In Matter of the Bankruptcy of Temple of the City of Toronto in the Province of Ontario [Indexed as: Temple (Re)]

109 O.R. (3d) 374
2012 ONSC 376

Ontario Superior Court of Justice

Newbould J.
January 27, 2012

Bankruptcy and insolvency -- Limitations -- Limitations Act not applying to bankruptcy application -- Fact that no suit has been brought on debt owing to applicant within two years of date of bankruptcy application not constituting defence to bankruptcy application based on that debt -- Debt not extinguished in Ontario if action on debt is not brought within two years of its being due -- Limitations Act, 2002, S.O. 2002, c. 24, Sch. B .

The applicant and his wife lent money to T in 2005. The debt was due in May 2006, and the last payment was made in November 2007. The applicant brought an application for a bankruptcy order in February 2011, more than two years after the debt was due. T took the position that the debt owing to the applicant was statute-barred and that it could not, therefore, support an application for a bankruptcy order.

Held, the application should be granted.

The Limitations Act, 2002 did not prevent a bankruptcy application. In Ontario, a debt is not extinguished if an action on the debt is not brought within two years of its being due. Rather, the debt continues to be owed and can be the basis on which a bankruptcy order can be made. Even if the debt owed by T to the applicant had to be one within the two-year prescription period contained in the Limitations Act, 2002, it was not statute-barred as there was an acknowledgement of the debt as required by s. 13 of the Act.

APPLICATION for a bankruptcy order.

Cases referred to
Tolofson v. Jensen, 1994 44 (SCC) , [1994] 3 S.C.R. 1022, [1994] S.C.J. No. 110, 120 D.L.R. (4th) 289, 175 N.R. 161, [1995] 1 W.W.R. 609, J.E. 95-61, 51 B.C.A.C. 241, 100 B.C.L.R. (2d) 1, 77 O.A.C. 81, 26 C.C.L.I. (2d) 1, 22 C.C.L.T. (2d) 173, 32 C.P.C. (3d) 141, 7 M.V.R. (3d) 202, 52 A.C.W.S. (3d) 40, consd
Tynte, Ex parte Tynte (Re) (1880), 15 Ch. D. 125 , not folld

Other cases referred to
Canada Trust Co. v. Lloyd, 1968 95 (SCC) , [1968] S.C.R. 300, [1968] S.C.J. No. 16, 66 D.L.R. (2d) 722, 63 W.W.R. 436;
Cherry v. Boultbee (1839), 4 My & Cr. 442, 41 E.R. 171 ;
Drabinsky v. KPMG, [1998] O.J. No. 4836, 10 C.B.R. (4th) 130 (Div. Ct.) , affg (1998), 41 O.R. (3d) 565, [1998] O.J. No. 4075, 45 B.L.R. (2d) 196, 82 A.C.W.S. (3d) 1186 (Gen. Div.) ;
National Trust Co. v. Mead, 1990 73 (SCC) , [1990] 2 S.C.R. 410, [1990] S.C.J. No. 76, 71 D.L.R. (4th) 488, 112 N.R. 1, [1990] 5 W.W.R. 459, J.E. 90-1177, 87 Sask. R. 161, 12 R.P.R. (2d) 165, 22 A.C.W.S. (3d) 578;
Olympia & York Developments Ltd. v. Royal Trust Co. (1993), 1993 8578 (ON CA) , 14 O.R. (3d) 1, [1993] O.J. No. 1510, 103 D.L.R. (4th) 129, 64 O.A.C. 324, 9 B.L.R. (2d) 221, 19 C.B.R. (3d) 1, 41 A.C.W.S. (3d) 318 (C.A.);
Paragon Development Corp. v. Sonka Properties Inc. (2011), 103 O.R. (3d) 481, [2011] O.J. No. 127, 2011 ONCA 30 , 79 B.L.R. (4th) 248, 63 E.T.R. (3d) 202, affg (2009), 2009 13627 (ON SC) , 96 O.R. (3d) 574, [2009] O.J. No. 1278, 59 B.L.R. (4th) 79 (S.C.J.) [page375]

Statutes referred to
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 121(1)
Limitation Act, R.S.B.C. 1996, c. 266, ss. 9 , 43(11)
Limitations Act, 2002, S.O. 2002, c. 24, Sch. B [as am.], ss. 1, 13, (1), (10), 23
Real Property Limitations Act, 1874, 37 & 38 Vict. c. 57

Authorities referred to
Houlden, L.W., G.B. Morawetz and Janis Sarra, Bankruptcy & Insolvency Law of Canada, 4th ed., revised, vol. 4 (Toronto: Carswell, 2009)
Mew, Graeme, The Law of Limitations, 2nd ed. (Markham, Ont.: LexisNexis Butterworths, 2004)

Calvin Ho, for applicant Robert Edgar Gore.
Robert A. Klotz, for respondent Kenneth Temple.

[1] NEWBOULD J.: -- For some 20 years, the applicant was the chartered accountant for Kenneth Temple and his partner Brian Nykoliation and their various corporations involved in the land development business.

