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Executors should move quickly on debts owed to deceased

A recent Ontario Court of Appeal decision is a reminder to executors to move quickly on debts owed to a deceased, Ottawa family law and estate lawyer Timothy N. Sullivan tells AdvocateDaily.com

In the case, a unanimous three-judge panel upheld a motion judge’s decision to summarily dismiss the estate’s claim on a secured $55,000 loan, after finding the estate trustee launched the action outside the two-year limitation period.

Sullivan, principal of SullivanLaw, says the deceased man did everything right in securing his loan with a promissory note payable either on demand or on the sale of a specified piece of property, whichever occurred first.

“My message to clients is always about doing things properly, and it seems like that’s what the deceased person did,” he says. “But then he didn’t act on it, and his beneficiaries have been left in the lurch.”

According to the appeal court decision, the case dates back to 2007, when the deceased loaned the man money, secured by the promissory note. A Superior Court judge found the two-year limitation period began to run in June 2013, when the creditor discovered his debtor had sold the property, which should have prompted repayment.

However, it wasn’t until July 2015, after the creditor died, that his estate trustee commenced the action to recover the money, just missing the deadline.

The executor claimed in court that the two-year limitation period should be extended under s. 7 of the Limitations Act, arguing the provision should be liberally construed due to the inability of a deceased person to commence a proceeding, the decision states.

Public policy reasons supported an extended limitation period in cases involving the appointment of an estate trustee to take over the management of a deceased person’s affairs, the executor argued, according to the appeal court decision. But the panel rejected the reasoning.

“We are not persuaded the motion judge erred by dismissing the claim as statute barred,” the decision states. “The grammatical and ordinary sense of the words of s. 7 are simply not elastic enough to apply to a deceased person and to construe an estate trustee to be a litigation guardian.”

Sullivan, who was not involved in the matter and comments generally, says there would have been no need for a claim had the deceased called in his debt as soon as he discovered the property had been sold, adding that, at the time of the loan, he may have considered registering a second or third mortgage on title that would have minimized the chance of it being sold without his knowledge.   

Still, he says the technical nature of the Limitations Act leaves little room for judges to interpret according to what they see as the equities of the case. And Sullivan says he could have seen the decision going the opposite way had it involved a more significant sum of money.

“I would say that $55,000 is not a huge debt to pursue on behalf of an estate. It’s going to cost at least $10,000 to $15,000 to run a trial on that amount, even based on a promissory note, which isn’t going to leave very much to be split among beneficiaries,” he explains. 

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