Limitation Period for Enforcing a Personal Guarantee

The limitation period applicable to the enforcement of a demand personal guarantee does not commence until demand is made.

The case of Bank of Nova Scotia v. Williamson, 97 O.R. (3d) 561 (C.A.), provides clarification. 

In the Williamson case, an officer, director and shareholder gave his personal guarantee of a company’s debts to the bank up to a maximum of $350,000. The company defaulted on its loans and the bank wrote a demand letter to the company, with a copy to the guarantor, advising of the demand and stating that it would take steps to recover from the guarantor if the company failed to pay. The company was deemed bankrupt, and the bank was still owed over a million dollars by the company.

The bank then wrote to the guarantor a letter, which was two and half years after the date of the first letter, demanding payment under the guarantee. When the guarantor did not pay, the bank moved for summary judgment on the guarantee and was successful against the guarantor. The guarantor appealed, arguing that the two-year limitation period under the Limitations Act had expired.  

The Court of Appeal dismissed the guarantor’s appeal, holding that the applicable limitation period did not commence until demand was made under the guarantee, and rejected the guarantor’s argument that it should commence when the bank knew or ought to have known that the company was not going to pay as principal debtor. While the bank’s second letter to the guarantor constituted a demand under the guarantee, the first letter did not and was sent merely to advise the guarantor that the bank would look to the guarantor for payment if the company, as principal debtor, failed to pay.