[2] The applicant and his wife also lent money to them. In December 2005, Mr. Temple and Mr. Nykoliation signed a loan commitment for $425,000 in which the applicant and his wife were named as lenders. The commitment provided for interest at 10 per cent per annum with a maturity date for the loan of May 31, 2006. The money was to be used to develop properties and was raised by the applicant and his wife by borrowing the funds from their bank secured by a mortgage on their house. $215,000 was advanced to Ken Temple Contracting Limited and $210,000 was advanced to Mark Baker & Company, the solicitor for the borrowers who acted for them in their development work. Only $75,000 in principal was repaid on the loan, the last payment being made on November 30, 2007. On February 3, 2011, the date of the issuance of this application, the outstanding principal of $350,000 and accrued interest totalled $476,723.91.

[3] Mr. Paul Greenhalgh also lent money to Mr. Temple and Mr. Nykoliation. He advanced $250,000 in December 2005 and $500,000 in January 2006. Mr. Greenhalgh was also a client of Mr. Gore, and it was Mr. Gore who arranged for the loan with Mr. Temple. The terms for repayment were the same as the loan made by Mr. and Mrs. Gore. Other than interest from January 2006 to November 2007, nothing has been paid on the loan by Mr. Greenhalgh.

[4] Mr. Temple raises a number of defences. [page376] Novation

[5] Mr. Temple and his partner Mr. Nykoliation owned a number of properties through Beach Triangle Townhomes Limited, a company owned by them, including three properties on Broadview Avenue which were held by Mr. Temple and his wife personally in trust for Beach Triangle Townhomes Limited. It was that company that made payments on the loan to the applicant and his wife. On November 9, 2007, Beach Triangle Townhomes Limited wrote to Mr. Gore and his wife "to confirm that as of November 9, 2007, Beach Triangle Townhomes owes the sum of $350,000 to Bob and Mary Gore". In 2009, the three properties were transferred to another company owned by Mr. Temple and Mr. Nykoliation named Temple Arthur Developments Inc. On the financial statements for Temple Arthur Developments Inc. for the year ended December 31, 2008, prepared by Mr. Gore and signed nearly one year later on December 9, 2009, the outstanding loan of Mr. Gore and his wife, as well as the outstanding loan of Paul Greenhalgh to Mr. Temple and Mr. Nykoliation, were listed as obligations of Temple Arthur Developments Inc. While the financial statements for Beach Triangle Townhomes Limited for the year 2007 are not in evidence, it is likely that these outstanding loans were also listed on those financial statements as being obligations of that company.

[6] It is contended on behalf of Mr. Temple that there was a novation of the loan obligation from him and his partner Mr. Nykoliation to Temple Arthur Developments Inc. and, likely before that, to Beach Triangle Townhomes Limited.

[7] Whether novation has occurred is a question of fact. In the absence of express agreement, the court should be loath to find novation unless the circumstances are really compelling. Thus, while the court may look at the surrounding circumstances, including the conduct of the parties, in order to determine whether a novation has occurred, the burden of establishing novation is not easily met. There is a three-part test. First, the debtor must assume complete liability. Second, the creditor must accept the new debtor as principal debtor and not just as an agent or guarantor. Third, the creditor must accept the new contract in full satisfaction and substitution for the old contract. See National Trust Co. v. Mead, 1990 73 (SCC) , [1990] 2 S.C.R. 410, [1990] S.C.J. No. 76.

[8] The evidence of Mr. Temple, which was not really challenged, was that the debt to Mr. Gore and his wife, along with other loans made by individuals to Mr. Temple and Mr. Nykoliation, were transferred "administratively" onto the [page377] books of Temple Arthur Developments Inc. on the instructions of Mr. Temple. He testified that there was no formality involved and there was no assignment of the loans from Mr. Temple and Mr. Nykoliation to the company. He also testified that there was no discussion that the loans would no longer be owed by Mr. Temple and Mr. Nykoliation although he said in cross-examination that he could not recall discussing with Mr. Temple that the debt remained his personal obligation. Neither Mr. Temple nor Mr. Nykoliation testified.

[9] On June 9, 2008, Mr. Gore drafted up an agreement to be signed by Mr. Temple and Mr. Nykoliation personally that committed them to not further encumber the equity in the Broadview properties. The agreement was signed by Mr. Temple. It is significant that the agreement was not drawn to be signed by Beach Triangle Townhomes Limited, which at that stage was the beneficial owner of the properties.

[10] I do not think that novation has been established. There were presumably accounting or tax reasons for wanting the loans to be shown on the books of the company, but making the company liable on the loans would not of itself make the loans repayable only by the company. The evidence does not establish that Mr. and Mrs. Gore accepted the liability of the company in full satisfaction and substitution of the obligation of Mr. Temple and Mr. Nykoliation to them. As stated in National Trust Co. v. Mead, supra, in the absence of express agreement, a court should be loath to find novation unless the circumstances are really compelling. In my view, Mr. Temple has not met the onus of establishing novation.

Claim Statute-Barred

[11] The debt owing by Mr. Temple to the applicant was due on May 31, 2006 and the last payment of any kind was made in November 2007. The application for a bankruptcy order was issued on February 3, 2011, more than two years after the debt was due, and no action had been commenced to collect on the debt.

[12] It is contended by Mr. Klotz on behalf of Mr. Temple that the debt owing to the applicant is statute-barred and that it therefore cannot support an application for a bankruptcy order.

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