In 2148251 Ontario Inc. v. Catan Canada Inc., 2013 ONSC 4049, the Ontario Superior Court of Justice clarified when the limitation period for a promissory note starts to run. The Court held that the applicable limitation period will depend on whether the promissory note is classified as either a demand obligation or a contingent obligation. The difficulty with promissory notes is that they can be either a demand obligation or contingent obligation. If the promissory note is a true demand obligation then the limitation period will not begin to run until the demand for performance is made (pursuant to section 5(3) of the Limitations Act, 2002). Thus, a creditor is in the position of extending the limitation period by not making a demand, after which the limitation period will begin to run (see Bank of Nova Scotia v.
In Skuy v Greennough Harbour Corp., 2012 ONSC 6998 (“Skuy”), the Ontario Superior Court interpreted the demand obligation provisions contained in section 5(3) of the Limitations Act, 2002, SO 2002, s. 24, Sch. B (the “Act”) to promissory notes and guarantees.
Under section 5(3), the limitation period for a demand obligation begins to run following a default after a demand for payment.
Demand obligations can include promissory notes, demand mortgages and demand guarantees. A debt obligation expressly payable on demand is a demand obligation. Likewise a debt obligation that does not specify a date for repayment is also a demand obligation. Where a debt obligation is payable on a fixed date, it is not a demand obligation. This is so even if the debt obligation specifies that the lender must give notice or make a demand for payment before the debt obligation can be enforced.