Demand Loans: What a Difference Thirty Days Make

I wrote an earlier post, “Family Loans and Limitation Periods” in which I discussed a case where a claim on a loan was dismissed because the limitation period had expired. If you lend money, and the borrower signs a promissory note stating that the loan is repayable “on demand,” the limitation period may expire before you even make a demand. This is because in British Columbia, the clock on the limitation period begins to tick when the loan is made, rather than when the lender demands repayment. (Although the time will be extended if the debtor makes a payment or acknowledges the debt before the limitation period expires.)

But in a recent case, Zeitler v. The Estate of Alfons Zeitler, 2008 BCSC 775, Madam Justice Arnold-Bailey of the Supreme Court of British Columbia, held that limitation period on loan payable 30 days after demand, did not begin to run on the date of the note. It would only begin to run after the creditor demanded repayment and the time for repayment had elapsed.

Alberdina Zeitler transferred two properties to her husband, Alfons Zeitler, in 1985. In return he agreed to assume the mortgages on the properties, and gave his wife a promissory note for $92,000 plus interest at ten percent per year, payable “30 days after demand.”

He never made any payment to his wife during his lifetime. Nor did he do anything else to acknowledge the debt. Mrs. Zeitler did demand payment of interest in the amount $25,000 in 1992. But Alfons Zeitler didn’t pay it.

After Mr. Zeitler died without a will on April 26, 2007, his wife sued the administrator of his estate. She asked the court to declare that the administrator held the properties in trust for her, but the court rejected her claims in this respect. She also claimed to be entitled to repayment of the loan, plus interest.

The administrator of Alfons Zeitler’s estate argued that it was too late for Mrs. Zeitler to sue. The administrator that the loan was a demand loan, and the six-year limitation period expired six years after the promissory note was made. The limitation period had expired.

Madam Justice Arnold-Bailey disagreed. She held that the limitation period had not expired on the entire amount of the promissory note. She held that the limitation period would not begin to run until after the demand for payment was made, and the time for payment had expired. Relying on previous cases, Madam Justice Arnold Bailey held that if a note is payable after a contingent event, then the limitation period does not begin to run until the event occurs. If a promissory note is payable after a period of time following demand, the note falls into the category of a note payable after a contingent event, and is treated differently than a note payable on demand.

Mrs. Zeitler had demanded that her husband pay $25,000 in interest in 1992. The limitation period had expired in respect of that $25,000 only.

In the result, Mrs. Zeitler is entitled to payment on the promissory note of $412,700.33 out of her husband’s estate, including interest. If the note had said that it was payable on demand, instead of 30 days after demand, she would not have been entitled to any repayment.

When making loans between family members, consider making the loan repayable after a specified period of time following demand, rather than on demand.