Promises Aren't Forever
Parents frequently lend their adult children money. Often such loans are evidenced by way of a demand promissory note that the parents, and perhaps others in the family, expect will be repaid in full. Depending on the particular circumstances, however, a parent might not follow up on the enforcement of the demand promissory note thinking that he or she can ask for the money to be repaid sometime in the future. It may be that an adult son or daughter may have started paying the interest on the note but, for whatever reason, stopped paying interest.
However, the ability to enforce the payment of a demand promissory note does not last forever.
The Ontario Court of Appeal’s December 2006 decision in Hare v. Hare [2007], 83 O.R. (3d) 766 deals with this very issue and the limitation periods applicable to the enforcement of a demand promissory note.
In Hare, a parent (the plaintiff) loaned her son (the defendant) money in February 1997. By a promissory note dated February 10, 1997 the defendant promised to pay the plaintiff on demand, the sum of $150,000.00. The defendant last made an interest payment on October 26, 1998. No payment in respect of the note had been made since then. On November 10, 2004, the plaintiff made a demand for repayment. She met with no success. On February 17, 2005, she commenced an action for repayment of all sums due on account of the note.
The defendant moved successfully for summary judgment dismissing the claim. The motions judge rejected the plaintiff’s argument that the Limitation Act, 2002 (“The new Act”) applied to the claim as well as the plaintiff’s argument that it was the refusal of the plaintiff’s November 10, 2004 demand letter that constituted the act or omission that gave rise to the plaintiff’s claim.
Applying the Limitation Act, R.S.O. 1990, c.L.15 (“the Former Act”), the motions judge held that it was clear law that a demand note matures for all purposes as soon as it is delivered, and that in circumstances where the loan is repayable on demand s. 45(1)(g) of the Former Act applies to bar an action unless commenced within 6 years of the funds being advanced. The action was not commenced within six years of the funds being advanced, so it was barred by s. 45(1)(g). The plaintiff appealed.
In a split decision (2-1), the majority of the Court of Appeal dismissed the appeal by the plaintiff. Aside from canvassing the applicable provisions of the Former Act and the New Act, the majority held that the law is well-settled that a lender has a right to immediate repayment of a demand promissory note. As there is no repayment period specified, the lender is entitled to require immediate repayment. In this case, the Court of Appeal agreed with the motion judge and that the former limitation period had expired and the plaintiff’s/appellant’s action was statute-barred.
At Hull & Hull LLP’s next breakfast series (June 18, 2007), I will be discussing this case in further detail and will deal with promissory notes in the Estate context.
Have a great day.
Craig
