Court File and Parties

CITATION: Artisan Developments Inc. v. Navarretta, 2011 ONSC 6054

DIVISIONAL COURT FILE NO.: 10-862

DATE: 2011/12/13

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: Artisan Developments Inc., Appellant/Plaintiff

AND:

Sergio Navarretta and Alessandra Piccione, Platinum Image Reproductions Inc., Respondents/Defendants

AND:

Ralph Medaglia, Respondent/Third Party

BEFORE: Matlow, Pardu, Harvison Young JJ.

COUNSEL: Augusto P. Palombi, for the Appellant/Plaintiff

Richard R.F. Nolin, for the Respondents/Defendants

HEARD: October 11, 2011 at Sudbury

Endorsement

HARVISON YOUNG, J.; (PARDU, J. Concurring)

Introduction

[1] The appellant/plaintiff appeals from Caputo J.’s decision dismissing the plaintiff’s claim on a motion for summary judgment. The sole issue in that motion, and before this Court, was whether the action brought by the plaintiff was statute barred.

Background

[2] The appellant alleged that it had been verbally retained by the respondents/defendants to provide labour and materials to the respondents in relation to the construction of a movie set around June 15, 2004. It issued an invoice to the respondents dated July 8, 2004.

[3] The appellant issued a statement of claim on February 23, 2005. The respondents defended the claim and issued a third party claim. This action was dismissed administratively for delay on August 22, 2005.

[4] On July 28, 2006 the appellant issued a second statement of claim relating to the same subject matter. Once again, the respondents filed a statement of defence and commenced a third party claim. They also brought a motion for summary judgment claiming, inter alia, that the action was statute barred and should therefore be dismissed.

The Decision Appealed From

[5] In granting the motion, the motions judge held that the limitation period had started running on the date that the invoice was rendered (July 8, 2004). He articulated the issue as follows:

The issue is whether the limitation period commenced running on the date the invoice was rendered on July 8, 2004 or whether it commenced when the defendants notified the plaintiff of its refusal to pay on October 24, 2004. (para. 15)

[6] The motions judge further noted that the motion raised the issue of whether the principle of discoverability applies to a claim for a debt such as this. He found that s. 5(3) of the Limitations Act, 2002., c. 24, Schedule B is the section applicable to demand obligations:

S. 5(3) …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.

[7] The motions judge held that the demand for payment was made when the invoice was rendered on July 8, 2004. He also held that the Ontario Court of Appeal had addressed the issue of whether such a claim arises when the demand or note is made, or whether the claim arises when the defendants refuse to pay: Hare v Hare, 2006 ONCA, [2006] O.J. No. 4955, holding that “a demand note matures for all purposes as soon as it is delivered”; see Reasons, para. 24.

Law and Analysis

[8] The appellant submitted that s. 5(3) should not be applied to the facts in this case as this was not a promissory note as was the case in Hare v Hare. Rather, he argued, time should not start to run until the plaintiff learned of the refusal to pay around October 24, 2004.

[9] In our view, this argument fails for a number of reasons.

[10] First of all, the law is clear that s. 5(3) applies to demand obligations: see Hare v. Hare. Time starts to run from the time that the demand is made, and the discoverability principle has no application. The new Limitations Act does not change the former law (Limitations Act, R.S.O. 1990, c. L.15) with respect to limitation periods applicable to demand obligations.

[11] Second, s. 5(3) precludes the application of the discoverability principle as far as demand obligations are concerned.

[12] The motions judge clearly treated the respondents’ obligation as a demand obligation. There was no suggestion before us that he committed any error in this respect. Whether payment was due on demand or, for example, within 30 days, is a matter of interpretation of the particular contract. Assuming, as the motions judge’s reasons imply, that the account was payable on demand, then this was a “demand obligation” and he was clearly correct to apply s. 5(3), and not the discoverability provisions of s. 5(1) and s. 5(2) of the Limitations Act. There does not appear to have been any evidence before the motions judge that the invoice in the circumstances of this case was not payable on demand or, in other words, a demand obligation. In addition, the appellant did not submit that the trial judge erred in treating the invoice as an obligation that was payable upon demand.

[13] The appellant based its argument on the general proposition that it is not reasonable to start the clock running before the plaintiff knows whether the defendant will pay or not.

[14] This argument is fully addressed by the majority decision in Hare v Hare. The legislation chooses not to apply the discoverability principle, which generally applies to limitation periods, to demand obligations. The policy reason for this is clear. If a defendant debtor must advise of its refusal to pay before the limitation period begins to run, and no such refusal is made, liability would exist indefinitely: see Hare v Hare, para 41.

[15] The appellant also submitted that Hare v. Hare does not apply to the present case, as that case concerned a promissory note. We disagree. The wording of s. 5(3) of the Limitations Act refers to “demand obligation”. While, as the Court of Appeal in Hare v Hare clearly accepted, a promissory note is a demand obligation, there are many demand obligations that are not promissory notes, and an invoice that is payable on demand pursuant to the contractual terms governing the parties is one of those.

[16] During argument, there was some suggestion that the period should not run from the time the demand is made, but rather from some short time thereafter when it is reasonable for the plaintiff to realize that payment is not immediately forthcoming. This argument is based on the discoverability principle, which, according to s. 5(3) as interpreted by the Court of Appeal in Hare v Hare, does not apply to demand obligations. Accordingly, if the motions judge correctly characterized the invoice as a “demand obligation”, as discussed above, s. 5(3) applies and there is no scope for the operation of the discoverability principle.

