Commencement of limitation period for demand loan

Today's decision in Bank of Nova Scotia v. Williamson, 2009 ONCA 754 decides that the limitation period for a demand loan runs from date of demand and not from when the lender knew or ought to have known that the principal debtor was not going to pay.  The Court held:

Issue 2:  Does s. 5 of the Limitations Act, 2002 change the date for the commencement of the limitation period from the date of demand to the date when the Bank knew or ought to have known that the principal debtor was not going to pay?

 

[16]         In Hare v. Hare, this court held that the Limitations Act 2002 does not, nor was it intended to change the common law with respect to the operation of demand promissory notes. The same applies to the common law regarding demand guarantees. As discussed above, a demand is required before anything is owed by a guarantor under a third party guarantee.

[17]         The appellant submits, as he did to the motion judge, that by requiring a demand as a condition of the existence of a cause of action and therefore the commencement of the limitation period, the court is promoting indefinite liability. However, as Trotter J. observed, that had always been the accepted effect under the former Limitations Act of obligations that required a demand in order to be enforceable. Furthermore, the appellant could have bargained for a different result. Also, section 15 of the Limitations Act, 2002 imposes a 15 year ultimate limitation period so that liability will not be indefinite.

[18]         In any event, the Limitations Act, 2002 was amended on November 27, 2008 to add ss. 5(3) and (4), which deal specifically with the requirement for the commencement of the limitation period for demand obligations.  Those sections provide:

Demand Obligations

5.(3)  For the purposes of subclause (1)(a)(i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made.

Same

(4)       Subsection (3) applies in respect of every demand obligation created on or after January 1, 2004.

[19]         This amendment demonstrates the intent of the legislature that for all demand obligations, a demand is a condition precedent for the commencement of the limitation period. The legislature may be taken to have recognized that this puts the creditor in the position to extend the limitation period by failing to make a prompt demand. However, it creates more certainty in establishing the commencement date for the limitation period. Although this new section does not affect this case, it affirms the law regarding third party demand guarantees.