Promissory notes record all kinds of loans, from family loans to shareholder advances. When the money is not repaid, a clear note can make the claim straightforward, while a vague note, or one left too long, can make it hard. Here is how enforcement works in Ontario, and what a borrower can raise in response.
What counts as a promissory note
Under the federal Bills of Exchange Act, a promissory note is, in essence, a signed, unconditional written promise to pay a fixed amount of money on demand or at a set time. In practice:
- Written and signed by the borrower. Witnesses help but are not required.
- Unconditional. “I will pay you on June 1” qualifies. “I will pay you when my house sells” generally does not.
- A fixed amount, with any interest stated.
- A time for payment: on demand, on a set date, or by instalments.
A document that misses part of this definition can still be evidence of a loan agreement, enforceable on ordinary contract principles.
Demand notes, fixed-date notes and the limitation period
Most Ontario claims must be started within two years of discovery. The type of note decides when that clock starts.
- Fixed-date notes. The claim generally arises when payment was due and not made.
- Instalment notes. Each missed payment can have its own date, and an acceleration clause (letting the lender call in the whole balance after a default) can affect the timing.
- Demand notes. A note payable on demand, or giving no time for payment, is a demand note. Under the Limitations Act, 2002, the period on most demand obligations starts on the first day there is a failure to pay once a demand is made.
Do not treat this as a reason to wait: whether a note is a true demand note can be disputed. A written acknowledgment or part payment can also restart a running period, as our guide on acknowledgments and the limitation period explains.
Interest
A note should state its interest rate clearly, as a yearly rate. Under the federal Interest Act, a rate expressed only for a shorter period (such as a monthly rate) without the yearly equivalent can sharply limit the interest a lender can recover.
The Criminal Code also sets a maximum, criminal rate of interest, with fees and other charges counted as interest. A court can refuse to enforce an illegal rate or reduce it.
Defences borrowers raise
- No consideration, or it was a gift. Between the original lender and borrower, a note given for nothing may not be enforceable. The Act presumes the signer received value, so the borrower must prove otherwise, and a note recording money already lent is valid because an existing debt counts as value.
- Forgery or alteration. A forged signature has no effect, and a note materially changed after signing without the borrower’s agreement is generally void against them.
- It was paid, in whole or in part.
- Set-off of money the lender owes the borrower.
- Unconscionability or duress. Grossly unfair terms taken from someone in a weak bargaining position, or a signature obtained by improper threats.
- Non est factum (“it is not my deed”). A rare defence for someone who, without carelessness, did not understand what kind of document they signed.
- Illegality, such as interest at a criminal rate.
If the note has been transferred to someone who took it in good faith and for value, some of these defences may not be available against that person.
Suing on the note
- A written demand, setting out the principal, interest to date and a reasonable deadline. For a demand note, it also starts the clock.
- The right court. Small Claims Court hears smaller money claims, up to a limit set by regulation. Larger claims go to the Superior Court of Justice, where a simplified procedure applies to claims up to a set amount, not counting interest and costs.
- An efficient route to judgment. If the borrower does not defend, the lender can generally seek default judgment. If the borrower has no real answer to a clear note, the Superior Court can grant summary judgment where there is no genuine issue requiring a trial.
Guarantees and security
A guarantee (“I will pay if the borrower does not”) is a separate promise, and Ontario’s Statute of Frauds requires it to be in writing and signed by the guarantor. Disputes usually turn on its wording and on whether a proper demand was made.
If the note is secured, for example by a mortgage on land or a security agreement over business assets, enforcing the security has its own procedures and notice requirements, and a different limitation statute may apply to some claims.
After judgment
If a judgment is not paid, the main tools are garnishment of wages and bank accounts and a writ of seizure and sale filed with the sheriff. Our guide on debtor asset searches explains how to check, before suing, whether a judgment could be collected.
If you are the borrower
Do not ignore a demand or a claim. Check the dates against the limitation rules and gather your payment records. If you cannot pay in full, a documented arrangement is often better than a default judgment, but a written acknowledgment or payment can restart the limitation period.