Court of Appeal for Ontario
Date: 2024-08-08 Docket: COA-22-CV-0445
Before: Roberts, Zarnett and Favreau JJ.A.
Between:
David O’Neill, in his capacity as Estate Trustee for the Estate of T.O., deceased, Applicant (Appellant/Respondent in Cross-Appeal)
And:
D.O., The Ridgeway Education Rec Centre Ltd. o/a Little Bright Starts Learning Centre (1241204 Ontario Corp. No.) and 2012023 Ontario Limited c/o Shareholder D.O., Respondents (Respondents/Appellants by Cross-Appeal)
Counsel: Tanya A. Pagliaroli and Vinayak Mishra, for the appellant Robert N. Kostyniuk, K.C., for the respondents
Heard: July 2, 2024
On appeal from the judgment of Justice Clayton Conlan of the Superior Court of Justice, dated October 17, 2022, with reasons reported at 2022 ONSC 5896.
Zarnett J.A.:
A. Overview
[1] Following the breakdown of the marriage between D.O. (the “wife”) and T.O. (the “husband”), litigation was commenced to resolve a host of issues including divorce, spousal support, parenting, child support, whether certain financial advances were loans or gifts, and if they were loans, who was liable to repay them. The trial judge’s decision on most issues is unchallenged. This appeal, initiated by the husband and continued by his Estate, and the wife’s cross-appeal relate to three discrete aspects of the trial judge’s decision.
[2] The Estate’s appeal challenges the trial judge’s determination that while the corporate respondent The Ridgeway Education Rec Centre Ltd. o/a Little Bright Starts Learning Centre (“Ridgeway”) [^1] – a corporation indirectly owned by the wife – owed the husband $341,000 respecting money he advanced to Ridgeway in 2013, the husband’s claim for repayment of that amount should be dismissed due to the expiry of the applicable limitation period.
[3] The wife’s cross-appeal concerns two issues: (i) the trial judge’s determination that she was liable to repay the husband $40,346 representing money advanced in 2012 by a corporation owned by the husband; and (ii) the calculation of child support owing by the husband to the wife.
[4] For the reasons that follow, I would allow the appeal as against Ridgeway. I conclude that the trial judge erred in not treating the amount owing by Ridgeway as a demand obligation, the limitation period for which does not commence to run until there has been a demand for performance of that obligation. As the date of demand was within two years of the commencement of the litigation against Ridgeway, the claim for repayment from Ridgeway was not statute barred. No basis was suggested on which the other corporate respondent, 201, the sole shareholder of Ridgeway, would be liable for advances to Ridgeway. I would therefore uphold the dismissal of the claim against it and the wife, against whom the claim at trial was abandoned.
[5] As I also explain below, I would allow both aspects of the cross-appeal. I conclude that the trial judge erred in holding the wife liable to the husband for money advanced by a company that was not a party to the litigation. Any debt arising from that advance was not owing to the husband. The trial judge also made a calculation error with respect to child support (an error that is conceded by the Estate).
B. The Appeal
(1) Background and Context
[6] For the purposes of the sole issue on the appeal, it is only necessary to briefly outline the facts.
[7] Ridgeway operates a daycare business. In 2012, a corporation owned by the husband advanced $40,346 to assist the daycare business (the “2012 advance”). During 2013, the husband advanced, in three tranches, a total of $341,000 to Ridgeway (the “2013 advances”). [^2] The advances were not repaid.
[8] The husband commenced an application on July 18, 2019, naming only the wife as the respondent. He sought, among other relief, payment by the wife of the 2012 advance and the 2013 advances.
[9] In December 2020, the husband sent a letter demanding repayment by the wife and 201. On January 28, 2021, the application was amended to add Ridgeway and 201 as respondents, and to claim repayment of the 2012 advance and the 2013 advances from them as well as from the wife.
[10] In the Amended Answer, among other defences, it was alleged that the advances were gifts. The Amended Answer also stated: “The Respondent pleads and relies upon the provisions of the Limitations Act.”
[11] At trial, the husband abandoned the claim that the wife was liable for repayment of the 2013 advances; he indicated he sought repayment of them only from Ridgeway and 201. [^3]
[12] The husband testified that the advances were loans, payable on demand, although he acknowledged that the wife had not signed anything personally or on behalf of her daycare business acknowledging a debt to him for these advances.
[13] The wife, conversely, testified that the 2013 advances were gifts, and there was never a discussion about them being loans.
[14] The parties also called third party witnesses who gave evidence of the way the parties had referred to or treated money advanced for Ridgeway’s daycare business during relationship counselling, in various meetings, and on financial statements.
