial judgment finding them liable on their personal guarantees owed on 25 mortgages.  There were two types of guarantee.  The mortgages themselves contained guarantees (the “covenant guarantees”) and the appellants executed five separate instruments by which they personally guaranteed the amounts owing on 25 mortgages (the “stand-alone guarantees”).  The trial judge found the appellants liable on the five stand-alone guarantees, rejecting their argument that the claim was barred by the Limitations Act.  He found that as the evidence only proved that they had authorized the registration of the 1336367 Alberta Ltd. mortgages, they were only liable on the covenant guarantees for those mortgages.

At trial, the appellants argued that the respondents’ claim was governed by the Limitations Act and, as the respondents’ claim was brought more than two years after the claims on the guarantees arose, her claim is statute-barred.  The trial judge rejected that submission and found that the respondent had brought her claim within the applicable limitation period, namely ten years, as her claim was governed by the Real Property Limitations Act, s. 43(1):

(1) No action upon a covenant contained in an indenture of mortgage or any other instrument made on or after July 1, 1894 to repay the whole or part of any money secured by a mortgage shall be commenced after the later of,

(a) the expiry of 10 years after the day on which the cause of action arose; and

(b) the expiry of 10 years after the day on which the interest of the person liable on the covenant in the mortgaged lands was conveyed or transferred.

The key issue on the appeal was whether the stand-alone guarantees fall within the words: “any other instrument….to repay the whole or part of any money secured by a mortgage”.

The appellants made two submissions in support of their argument that “instrument” should be given a narrower meaning that does not embrace the stand-alone mortgage guarantees.  First, they submitted that the language of s. 43(1) must be read in light of the circumstances that existed at the time of its predecessor’s enactment in 1939 and that “instrument” should be narrowly interpreted to deal only with those specific circumstances.  Second, they argued that the interpretation of the word “instrument” in the Real Property Limitations Act should be governed by the definition of that same word in the Registry Act, limiting the meaning to instruments affecting title to land and executed with the requisite formalities to allow for registration.

The Court of Appeal held that the trial judge properly rejected both submissions.  In dealing with the historical argument the Court reviewed the history of the applicable legislation going back to the 1800s and rejected the appellants’ submission because: (i) there is no legislative history to support the narrow meaning; (ii) the plain and ordinary meaning of the words “any other instrument” does not require or support such a narrow interpretation; (iii) there is no justification for having different limitation periods depending on whether the guarantee covenant is in the mortgage or in a separate document; and (iv) the Court did not accept the submission that the appellants’ contention is supported by the principles of statutory interpretation.   The Court rejected the appellants’ submission that the meaning of “instrument” in the Real Property Limitations Act should be governed by the definition of “instrument” in the Registry Act on the basis that the acts have very different purposes.  The purpose of the Registry Act is to create a public record of formal documents that affect interests in land to ensure the integrity of title to land and to allow third parties to investigate title whereas the purpose of the Real Property Limitations Act is to establish an appropriate limitation period for claims arising under and relating to mortgages.  The Court held that the purpose of the Real Property Limitations Act does not engage the same concerns as those arising under the Registry Act and it has no relationship to registrability of documents.  Accordingly, the Court rejected the submission that the trial judge erred in concluding that the applicable limitation period for the claims on the stand-alone guarantees was ten years and not two years.

For the full text of the Ontario Court of Appeal’s decision in Hilson v. 1336365 Alberta Ltd. see: https://canliiconnects.org/en/cases/2019onca1000


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