Promissory notes are written statements that a person owes money to another person at a certain interest rate. They are often lending documents made on demand and called demand promissory notes. Lawyers use them in estate planning or when there are loans among family members. In these situations, no payments of interest or principal may occur for many years. Lawyers were shaking in their boots in 2006 when the Ontario Court of Appeal came down with a decision on demand promissory notes not to their liking. Our highest provincial court held that the limitation period for demand promissory notes begins to run as soon as the note is issued and not following a default after a demand for payment. A limitation period simply means that you must launch your lawsuit within a certain period of time or you are barred from doing so by the passage of time. What this meant for lawyers preparing demand promissory notes for their clients was that notes issued after January 1, 2004, when the basic limitation period was changed from six years to two years, were barred two years after issuance unless there had been payments or a written acknowledgment of the debt.
As a result of the appellate decision and its impact on lawyers, fierce lobbying occurred with the province, including lobbying from the Ontario Bar Association, to change the Limitation Act about demand promissory notes. Just 18 months after the 2006 decision, the government passed legislation retroactively changing the law that our appeal court had made. The amendment to the legislation states that the time starts to run for the limitation period from “the first day on which there is a failure to perform the obligation, once a demand for the performance is made.” In other words, time starts to run, not when the demand promissory note is issued, but when there is a default following a demand for payment. For some reason, the retroactive effect of the amendment only goes back to January 1, 2004 when the new Limitation Period was passed. The amendment saves lawyers from lawsuits because the legislation takes the unusual step of reaching into the past and declaring the law to be different from what it was. But is it fair to the borrowers who were freed by the Ontario Court of Appeal?