The Importance Of Limitation Periods When Collecting Debts Owed To An Estate

Written on behalf of Arbesman Hamilton LLP

Being named the executor of an estate comes with much responsibility, including collecting debts owed to the deceased. A recent decision from the Court of Appeal for Ontario highlights the importance of understanding the limitation periods of certain responsibilities and the consequences of failing to abide by them.

The background

The deceased person had loaned the respondent $55,000 in 2007. The loan was secured by a promissory note payable on demand or upon the sale of a specified piece of property (whichever came first). The property was eventually sold, and the deceased became aware of the sale on June 6, 2013. At this time, the deceased was still alive. It wasn’t until May 2015 that the estate trustee made a demand for repayment. By this point the creditor had died.  An action was not brought until July 17, 2015. By this point, it had been more than two years since the sale of the property. S. 7 of the Limitations Act, 2002 (“the Act”) states that such action are barred when commenced after two years. The action was dismisses on summary judgment.

On appeal

The estate’s trustee (“the trustee”) appealed, arguing that s. 7 of the Act should apply, extending the limitation period by six months for the estate trustee’s action. The Act states,

7 (1) The limitation period established by section 4 does not run during any time in which the person with the claim,

(a) is incapable of commencing a proceeding in respect of the claim because of his or her physical, mental or psychological condition; and

(b) is not represented by a litigation guardian in relation to the claim.

Presumption

(2) A person shall be presumed to have been capable of commencing a proceeding in respect of a claim at all times unless the contrary is proved.

Extension

(3) If the running of a limitation period is postponed or suspended under this section and the period has less than six months to run when the postponement or suspension ends, the period is extended to include the day that is six months after the day on which the postponement or suspension ends.

The trustee submitted that the provision should be interpreted in a liberal context, leaning on a 1990 decision from the Ontario Superior Court, which stated,

“I think the provisions of a statute of limitations should be liberally construed in favour of the individual whose right to sue for compensation is in question. Where two interpretations of the statute are possible, reason favours the one which enables the plaintiff to bring his action.”

It was the trustee’s opinion that s.7 of the Act should be interpreted to apply when the person having the claim dies before commencing proceedings since once they die thy are incapable of doing so. In making this argument, the trustee was suggesting that dying was similar to the creditor having a physical, entail, or psychological condition that would prevent them from commencing proceedings. It was the trustee’s opinion that time should be granted to the trustee in order for them to take over the management of the affairs of the incapable person. As part of his argument, the trustee said it “takes time for an estate trustee to review the affairs of the deceased, and to obtain probate.”

The court was not persuaded by the trustee’s argument, and sided with the motion judge in dismissing the claim as statute barred, stating “the grammatical and ordinary sense of the words of s. 7 are simply not elastic enough to apply to a deceased person and to construe an estate trustee to be a litigation guardian.”

At Arbesman Hamilton LLP, we help the executors of estates in performing everything from simply drafting documents to acting as your agent in all your executor duties. We work with executors on a one-on-one basis to ensure they receive the personalized advice they need to effectively and lawfully carry out their duties and obligations. Contact us online or at 416-481-5604 to book a consultation today.