Promissory notes in Canada: the elements, the interest ceiling, and the deadlines that matter

What a promissory note is under Canadian law

A promissory note is a promise, not an order. That's the distinction the law draws: a bill of exchange (like a cheque) is one person ordering another to pay; a note is the maker promising to pay themselves. Because of that, Canada regulates notes federally through the Bills of Exchange Act (R.S.C. 1985, c. B-4), so the definition is the same from Victoria to St. John's.

Section 176(1) of the Act defines it: 'an unconditional promise in writing made by one person to another person, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer.' Every adjective in that sentence does work, and the six required elements below track it clause by clause.

Two structural points before the elements. First, a note payable to the maker's own order isn't a note at all until the maker endorses it (section 176(2)) — so don't draft notes that way. Second, a note is 'inchoate and incomplete until delivery thereof to the payee or bearer' (section 178): a signed note sitting in the borrower's drawer, never handed to the lender, creates no obligation. Delivery — actual handover of the signed instrument — is part of validity.

The six elements every Canadian promissory note needs

A note missing any of these is either unenforceable as a note or an invitation to litigation about what was meant:

• An unconditional promise to pay: the words 'I promise to pay' (or equivalent), not 'I intend to pay when I'm able' or 'I will pay if the business turns around.' A conditional promise isn't a promissory note — it may still be evidence of a debt, but it loses the note's legal machinery
• In writing and signed by the maker: the borrower signs. An unsigned document is a draft, not a note. Electronic signatures are generally acceptable in the provinces, but a wet-ink original is still the gold standard for instruments you may one day file in court
• A sum certain in money: an exact figure — '$12,000.00' — not 'about twelve grand' and not a formula whose inputs the parties might dispute. If interest accrues, state the rate and how it's calculated; see the Interest Act rules below
• Payable on demand or at a fixed or determinable future time: either a demand note ('payable on demand') or a term note with a date or schedule anyone can read off the page — 'December 31, 2027,' or '$500 on the first of each month, commencing November 1, 2026, until paid'
• A named payee: payable 'to [lender's full legal name], or to their order, or to bearer.' Use legal names as they appear on ID — nicknames and trade names without the legal entity create identity disputes
• Delivery: the signed note actually handed (or mailed/emailed with acknowledgment) to the lender. And where two or more people sign as makers, they are liable jointly or jointly and severally according to the note's wording — 'I promise to pay' signed by two people makes each of them liable for the whole amount (section 179)

One more thing the six elements imply: consideration. A note given for money actually advanced is solid. A note signed as a favour with no loan behind it can be attacked as lacking consideration — so record the advance (a dated transfer, a receipt) alongside the note.

Demand notes vs. term notes: pick the structure on purpose

Demand notes dominate informal Canadian lending — the parent helping with a down payment, the friend bridging a gap. They have no fixed due date: the lender can call the loan at any time. That flexibility is the appeal, and it's also the trap.

The trap is the limitation clock. A demand obligation doesn't 'default' until demand is made — and in Quebec, prescription on a demand obligation generally runs from the advance of the funds, not from the date anyone demands payment. A demand note left to gather dust for years can quietly become unenforceable in Quebec even though the lender never called it in. In the common-law provinces, the claim is usually treated as discovered when demand is made and refused — but 'usually' is doing a lot of work in that sentence, and the exact analysis depends on the province and the note's wording.

Term notes avoid all of this: a fixed maturity date gives everyone a clean default trigger and a clean limitation start. For loans intended to last more than a year, prefer a term structure — or at minimum, a demand note with a long-stop date ('payable on demand, and in any event no later than December 31, 2029'). Instalment schedules belong in term notes: amount, frequency, start date, and what happens on a missed payment (acceleration or not).

Interest: the 35% APR ceiling, the Interest Act, and Quebec

Canadian interest law has three layers, and a promissory note has to satisfy all of them:

• The criminal ceiling — 35% APR: since January 1, 2025, section 347 of the Criminal Code makes it an offence to enter into an agreement, or to receive payment, at a criminal rate of interest — now 35% annual percentage rate, down from the old 60% effective annual rate. 'Interest' is defined broadly: fees, penalties, commissions, and charges tied to the credit all count toward the rate. For ordinary personal and family loans, staying well under 35% APR keeps you safely clear of the offence. The main exemptions are commercial: loans over $500,000 to a non-person borrower for business purposes have no cap, and commercial loans between $10,000 and $500,000 are capped at 48% APR
• The Interest Act — state your annual rate: section 4 of the federal Interest Act requires that any rate stated per day, week, or month be accompanied by an express statement of the equivalent yearly rate; without it, no more than 5% per annum is recoverable, and any excess paid can be recovered back (section 5). If no rate is fixed at all, section 3 defaults to 5% per annum. So a note charging '1.5% per month' must state the equivalent annual rate or it collapses to 5%
• Quebec — the legal rate and the mise en demeure: under article 1617 of the Civil Code of Québec, delay damages on a money obligation are interest at the agreed rate or, absent agreement, at the legal rate. And because a debtor is formally in default on receiving a written demand (the mise en demeure), interest commonly runs from that notice — another reason to send a dated demand before suing

Practical drafting rule: state interest as a single annual rate ('8% per annum, calculated and payable monthly'), name whether it compounds, and state whether interest accrues after default. A note that says only 'interest at 1% per month' fails the Interest Act and becomes a 5% note the moment a judge reads it.