[15] One of those witnesses, John Franchi, was a relationship counsellor who testified that he had met with the husband and wife in 2016. He then prepared a letter that referred to a debt owed by the wife’s business to the husband. [^4]
[16] A second witness, Don Levy, the husband’s financial advisor, met with the parties in 2018, and prepared a report referring to an amount of $400,000 [^5] owing by the wife’s business to the husband. He testified that this was based on the discussions at the meeting, and that the wife had made no objection to the reference.
[17] A third witness, John Carusi, was Ridgeway’s auditor. He testified that Ridgeway’s 2014 financial statements showed a debt payable by Ridgeway to the wife in the sum of $397,479, as well as one payable by Ridgeway to a corporation related to the husband in the sum of $40,346.
[18] Ridgeway’s financial statements for 2019 and 2020 were also in evidence. The 2019 statements showed the debt to the wife as $349,630. The 2020 statements showed the debt to the wife as $302,272. The $40,346 amount was no longer shown.
(2) The Trial Judge’s Basis for Rejecting the Claim for Repayment of the 2013 Advances
[19] The trial judge found the wife liable to the husband for the 2012 advance. As that finding is in issue on the cross-appeal, I discuss it in that section of these reasons.
[20] As for the 2013 advances, the trial judge concluded that the amounts advanced by the husband to Ridgeway were loans, not gifts. He noted that this conclusion was “supported fully by the evidence of both Mr. Franchi [the parties’ relationship counsellor] and Mr. Levy [the husband’s financial advisor], the only two third party witnesses whose evidence [was] directly on point.” He added that Mr. Carusi’s evidence was “not inconsistent” with this conclusion, because:
[I]t confirms a loan totalling about $397,000.00. Although Mr. Carusi’s documentation shows that amount as being due to the wife personally from her own company, we know that to be false because it is common ground that she never paid the advances. The money came from the husband, we know that from all of the evidence at trial including the wife’s own testimony.
[21] Ridgeway does not challenge, in this court, the determination that the 2013 advances were loans, not gifts.
[22] The trial judge did not make an express finding as to the terms of repayment of the 2013 advances. He dismissed the husband’s claim for their repayment on the basis that it was statute barred. He said, at paras. 121-123 of his reasons:
The problem for the husband, however, is that, in the absence of a trust claim by the husband over the daycare business, the husband is saddled with the two-year limitation period under the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B, as amended. And that limitation period had clearly expired well before the claim with respect to the loans was made.
The Amended Application, dealing for the first time with the loans, was made in January 2021. This Court’s most generous treatment of the start of the limitation period would be as of the date of separation put forward by the husband, soon after the family trip to Mexico in May 2018. Two years from then expired well before January 2021.
[The husband’s counsel’s] submission that the Court should treat the start of the limitation period as being the date that the husband’s original Application was issued, July 2019, with respect, makes no sense. The debts accrued way back in 2013. Certainly, at the very latest, the husband knew when he was thrown out of the Oakville house in mid-2018, and the parties separated for good, that the money advanced by him was not going to be repaid without a lawsuit on his part. [Emphasis in original.]
(3) Analysis
i. The Parties’ Positions
[23] The Estate argues that the trial judge’s finding that the limitation period expired with respect to the claim for the 2013 advances is flawed for two reasons.
[24] First, it asserts that the trial judge failed to apply the correct provision of the Limitations Act. The trial judge proceeded on the basis that the two-year period began to run when the debt was incurred in 2013, or at the latest, upon marriage breakdown in 2018 when the husband should have known that an action would be required to obtain repayment. The Estate argues that the 2013 advances were demand loans. By virtue of s. 5(3) of the Limitations Act, the trial judge should have used the date of demand, as opposed to the dates he used, as the start of the two-year period for commencing an action. As any demand occurred within two years of the Amended Application, the claim was not statute barred.
[25] Second, the Estate argues that the trial judge should have treated Ridgeway’s financial statements, dated within two years of the commencement of the litigation, as an acknowledgment of liability for the 2013 advances that began the calculation of the two-year period afresh, by virtue of s. 13(1) of the Limitations Act.
[26] Ridgeway submits that neither argument should be entertained because they are new arguments raised for the first time on appeal. Ridgeway also submits that the trial judge did not find that the 2013 advances were demand loans.
ii. Discussion
[27] I agree with the Estate’s first argument, making it unnecessary to consider the second.
