In T.O. Estate v. D.O., 2024 ONCA 603, the Court of Appeal for Ontario (the Court of Appeal) held that certain advances made by a husband to a wife were loans and not gifts, and that, in the absence of a finding at trial of the terms of repayment, the advances should be treated as demand loans. The result was that the limitation period with respect to an action for non-payment did not begin to run until demand was made.
The issue
Following the breakdown of their marriage, litigation was commenced between D.O. (the wife) and T.O. (the husband) to resolve various issues. The relevant issue, for the purposes of this article, was whether certain financial advances were loans or gifts and, if they were loans, whether the claim demanding repayment was statute-barred. The husband died after the trial, and his estate (the Estate) challenged the trial judge’s determination that while the corporate respondent, The Ridgeway Education Rec Centre Ltd. o/a Little Bright Starts Learning Centre (Ridgeway), a corporation indirectly owned by the wife that operated a daycare business, owed the husband CA$341,000 with respect to money he advanced to Ridgeway in 2013, his action for repayment should be dismissed on the basis that it was brought after the expiry of the applicable limitation period.
The Court of Appeal allowed the Estate’s appeal on the basis that the trial judge erred in not treating the amount owed by Ridgeway as a demand obligation. The limitation period for this obligation did not commence to run until demand for performance was made.
The facts
In 2012, a corporation owned by the husband, which was not party to the action, advanced CA$40,346 to Ridgeway to assist the daycare business (the 2012 advance), and in 2013 the husband personally advanced a total of CA$341,000 to Ridgeway in three tranches (the 2013 advances). None of the advances were repaid.
The husband commenced an application on July 18, 2019, naming only the wife as the respondent and claiming repayment of both advances. Subsequently, in December 2020, counsel for the husband sent a letter to the wife and the company she owned (201), which was the sole shareholder of Ridgeway, demanding repayment. On January 28, 2021, the application was amended to add Ridgeway and 201 as respondents (the Amended Application). The wife responded by alleging that the advances were gifts and, alternatively, that the claim was barred by the two-year limitation period under the Limitations Act, 2002, SO 2002, c. 24, Sch. B(the Limitations Act).
The trial judgment
At trial, the husband abandoned the claim against the wife for repayment of the 2013 advances, and sought repayment only from Ridgeway and 201.
Based on the evidence of the parties and third-party witnesses, the trial judge concluded that the 2013 advances were loans and not gifts, and this determination was not challenged on appeal. However, the trial judge dismissed the husband’s claim as statute-barred on the basis that the application brought in January 2021 was more than two years after the debts were incurred in 2013 or, at the latest, in 2018 when the marriage broke down, and the husband should have known that an action would be required to obtain repayment.
The appeal
On appeal, the Estate asserted that the trial judge failed to apply the correct provision of the Limitations Act, that being s. 5(3),which provides that “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.”
The trial judge did not make any express finding as to the terms of repayment of the 2013 advances. In the absence of such a finding, the Court of Appeal held that it could “make the decision about the terms of repayment that the trial judge ought to have made.” In that regard, it held that the evidentiary record was sufficient to determine that the 2013 advances were in the nature of a demand loan. The husband had given evidence that the advances were demand loans. The wife did not give evidence that there were different terms of repayment, but rather testified that the 2013 advances were gifts – evidence that the trial judge rejected. The trial judge accepted that the reference in Ridgeway’s financial statements to loans repayable by the wife reflected the advances made by the husband, and supported the view that the advances were loans. Importantly, the financial statements referred to the loans as “due on demand.”
In any event, even if the evidence did not establish a meeting of the minds about the terms of repayment, the legal result would still be that the 2013 advances should be treated as if the parties had agreed they were payable on demand. As a matter of law, where no time is fixed for repayment of a loan, and no other terms are mentioned, the loan is repayable on demand.
The only evidence of a demand for repayment was either the original application in July 2019 (albeit it was issued only against the wife), the letter demanding repayment sent by the husband’s lawyer in December 2020 (albeit that was made to the wife and 201), or the Amended Application itself (claiming payment from the wife, 201 and Ridgeway). All of these demands were made within two years of the Amended Application in 2021.
In the result, the appropriate conclusion about the nature of the 2013 advances was that they were demand loans. This meant that the trial judge erred in finding that the Amended Application was issued more than two years after discovery of the claim for repayment by Ridgeway of the 2013 advances.
The appeal was therefore allowed and the judgment below was varied to provide that Ridgeway was liable to pay the Estate the sum of CA$341,000.
Conclusion
The proper characterization of a loan is key in determining when the limitation period begins to run in the event of default. From the perspective of the lender, there is, therefore, benefit in drafting a loan agreement in terms of a demand obligation. Regardless, it is important to have clear terms about when repayment is due, in order to provide certainty as to when the limitation period starts to run.
For more information on this topic, please reach out to the authors, Robert Kligman and Chloe Snider.
