Limitation Periods – Demand Promissory Notes
It is not uncommon for people to lend money to others. Indeed, estate litigation can involve instances where one party alleges that another party owes money to the estate. However, if a party waits too long to commence a proceeding, they may be barred from doing so because the limitation period has expired. The law with regard to limitation periods for demand promissory notes (monies lent without security or repayment terms but payable on demand by the creditor) has undergone change, which can impact an estate’s claim for monies allegedly owed.
In January 1, 2004, the Limitations Act, 2002, (the “new Act”) came into force. Prior to this, the statutory limitation period on demand notes was six years. And the common law rule was that the claim was known (and the limitation period began to run) when the note was issued to the debtor. However, under the new Act, the basic limitation period was set at two years. Yet despite this reduced time, the new Act added language of discoverability—namely, that the limitation period did not begin to run until a claim was “discovered.”
In Hare v Hare, 2006 CanLII 41650 (ONCA), 83 OR (3d) 766, the Ontario Court of Appeal considered an instance where a demand promissory note was issued under the former statutory provisions but the proceedings were commenced when the new Act was in force. The court looked at the transition provisions in s 24 of the new Act and asked whether the language of discoverability found in the new Act (especially s 5) changed the date on which the limitation period began to run—from the date when the demand note was issued to the date when demand for payment was made. In other words, they asked, when is a claim for repayment of a demand note “discovered”?
The Court of Appeal held—though for other reasons as well—that the language in the new Act did not expressly state that demand obligations were discovered when demand for payment was made. In the absence of express legislative intent, the court held that common law rule was not extinguished. The claim was said to be discovered when the demand note was issued not when the claimant demanded payment. The limitation period had expired.
However, on November 27, 2008, the Legislature amended the new Act by adding s 5(3) which expressly provides that the two year limitation period for commencing proceedings with regard to payment for demand notes does not begin to run until “there is a failure to perform the obligation, once a demand for the performance is made.”
There have been and may continue to be interpretative questions with regard to the transition provisions (s 24) in the new Act (for demand notes issued prior to January 1, 2004). And there may be questions with regard to the application of s 5(3) to demand notes issued prior to November 27, 2006. But going forward, there should be less confusion with regard to this matter.
Thank you for reading.