In Re Temple (2012, Ont SC), the applicant lent money to Temple (an individual) in 2005. The debt was due in 2006, and the last payment was made in November 2007. The applicant brought an application for a bankruptcy order in February 2011, more than two years after the debt was due. Temple raised a number of defences.
In this case, Temple contended that there was a novation of the loan obligation from him to Beach Triangle Townhomes Limited, a corporation owned by him.
In correspondence, Temple indicated that the loan would be repaid by Beach Triangle. The court held that in the absence of express agreement to have the liability transferred to Beach Triangle, the court should be loath to find novation unless the circumstances are really compelling. Thus, while the court may look at the surrounding circumstances, including the conduct of the parties, in order to determine whether a novation has occurred, the burden of establishing novation is not easily met.
There is a three-part test:
The debtor must assume complete liability
The creditor must accept the new debtor as principal debtor and not just as an agent or guarantor
The creditor must accept the new contract in full satisfaction and substitution for the old contract
The judge concluded that novation had not been established. Making the company liable on the loans would not of itself make the loans repayable only by the company. The evidence did not establish that the applicant accepted the liability of the company in full satisfaction and substitution of the obligation of Temple.
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