In Skuy v Greennough Harbour Corp., 2012 ONSC 6998 (“Skuy”), the Ontario Superior Court interpreted the demand obligation provisions contained in section 5(3) of the Limitations Act, 2002, SO 2002, s. 24, Sch. B (the “Act”) to promissory notes and guarantees.
Under section 5(3), the limitation period for a demand obligation begins to run following a default after a demand for payment.
Demand obligations can include promissory notes, demand mortgages and demand guarantees. A debt obligation expressly payable on demand is a demand obligation. Likewise a debt obligation that does not specify a date for repayment is also a demand obligation. Where a debt obligation is payable on a fixed date, it is not a demand obligation. This is so even if the debt obligation specifies that the lender must give notice or make a demand for payment before the debt obligation can be enforced.
The effect of section 5(3) is that all demand obligations are treated the same way and the limitation period for a demand obligation begins to run only from when a demand is made. Section 5(3) demonstrates the intent of the legislature that for all demand obligations, a demand is a condition precedent for the commencement of the limitation period (Bank of Nova Scotia v. Williamson, 2009 ONCA 754 at para. 19 [Williamson]. In Williamson, the Court of Appeal noted that while this may put the creditor a position to extend the limitation period by failing to make a prompt demand, it creates more certainty in establishing the commencement date for the limitation period.
Where a debt obligation is not a demand obligation, the commencement of limitation period will be dependent upon the date when the lender was aware or ought to have been aware that he or she may sue to enforce the loan because of a breach of the lending agreement entered into with the borrower.