Time limitations and debts `payable on demand`

Issues to consider when you have an outstanding debt

When you contract with someone, and a debt becomes owing to you by the other party to that agreement, the Limitation of Actions legislation in Queensland provides that if the debt remains unpaid, you will generally have 6 years to bring an action against that person for breach of contract from the date that the debt arose. This type of legislation is commonly referred to by the general population as a ‘Statute of Limitations’.

Most of the time, it is clear when the debt arises. For example, an invoice issued by a person that specifies ‘Net 30’, this will generally mean that the sum per the invoice is payable in 30 days. Therefore, if the amount is not paid within that time, the debt will arise 30 days from the date the invoice was issued.

In some transactions however, such as personal loans between family members or friends, this may not always be clear. For example: 

A provides a loan of $50,000 to B.

A does not specify when the loan is required to be repaid. However, there is no question that it was the intention of the parties for the $50,000 to be a loan. 

Impliedly, the loan would be ‘payable upon demand’.

B does not make any repayments towards the loan from the date of receipt.

7 years after the sum of $50,000 was transferred to B, A makes a demand for the repayment of the loan in full.

Given the above, when did the debt arise?

Was the debt payable from the date the sum was transferred from A to B, or when A made the demand for repayment?

The date at which the debt arose will determine whether A is entitled to sue B for the outstanding balance.

When does the time limit start for debts payable on demand?

In the case of Ogilvie v Adams [1981] VR 1041., the plaintiff, as trustee of a bankrupt’s estate, sued the defendants, who were the executors and trustees of the will and estate of the bankrupt’s wife, for money lent by the bankrupt to his wife in April 1957.

His case was put as one where all of the terms of the loan were to be found in the one written instrument, which was in the following terms:

… I, Doris Melba Adams hereby acknowledge to have received from you the sum of 31,600 pounds being a loan to me repayable on demand. Dated this 29th day of April 1957. Signed D M Adams.

Demands for the repayment of the loan were made in July and October of 1972. These demands were admitted to have been received by the defendants who refused to make any payment on the grounds that the alleged debt was, and had been at all material times, barred by the Limitation of Actions Act 1958 (Vic). On this issue, his Honour, Justice Fullagar J, stated the following: 

The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor’s money, and thus whether the creditor brought an action of debt or an action in indebitatus assumpsit. Therefore if A lends money to B, then instantly B is detaining A’s money.

In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation. The courts have long since settled it that a mere statement or agreement that the money is repayable on demand (or request or at call) is not sufficient to contract out of that situation where all else that is known of the terms of the contract is that A has paid money to B by way of loan. 

The lender’s cause of action still arises instanter on the receipt of the money by the borrower, so that the lender’s cause of action becomes statute barred at the expiry of six years after the receipt of the money.

His Honour cited a line of authority, including most importantly, the unanimous decision of Young v Queensland Trustees Ltd (1956) 99 CLR 560, which provided that:

“A loan of money payable on request creates an immediate debt”.

Of course, whether or not the loan creates an immediate debt is a matter of construction of the relevant term; the judgment in Ogilvie leaves no doubt as to this.

For example, if a term provided that the debt was not payable until such time that the debtor was served with a written demand for payment, it could be argued that the debt arises from the date that the written notice is served.

Get advice or assistance with an outstanding debt

From the examples above, the key point to remember is that if you enter into an agreement, careful attention should be given to the terms of repayment. To attempt to avoid any such issues arising, we would suggest that a written agreement with clear and concise terms as to the sum loaned, the terms of repayment etc, is prepared.

If you need assistance or advice with respect to an outstanding debt, or if you wish to seek advice in relation to the preparation of a formal written agreement, call the experienced commercial or Litigation Law team at McCarthy Durie Lawyers on 07 3370 5100 or fill out the contact form here.