2148251 Ontario Inc. v. Catan Canada Inc., 2013 ONSC 4049 (Applicable Limitation Period for Promissory Notes)

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.

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Skuy v Greennough Harbour Corp., 2012 ONSC 6998 (Section 5(3), Demand Obligations)

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.

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