[28] The two-year period for commencement of an action runs from the date on which the claim is discovered: Limitations Act, s. 4. A component of the discovery of a claim is knowledge [^6] that “injury, loss or damage had occurred”: Limitations Act, s. 5(1)(a)(i). For a demand obligation, the “day on which the injury, loss or damage occurs … is the first day on which there is a failure to perform the obligation, once a demand for the performance is made”: Limitations Act, s. 5(3) (emphasis added).
[29] In other words, for a demand loan, “a demand is a condition precedent for the commencement of the limitation period”: Bank of Nova Scotia v. Williamson, 2009 ONCA 754, 97 O.R. (3d) 561, at paras. 18-19. The claim is not considered to be discovered when the loan is created. Section 5(3) of the Limitations Act “require[s] a demand before the limitation period can commence in the case of demand promissory notes and other debt instruments where, at common law, the debt is owed as soon as the moneys are advanced”: Bank of Nova Scotia, at note 1. Nor, in the absence of a demand, does the limitation period commence because it appears unlikely repayment without an action will occur: Skuy v. Greennough Harbour Corporation, 2012 ONSC 6998, 10 B.L.R. (5th) 146, at paras. 32-33.
[30] The only evidence of a demand for repayment was either the original application in July 2019 (albeit it was issued only against the wife), the letter demanding payment which was sent by the husband’s lawyer in December 2020 (albeit the demand was to the wife and 201), or the Amended Application itself (claiming payment from the wife, 201, and Ridgeway). Accordingly, if the 2013 advances are properly considered to be demand obligations, each demand was within two years of the Amended Application in January 2021 making the claim for repayment by Ridgeway.
[31] I do not accept Ridgeway’s argument that the Estate, in relying on s. 5(3) of the Limitations Act, is raising a new issue. The onus of raising a limitation period defence is on the defendant. The Amended Answer pled the Limitations Act in general terms. It was incumbent on the trial judge, as a matter of law, to apply the correct provision of the Act relating to when a claim is discovered and therefore when the limitation period commenced running.
[32] Nor is the Estate’s argument that the limitation period was incorrectly applied barred by the absence of a specific finding by the trial judge that the 2013 advances were payable on demand.
[33] This is not a case where the trial judge found there were terms of repayment other than on demand. The trial judge did not expressly find what the terms of repayment were. But since a creditor suffers a loss, injury, or damage in respect of a loan when it is not repaid in accordance with its terms, the trial judge was required to determine the terms of repayment in order to apply the limitation period.
[34] Ridgeway argues that it was open to the trial judge to treat the 2016 letter prepared by Mr. Franchi while assisting the husband and wife before the marriage breakdown as support for a finding that the 2013 advances were payable on marriage breakdown, rather than on demand.
[35] I do not accept this submission. The trial judge did not find that the debt created by the 2013 advances was payable on marriage breakdown, and Mr. Franchi did not testify to that effect. The trial judge referred to Mr. Franchi’s letter, and accepted his evidence, as support for the finding that the 2013 advances gave rise to indebtedness, as opposed to having been a gift, since the letter referred to them in that way. Although the letter set out a proposal for dealing with the debt by creating security (a lien) that would be enforceable on marriage breakdown, it did not suggest that the proposal mirrored the existing terms of repayment. The proposal was never accepted or acted upon – the lien was never created.
[36] This is an appropriate case to exercise the appellate power to make the decision about terms of repayment that the trial judge ought to have made: Courts of Justice Act, R.S.O. 1990, c. C.43, s. 134(1). The “guiding force” for the exercise of that power is the interests of justice: Dasham Carriers Inc. v. Gerlach, 2013 ONCA 707, 313 O.A.C. 95, at para. 36. The record is sufficient to determine that the 2013 advances were demand loans, and nothing would be served by sending the matter back for a further hearing on this issue.
[37] The husband, who has now passed away, gave evidence that the advances were demand loans. The wife did not give evidence that there were different terms of repayment. She testified that the 2013 advances were gifts – evidence that the trial judge rejected. The trial judge accepted that the reference in Ridgeway’s financial statements to loans payable to the wife in fact reflected the advances that were made by the husband, supporting the view that the husband’s advances were loans. Importantly, the financial statements referred to the loans as “due on demand”.
[38] In any event, even if the evidence did not establish a meeting of the minds about the terms of repayment, the legal result would still be that 2013 advances are treated as if the parties had agreed they were payable on demand. “Where no time is fixed for repayment of a loan, and no other terms are mentioned, the loan is repayable on demand”: Urbas v. Home Savings, 2015 ONSC 6399, at para. 51; Skuy, at para. 31.
