Promissory Note Enforcement in Canada: What Happens After Default

If a promissory note is unpaid, the holder may demand payment, sue, or enforce judgment.

By Promissory.ca Editorial Team Reviewed against official Canadian sources Last updated: 2026-09-16

A promissory note is a written, signed, unconditional promise to pay a sum certain in money. Under the Bills of Exchange Act, Part IV, the note itself can be a powerful piece of evidence. But enforcement is not automatic. It usually begins with a demand, then moves through negotiation or a court claim if the borrower does not pay.

What Makes a Promissory Note Enforceable?

To rely on promissory note enforcement, the holder generally needs to show that the note meets the legal definition and that it was signed by the maker. The note should identify the amount, the parties, the payment terms, and whether interest applies. A demand note is payable when the holder asks for payment. An instalment note is payable according to a schedule.

Oral promises can be relevant in some disputes, but a written note is much easier to prove. If the note is secured by collateral, the security documents matter as much as the note itself. If it is unsecured, the holder is generally an unsecured creditor in an insolvency.

How Promissory Note Enforcement Works in Canada

Promissory note enforcement in Canada is mainly a provincial matter because civil claims and most limitation periods are provincial. The federal Bills of Exchange Act defines the note, but the procedure for suing on it depends on where the borrower lives or where the debt arose.

Step 1: Demand and Notice

The first practical step is usually a written demand. A demand letter should identify the note, the amount claimed, the default, and a deadline for payment. It should be sent to the borrower’s last known address and kept as evidence. For demand notes, the demand may be what makes the debt payable. For instalment notes, a missed payment may trigger default under the note’s terms.

Some notes require notice and a chance to cure before the holder can accelerate the debt. Others do not. The wording of the note controls. If the note is secured, the security agreement may add its own notice requirements.

Step 2: Negotiation and Settlement

Many unpaid notes are resolved without a trial. The borrower may propose a payment plan, a reduced lump sum, or a new note. Any change should be documented in writing. A verbal promise to pay can affect a limitation period in some provinces, but it is usually harder to prove than a signed amendment.

Step 3: Court Claim

If negotiation fails, the holder can sue. The court process varies by province. Smaller claims may go to a provincial court or small claims court with simplified procedures. Larger claims may go to a superior court. The holder must prove the note, the default, and the amount owed. The borrower can defend the claim.

Step 4: Judgment and Enforcement

If the holder wins, the court may issue a judgment. A judgment is not money in hand. The holder may need to use provincial enforcement remedies, such as garnishment, seizure and sale, or examination in aid of execution. These remedies are governed by provincial rules and may be limited by exemptions.

Defences to Promissory Note Enforcement

A borrower may defend a promissory note claim on several grounds. The holder should be ready for these arguments.

• Payment: The borrower says the note was paid, in whole or in part.
• Lack of consideration: The borrower says no value was given for the promise.
• Fraud or misrepresentation: The borrower says the note was obtained by deceit.
• Duress or undue influence: The borrower says they signed under pressure.
• Material alteration: The note was changed without consent in a significant way.
• Limitation period: The claim was brought too late under provincial law.
• Set-off or counterclaim: The borrower claims the holder owes them money.

These defences do not automatically defeat a claim. The borrower must prove them. A court will look at the documents, the timeline, and the credibility of the parties.

Interest, Fees, and the Criminal Rate

Interest can make an unpaid note much larger. However, Canadian law limits criminal rates of interest. Under the Criminal Code, the criminal rate of interest is 35% APR. A note that effectively charges more than that may be unenforceable for the excess and may create legal risk for the holder.

The Interest Act also matters for mortgages and agreements for sale. If a mortgage or agreement for sale provides for interest but does not state an annual rate, interest is not chargeable above 5% per annum. This rule can affect private lending secured by real property.

Payday-style notes need special attention. In provinces with a payday lending regime, the cost is capped at $14 per $100, the dishonoured-payment fee is capped at $20, and the maximum payday loan is $1,500. Quebec does not permit payday lending, and the maximum rate of credit there is 35% per year. A short-term note that is really a payday loan may be caught by these rules.

Secured Promissory Notes and Real Property

If a promissory note is secured by a mortgage or agreement for sale, the holder may have additional remedies, such as power of sale or foreclosure. The security documents and provincial property law govern. Federal mortgage underwriting rules can also matter when a federally regulated lender is involved. For example, Guideline B-20 requires qualifying borrowers at the greater of the contract rate plus two percentage points or 5.25%. Minimum down payment rules and mortgage default insurance rules apply to insured mortgages.

These rules do not automatically apply to a private promissory note between individuals. Still, they show how Canadian law treats borrowing costs and lending standards. A private note that looks like a mortgage may be treated differently than a simple unsecured note.

Credit Reporting, Privacy, and Insolvency

An unpaid note may affect credit if the holder reports it to a credit bureau or if the debt becomes a judgment. Canada has two national credit bureaus. A hard inquiry may affect a credit score; a soft inquiry does not. Whether a private note appears on a credit report depends on the reporting arrangement and the nature of the debt.

Privacy law also applies. PIPEDA governs how organizations handle personal information in Canada. A holder who collects, uses, or discloses personal information about a borrower should understand those obligations.

If the borrower cannot pay, insolvency may be an option. The Office of the Superintendent of Bankruptcy oversees the Canadian insolvency system. An unsecured promissory note debt may be discharged in bankruptcy or a consumer proposal, unless an exception applies. A secured creditor can still enforce valid security, subject to provincial law.

Practical Checklist for Holders and Borrowers

The following table outlines common stages and possible actions. It is general information, not legal advice.

For both sides, the best evidence is a clear paper trail. Keep the original note, any amendments, payment records, demand letters, and court documents. Do not rely on memory or verbal promises.

When to Get Professional Help

Promissory note enforcement can involve court procedure, limitation periods, interest calculations, and insolvency issues. This guide is general information only and is not legal, tax, or financial advice. If a significant amount is at stake, or if the borrower disputes the debt, consult a lawyer licensed in the relevant province. If you are comparing loan options, promissory.ca connects visitors with licensed lending partners, but it is not a lender and does not provide advice.