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Given the ongoing pandemic, many purchasers are unable to pay their vendors for products they received. Many vendors have tried their best to accommodate these purchasers by delaying payment dates or entering into payment plans with these purchasers. But what happens if the purchaser never pays? How much time does the vendor have to sue the purchaser for non-payment?
In Ontario, the answer to this question is governed by the Limitations Act, 2002 (the “Act”). While the Act is complex, the basic principles are as follows:
- In general, the vendor will have two years to sue the purchaser from the date of non-payment.
- The date of non-payment begins from the date that the vendor demands payment from the purchaser. For example, if the vendor issues an invoice which provides for a 30 day payment period, the date of non-payment begins after the 30 day period expires (i.e., day 31).
- There are exceptions to this rule. One of the exceptions is that if a purchaser acknowledges the debt in writing and signs the document acknowledging the debt, then the two year limitation period begins to run on the date that the purchaser acknowledged the debt. To use the example above, if the purchaser acknowledged the debt in writing on day 60 after receiving the vendor’s invoice, then the two year limitation period starts to run on day 61 from the date the invoice was delivered.
- In order for the vendor to rely upon this exception, the purchaser must acknowledge the debt in writing and sign the document. If this purchaser does not do this, the two year limitation period will not be extended.
Sometimes, a purchaser will acknowledge the debt in an email to the vendor or in an oral discussion. This, alone, will not extend the limitation period. The acknowledgment must be in writing and signed by the purchaser. Although a vendor may be able to rely upon the doctrine of estoppel (previously discussed in my blog “Litigation Law Newsletter, Volume 1, Number 5: Estoppel”) to extend the limitation period when the purchaser’s acknowledgement is not in writing or signed by the purchaser, the doctrine of estoppel should never be relied upon as a first defence. Therefore, if you are a vendor and owed money from a purchaser, always ensure to have the purchaser acknowledge the debt in writing and have it signed if you’re inclined to delay the purchaser’s payment obligations.
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