Promissory note in Canada: terms, interest and limitation

What the note must say

The parties, an unconditional promise to pay a certain sum, the time of payment — on demand or at a fixed or determinable future time — the place of payment, the date, and the maker's signature. Conditions attached to the promise take the document outside the statutory definition.

Add the repayment schedule, the interest rate, and an acceleration clause so that missing instalments makes the whole balance payable. Without acceleration, each instalment has to be pursued separately.

1. 1.Name the maker and the payee in full, with addresses.
2. 2.State the principal in words and figures.
3. 3.Choose demand or fixed-date repayment and set the schedule.
4. 4.Express interest as an annual rate, in accordance with the Interest Act.
5. 5.Include acceleration on default and any security taken.
6. 6.Have the maker sign and date it, and keep the original.

Interest: state an annual rate

Under the Interest Act, where a rate is expressed for a period shorter than a year without also stating the equivalent annual rate, no more than five per cent per year can be recovered. A note that says two per cent per month and nothing else can end up recovering five per cent per year.

Criminal interest rate rules also cap the effective annual rate, and the ceiling has been tightened in recent years. Set a rate that is both stated annually and comfortably below any cap.

Limitation and enforcement

Most provinces apply a two-year basic limitation period running from the day the claim is discovered. For a demand note, the clock generally starts when a demand is made and not honoured — but the rules differ by province, so waiting indefinitely is risky.

A written acknowledgment of the debt or a part payment restarts the period in most provinces. On default, the payee sues on the note; because the promise is unconditional, these claims are well suited to summary judgment.