skip to Main Content
loan or gift and limitation periods

Loans and Limitations: Is this decision the real McCoy?

As discussed in our blog, Gift or Loan? A case review of Greco v. Frano, one of the issues frequently raised in estate litigation is how to characterize funds that were advanced to/by a deceased. These types of cases often focus on whether the funds should be considered to be a gift or a loan.

One of the reasons the courts are faced with these types of claims so frequently is that these are non-arm’s length transactions and family members often do not feel the need to document their intentions as they would if they were dealing with arm’s length parties.1

The court recently revisited this issue in Cattley v. McCoy. In the case, the Deceased’s son and son-in-law were each claiming that they were entitled to repayment of funds from the Estate (the “Loans”). Three of the Deceased’s four children agreed that the Loans should be repaid, however, since one of the beneficiaries disputed the Loans, the estate trustee brought a motion for directions.

The son who disputed repayment of the Loans argued as follows:

  1. There was insufficient evidence proving that the funds were advanced as Loans with the expectation of repayment;
  2. The handwritten notes evidencing the alleged Loans, did not comply with section 13 of the Ontario Evidence Act; and
  3. Even if they were properly Loans, the repayment of the Loans was now statute barred by the Limitations Act.

While we intend to primarily focus on the court’s analysis in respect of argument three noted above, in concluding that there was sufficient evidence to establish that the funds were advanced as Loans that should remain payable out of the Estate, the judge made some intriguing comments about the unique evidentiary requirements in the context of estate litigation.

At paragraph 30, Justice De Sa explains that Section 13 of the Evidence Act provides that an opposite or interested party shall not obtain a verdict, judgment or decision on his or her own evidence in respect of any matter occurring before the death of the deceased person, unless such evidence is corroborated by some other material evidence.

But what does “corroboration” actually mean?

Justice De Sa found that “Corroboration must be independent evidence which shows that their evidence on a material issue is true. This corroborating evidence can be direct or circumstantial, a single piece of evidence or several pieces of evidence considered cumulatively”. Further, Justice De Sa went on to find that “not every particular of the party’s evidence need be corroborated but it must materially enhance the probability of the truth of the adverse party’s statement”.

Based upon the available evidence Justice De Sa concluded that there was sufficient evidence to establish that the funds advanced were Loans.  However, what is notable from this decision is how the judge also used this evidence to arguably circumvent the application of the Limitations Act.

Specifically, and as we discussed in our blog Greco v. Frano, where a loan (like the one in Cattley v. McCoy),does not have any terms and there is no date for repayment, courts have concluded that these types of loans should be considered a demand obligation.

The Limitations Act however requires that a party bring a claim for an outstanding debt within two years of a demand for payment and that demand must be clear and unequivocal.

In this case, these steps weren’t taken within two years and accordingly, one would have expected the claims to be statute barred.  However, Justice De Sa considered extrinsic evidence to contextualize the loan as a contingent loan, rather than a demand obligation. The court, therefore, found that the claimants were not required to commence a claim or make a formal demand when the Deceased decided not to sell his home as the Deceased was in a vulnerable state and when viewed in that context, it would be unfair to “construe the statutory provisions [i.e. the application of the 2 year limitation period] in a manner that would penalize them for being considerate to their father in such a difficult period of his life”.

Moreover, Justice De Sa also alternatively concluded that the Loans would, in any event, be payable on the basis of quantum meruit, or in other words, that the estate would be unjustly enriched if the Loans were not paid back.  It is not clear however, whether the court was made aware of the jurisprudence suggesting:

  1. That a loan claim cannot be pursued as a claim for unjust enrichment;2 and
  2. A claim for unjust enrichment (or other equitable claims) cannot be used to circumvent the application of the Limitations Act. The case law specifically states that even where a result may be viewed as harsh, “that cannot affect the legal analysis. Any limitations defence can produce harsh results, but the policy of the legislature, to bar stale claims, must prevail if the facts so warrant”.3

The court’s rationale in Cattley v. McCoy appears to be inconsistent with Justice Ferguson’s decision in Graham v. Benton, where Justice Ferguson found that a demand loan existed, declined to accept the claimant’s explanations for failing to make any formal demands and concluded that equitable remedies were not available to subvert the strict requirements set out in the Limitations Act in the context of the transactions.

  1.   In Graham v. Benton, 2020 ONSC 6985 (CanLII) relying on Christmas Estate v. Tuck (1995) O.J. No. 3836 (C.J.) the claimant argued that he should be excused from not having kept proper records because of the family nature of the trust. The court rejected his argument.
  2.   Garcia v. Normore, 2008 CanLII 4306 (ON SC) at para. 103
  3.   See Kerr v. Baranow,   2011 SCC 10 (CanLII)) at para. 41 where the court concluded that a valid statute denying recovery is considered to be a juristic reason; Also see Caglar v. Moore 2005 CanLII 39871 (ON SC) at para. 34; Berta v. Arcor Windows and Doors Inc., 2016 ONSC 7395 (CanLII)(Ont. S.C.J.) at para. 19 citing Kowal v. Shyiak, 2012 ONCA 512 (Ont. C.A.) at para. 20; also see:  Cosentino v. S. Cosentino Leasing Ltd., 2010 ONSC 2611 (Ont. Gen. Div.) at para. 19

The authors of this blog are Bradley Phillips and David Wagner. Brad and David are both partners at Wagner Sidlofsky LLP.

David is a member of the firm’s Estate and Commercial Litigation Groups. He received his TEP designation from STEP and he deals with will challenges, dependants support, guardianship and applications to compel an accounting.

Related Posts and Articles
This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
Back To Top