Amendments to the Limitations Act, 2002 for Demand Obligations


 

The Limitations Act, 2002 (the “Act”) has been amended as of November 28, 2008 with respect to the treatment of demand obligations created on or after January 1, 2004. The amendments have the effect of overturning the controversial decision in Hare v. Hare where the Court of Appeal ruled that the limitation period for demand promissory notes starts to run on the date that the note is issued and not from the date of demand.

The Act has now been amended to provide that, in determining when injury, loss, or damage with respect to a demand obligation occurs, under Section 5 of the Act, the limitation period begins to run on the first date on which there is a failure to perform the obligation, once a demand for performance is made.

Section 15 of the Act which deals with the ultimate limitation period, has also been amended to provide that, in the case of an act or omission in performing a demand obligation, the limitation period begins to run on the first day on which there is a failure to perform the obligation, once a demand for the performance is made.

These amendments are retroactive to January 1, 2004 and therefore only apply to demand obligations created on or after such date. They are welcomed by many including lenders who, under the prior legislation, had only two years from the date a note was issued to commence a claim to recover under the note.

It is important to keep in mind that parties to a demand promissory note are still permitted under the Act to contract out of or modify the two year statutory limitation period in certain circumstances. One way to do so would be to add the following provision to the note:

“The undersigned agrees that this promissory note is made for business purposes and is a “business agreement” as defined in the Ontario Limitations Act, 2002 (the “Act”). No limitation periods found in the Act, other than the ultimate limitation period found in section 15 of the Act, shall apply to this note and to the obligations imposed by this note.”