Friday, December 16, 2011

Court of Appeal Reaffirms When Limitation Period Begins to Run for Delayed-demand Notes

The British Columbia Court of Appeal has reaffirmed the rule that the limitation period of six years in British Columbia does not begin to run until the creditor has made a demand for payment under a promissory note that was made payable after a specified period of time from demand (a delayed-demand note). The case is Ewachniuk Estate v. Ewachniuk, 2011 BCCA 510.

In that case, the defendant’s mother had lent him $750,000 in 1980. He signed a promissory note stating that the $750,000 was “payable one (1) year after demand, without interest.”

After the defendant’s mother’s death, the administrator of her estate demanded payment under the note on November 29, 2008. The defendant refused to pay, and the administrator sued on July 23, 2009.

The Supreme Court of British Columbia relying on previous cases, including Zeitler v. The Estate of Alfonse Zeitler, 2008 BCSC 775 (which I wrote about here), held that the limitation period did not begin to run until a year after the administrator demanded payment. The cause of action, or right to sue, only arises after the demand, and the time for payment has expired. The limitation period does not begin to run until the creditor has a cause of action.

A delayed-demand note may be contrasted with a demand note, which is a promissory note payable “on demand.” In the case of a demand note, the limitation period begins to run when it is signed, even if the creditor does not demand payment. (In the case of a demand note, the running of the limitation period may still be postponed if within six years of the date the note is made, the debtor makes payments or acknowledges the debt in writing.)

The defendant appealed the Supreme Court of British Columbia’s decision, challenging the authority of cases and texts going back 200 years relied upon by the trial judge. He also argued that a delayed-demand note function like demand notes and it is anomalous to treat them differently. In both cases, the defendant argued, there should be a “finite and predictable limitation period.” Furthermore, because the creditor does not have to make a demand, there is effectively no limitation period.

The Court of Appeal rejected the defendant’s arguments and held that the limitation period does not begin to run until after the creditor has demanded payment, and the period of time for payment under the note has expired.

With respect to the argument that there is effectively no limitation period if demand is not made, Chief Justice Finch noted that there are other equitable defenses if a creditor unreasonably delays in perusing a claim that may apply to a claim when the Limitation Act does not apply.

The distinction between a demand promissory note and a delayed-demand promissory note is an important one in practice. I often see these in loans within a family. Parents may make a loan to a child to assist her. The parents may not have any real need for repayment, but may wish the loan to be repaid in some circumstances, such as if there is a breakdown of the child’s marriage. If the loan is a demand loan, they may find out that the limitation period has expired when they demand repayment. A delayed-demand note affords greater protection to the parents, by delaying the time from which the limitation period begins to run.

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