[39] In the result, in light of the trial judge’s uncontested finding that the 2013 advances were loans to Ridgeway, the appropriate finding about their terms of repayment is that they were demand loans. This entails the conclusion that the trial judge erred in finding that the Amended Application was issued more than two years after discovery of the claim for repayment by Ridgeway of the 2013 advances.
C. The Cross Appeal
[40] The trial judge found the wife liable to repay, to the husband, the 2012 advance, in the amount of $40,346. Although the wife makes several arguments in support of her position that this conclusion was erroneous, I need only address one.
[41] The trial judge found that a corporation controlled by the husband, rather than the husband himself, had made the advance that gave rise to this debt. The husband’s corporation was not a party to the proceedings. There was no evidence that the original terms of this loan contemplated repayment to the husband as opposed to the corporation that made the advance, or that the husband’s corporation had ever assigned its rights to repayment to the husband.
[42] The trial judge’s only articulated basis for holding that the husband (rather than his corporation) could claim this amount was a statement in the evidence of Mr. Carusi, Ridgeway’s auditor, that in 2019 “he and his accounting firm were told by the wife that the husband’s company was no longer active and, thus, she would be paying the $40,346.00, once she receives that amount from her company, to the husband personally”. On the basis of this “admission”, the trial judge concluded that the sum “is owing to the husband’s company, and now it is owing to the husband personally.”
[43] In my view there was no legal basis to treat this statement as creating liability by the wife to the husband for this amount where none previously existed. There was no suggestion, nor any finding, that there was any consideration, flowing from the husband, to support what would essentially be a new contract replacing one creditor with another. There was no evidence that the husband’s corporation had released the wife from its ability to claim for the same debt. The “mere acknowledgement” of a debt, without consideration, “does not create a debt in the absence of a real underlying or pre-existing debt”: DeBathe et al v. T.A. Steadman Holdings Inc. et al, 2001 BCSC 1817, [2001] B.C.T.C. 1817, at para. 83; Noronha v. Siqueira, [1934] 2 W.W.R. 117 (P.C.), at pp. 120-21; Northern Ontario Acceptance Co. v. Beaver Hall Investments (Ontario) Ltd., [1967] 1 O.R. 305 (S.C.), at paras. 5-7.
[44] The trial judge erred in holding the wife liable to the husband for this amount.
[45] The wife also submits that the trial judge erred in calculating child support owing, and that the amount payable by the husband to her should include child support from June 1, 2018 to October 1, 2020, fixed in the sum of $910 per month.
[46] The Estate concedes that the trial judge made this error and that the cross-appeal should be allowed in this respect. I would accept the wife’s submission and the Estate’s concession.
D. Conclusion
[47] I would allow the appeal and vary the trial judgment to provide that Ridgeway shall pay the husband (now the Estate) the sum of $341,000. I would dismiss the appeal as against the wife and 201.
[48] I would allow the cross appeal. I would set aside the provision of the trial judgment that the wife shall pay the husband $40,346, and would vary the trial judgment so that the amount owing by the husband (now the Estate) to the wife for child support is increased in accordance with para. 45 hereof.
[49] If the parties are unable to agree on the costs of the appeal and cross-appeal, they may make written submissions, not exceeding five pages each, within ten days of the date of the release of these reasons.
Released: August 8, 2024 “L.B.R.” “B. Zarnett J.A.” “I agree. L.B. Roberts J.A.” “I agree. L. Favreau J.A.”
Footnotes
[^1]: The other corporate respondent, 2012023 Ontario Inc. (“201”), is the sole shareholder of Ridgeway. The wife is the sole shareholder of 201. [^2]: There had been an earlier advance of $175,000 which by trial had been forgiven. The 2012 advance was sometimes totalled with the 2013 advances in the trial judge’s reasons and in the evidence of certain witnesses. The only advances in issue on the appeal are the 2013 advances, the quantum of which is undisputed. [^3]: Because of the view I take of the liability for the 2012 advance, addressed in the cross-appeal, I need not address whether the husband also abandoned the claim for the 2012 advance as against the wife. [^4]: The amount of the debt referred to in the letter was $381,346, which appears to be the total of the 2013 advances and the $40,346 amount advanced in 2012. [^5]: $400,000 was an amount the husband had used in a promissory note that he had earlier proposed the wife sign. The Estate submitted that this was made up of the 2012 advance, the 2013 advances, and an amount for interest. [^6]: Either actual knowledge of the plaintiff or when a reasonable person with the abilities and in the circumstances of the plaintiff first ought to have known: Limitations Act, s. 5(1)(b).
