Hey Executor – Not So Fast in Denying Claims after the Two-Year Limitation Period Expires

A recent bankruptcy decision in Ontario has potentially far-reaching ramifications on estate administration, estate litigation and everyday debt collection in the Ontario courts.   The decision in Re Temple 2012 ONSC 376, although surprising, appears to be well-reasoned.  If the decision is not appealed and is recognized as good law, it should become the leading Ontario case for debts and limitation periods.   Temple has re-established the fundamental, but often ignored, legal proposition that even though a limitation period has expired, the underlying debt remains and does not expire.  What has expired is the time in which to bring an action or application to collect the underlying debt.   While this may seem like just another legal nicety, the underlying principle is important for any creditor of an estate, whether it be the estate of a deceased person or the estate of a bankrupt.  Where there are assets in the estate, the person in charge of administration (be it estate trustee, executor, administrator, bankruptcy trustee or receiver) must always consider which debts to pay and which debts to deny.  Traditional thinking has been for trustees to deny debts that have not been sued upon within 2 years.  The logic is that the time has expired under the Limitations Act, S.O. 2002 c. 24.   Temple provides a new route for slow but aggressive creditors to pursue their claims against an estate. Instead of commencing an action or application, an out-of time creditor could petition the estate into bankruptcy.   The legal distinction remains between the right (the underlying debt) which remains alive forever and the remedy (the commencement of an action in anOntariocourt) which dies under the limitation period – generally speaking 2 years.   For estate trustees, who wish to deny debts on the basis that they are statute barred, the real risk now presents itself that creditors can never really be thought of as extinguished in Ontario, at least to the extent that bankruptcy proceedings may be commenced.  Of course, even bankruptcy petitions are not straight forward and they have their own issues.   It will be the rare case that a creditor will petition an estate into bankruptcy and there remain other tools available to trustees to deny claims such as s. 45 of the Estates Act RSO 1990 c. E. 21 (although it presents the same issue).  All that can be said for present is “Hey Executor – not so fast in denying claims after the 2-year limitation period expires.”