[17] For the foregoing reasons, we are unable to conclude that the motions judge erred in concluding that s. 5(3) of the Limitations Act applied, that the time had started to run as of July 8, 2004, and that the claim was therefore statute barred. Accordingly, the appeal is dismissed.

[18] If the parties are unable to agree as to costs, they may make brief written submissions within 30 days.

Harvison Young J.

I agree:

_______________________________

Pardu J.

Date: December 13, 2011

MATLOW, J.; (Dissenting)

[19] With respect, I am unable to agree with the disposition of the majority. I would allow the appeal, and set aside the order in appeal and dismiss the motion for summary judgment. I would also invite the parties to make submissions with respect to costs.

[20] In my view, the appellant’s action was not statute barred when the statement of claim was issued. The motions judge erred in applying the law that would apply if the respondents’ obligation to pay the plaintiff for the labour and material provided was a demand obligation and he erred in the application of that law. In the alternative, if his reasons do contain a finding that the obligation was a demand obligation, that finding constitutes palpable and overriding error.

[21] The motions judge did not explicitly find that the monies payable by the defendant pursuant to the parties’ oral agreement were payable on demand but proceeded, without explanation, on the basis that this was what the parties’ agreement provided. There was, however, no evidence whatsoever that the parties had agreed that the respondents’ obligation to pay would be a demand obligation rather one payable, for example, within thirty days.

[22] Nor would it have been open to the motions judge, even if he had found that the appellant had inserted such a term in the invoice, to find that the appellant could unilaterally insert such a term into the parties’ agreement retroactively. That invoice, rendered on July 8, 2004 was apparently not placed in evidence before the motions judge and does not appear in the record before this court.

[23] As well, it is significant that the parties’ agreement did not include a fixed price for the labour and material to be provided. It follows that the price would be determined on a quantum meruit basis that would require the appellant to determine a fair price and notify the respondents of the amount by rendering an invoice to them. The respondents could then pay the amount proposed by the appellant or dispute it. It is clear, however, that they could not be expected to do either until they actually received an invoice or some other form of notification from the appellant. It also follows that the respondents would be entitled to a reasonable period of time within which to pay if that is what they chose to do. This analysis demonstrates that it would be wrong to conclude that the respondents’ obligation was a demand obligation that had to be satisfied immediately after the invoice was rendered.

[24] Although the motions judge decided that the limitation period commenced on July 8, 2004 when the invoice was “rendered”, he did not explain what rendering required. In particular, he did not explain whether the invoice was rendered at the moment it was sent to the respondents, perhaps by mail, or whether it was rendered only when it was delivered to the respondents. With respect, it would have made no sense to conclude that the mere insertion of a stamped envelope containing the invoice addressed to the respondents would, without more, be sufficient to trigger the commencement of the limitation and ultimately deprive the appellant the right to litigate its claim.

[25] In his submissions, counsel for the appellant submitted that this action was not statute barred because the applicable limitation period did not commence until sometime after October 24, 2004 when the respondents refused to pay the amount set out in the invoice. Counsel for the respondents, on the other hand, submitted that the limitation period commenced on July 8, 2004 when the invoice was rendered.

[26] In his reasons the motions judge stated that the issue he had to decide was on which of these two dates the limitation period commenced. He did not consider any other possible date.

[27] However, when I suggested to counsel for the appellant during the course of his oral submissions that there was a third alternative, namely, one month after July 8, 2004, counsel for the appellant quickly adopted that suggestion. Counsel for the respondents, not surprisingly, did not.

[28] This suggestion was made by me on the hypothesis that I would reject, in accordance with the motions judge’s reasons, that the monies owing by the respondents were payable on demand and called into question the meaning of the words set out in section 5(3) of the Limitations Act, 2002 which effectively make the starting point for the commencement of the limitation period in cases involving demand obligations.

[29] It was, and still is, my view that “a demand for performance” is made only after the demand is communicated to the person sought to be held liable or, if made in writing, is made and sent in a reasonable manner and no performance or acknowledgment of receipt is made within a reasonable period of time.

[30] In the circumstances of the case at bar, it is my view that, even if section 5(3) of the Act were applicable, the motions judge ought to have interpreted “a demand for performance” reasonably as suggested in paragraph 29, above, and that his failure to do so was an error of law.

[31] The judgment of the Court of Appeal in Hare v Hare, referred to by Justice Harvison Young in paragraphs 14 and 15, above, dealt with the rules governing demand obligations under the former Limitations Act, R.S.O. 1990, c. L.15 and the transition provisions set out in the new Act which required that those rules govern the demand obligation in issue. The rules governing demand obligations were changed substantially in the new Act and it is those rules that would be applicable in the case at bar. Of most significance, the rules under the former Act required that the commencement of a limitation period in relation to a demand loan be determined by reference to the date when the loan was made whereas the rules under the new Act provide that it be determined by reference to the date of default following a demand. Accordingly, it is my view that the judgment in Hare v Hare has no application to the case at bar and should not be followed.

_______________________________

Matlow J.

Date: December 13, 2011