Secured vs. unsecured notes

An unsecured note is a pure promise: enforceable, but if the borrower can't pay, the lender stands in line with every other unsecured creditor. For family loans that's often the reality — but for larger amounts, security changes the economics of default.

A secured note pledges collateral — a vehicle, equipment, a deposit — and section 176(3) of the Bills of Exchange Act confirms that adding a collateral pledge doesn't invalidate the note. To make the security bite, the note should describe the collateral precisely, state what happens on default (repossession, sale, application of proceeds), and the security should be registered under the province's personal property security regime (the PPSA in the common-law provinces, the Register of personal and movable real rights — RDPRM — in Quebec). An unregistered pledge against a debtor who also owes a bank is worth much less than lenders assume.

Consideration on default mechanics: an acceleration clause (the whole balance becomes due on a missed payment) belongs in term notes and must be express — courts don't imply it. Decide in the note whether the lender must give notice before accelerating, and whether partial payments apply to interest first or principal first.

Limitation periods: the province-by-province table

The clock for suing on an unpaid note is provincial, and the spread is wide. The basic periods, verified against current sources:

• 2 years: Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick — generally running from discovery of the claim (usually the missed payment or default), with longer ultimate limitation periods in several provinces
• 3 years: Quebec — civil prescription under the Civil Code; note the demand-obligation nuance above, where prescription can run from the advance of funds rather than the demand
• 6 years: Newfoundland and Labrador, Prince Edward Island, and the three territories (Yukon, Northwest Territories, Nunavut)

Two clock-restart traps. First, a partial payment or a signed written acknowledgment of the debt generally restarts the limitation period in the common-law provinces (in Quebec, acknowledgment or a court claim interrupts prescription) — collectors know this, and borrowers confirming old debts in writing sometimes revive claims they thought were dead. Second, the limitation period is a defence the debtor must raise: a creditor can still sue on a stale debt, and if nobody pleads the limitation defence, judgment can still follow. Lenders: diarize the deadline the day the note defaults. Borrowers: get advice before paying or acknowledging anything old.

Quebec notes: the civil-law overlays

A promissory note in Quebec is still governed by the federal Bills of Exchange Act for what makes it a note — the six elements don't change at the provincial border. But three Quebec overlays matter:

First, prescription is three years, and as noted, runs from the advance of funds for demand obligations — the longest a lender should ever wait without either demanding payment or getting a written acknowledgment. Second, delay interest: article 1617 CCQ gives interest at the agreed rate, or the legal rate if none was agreed, running from the debtor's default — which a written mise en demeure establishes cleanly. Third, language and registration: write the note in French (or bilingual) when the borrower is francophone, and register any movable security in the RDPRM rather than a PPSA system Quebec doesn't have. Enforcement of a Quebec note under $15,000 goes to the Small Claims Division of the Court of Québec, where parties represent themselves without lawyers.

Mistakes that sink Canadian promissory notes

Weak notes fail on basics, and each of these shows up in real disputes:

• Conditional language — 'payable when the borrower is able' or 'if the project succeeds' destroys the unconditional promise and the note with it
• No signature, or the wrong person signed — only the maker is bound; a spouse who didn't sign generally isn't, whatever the lender assumed
• Sum uncertain — 'the balance owing' with no figure, or interest described only as 'a fair rate'
• Interest stated monthly with no annual equivalent — the Interest Act caps it at 5% per annum, and the excess is recoverable by the borrower
• Rate above the criminal ceiling — anything over 35% APR on a personal loan since January 1, 2025 risks the section 347 offence, not just unenforceability
• Never delivered — the signed note stayed in the borrower's files, so section 178 leaves it inchoate
• No date or governing law — when the limitation clock started and which province's rules apply become arguments instead of facts
• No default mechanics — a term note with instalments but no acceleration clause, no notice requirement, and no application-of-payments rule turns every missed payment into a fresh negotiation

If they don't pay: the enforcement path

Enforcement is a sequence, and skipping steps costs money. First, the demand letter: reference the note by date and amount, state the balance with your interest calculation, and give a specific calendar-date deadline (10–14 days from delivery is the Canadian norm), sent by registered mail or another provable method. Most personal-loan disputes settle here — the note plus a dated demand is a combination most borrowers' advisers tell them not to fight.

If the deadline passes in silence, file in small claims: Ontario's Small Claims Court handles claims up to $50,000 (limit raised October 1, 2025); Alberta's Court of Justice civil division goes to $100,000; British Columbia routes claims up to $5,000 through the online Civil Resolution Tribunal and $5,001–$35,000 through Small Claims Court; Quebec's Small Claims Division hears claims up to $15,000. Bring the signed original note, proof of delivery, a payment ledger showing every advance and repayment, and your interest calculation with the annual rate stated.

And the timing rule that governs everything: limitation periods keep running while you negotiate. Send the demand early, and diarize the filing deadline the day you mail it — a perfect note filed a day late is worth nothing.