February 15th 2019
Whether you are looking to borrow or lend money, you should be familiar with the rights and obligations surrounding debt. You may even be considering loaning a friend or relative some money. At its most basic, a loan is a contract involving the delivery of money to another with the promise of repayment. This article discusses two basic loan documents: promissory notes and mortgages.
A promissory note is a document where the value of the loan and terms of repayment are set out and signed by the parties involved. If there is no fixed date or schedule for repayment, the promissory note should identify that the loan is repayable “on demand”. A demand from the lender must always provide a reasonable amount of time for repayment by the borrower. If the time set out in the demand lapses and the borrower fails to pay, the lender is entitled to sue the borrower and seek interest from the date the loan ought to have been repaid.
Importantly, a lender must be aware that failure to initiate a claim based on the unpaid promissory note may result in their forfeiting the right to repayment altogether! Under the current Limitations Act, a lender has two years to commence proceedings after a borrower’s failure to perform the obligations under the promissory note or demand for repayment occurs. Notwithstanding the risk inherent in every loan transaction, promissory notes are a simple and effective way to record a debt obligation. For this reason, they are a typical document for loans made between friends and family members. 
In some situations, the loan amount may be substantial, including those made between family members. It is possible to have the debt secured by an asset owned by the borrower. Most commonly, the largest asset owned by an individual is land. A registered mortgage would give the friend or family member assurance that the asset may be used to satisfy the debt in a worst-case scenario. It is important to seek legal guidance to 
determine whether it is advisable to register a mortgage over land owned by the borrower. The parties must determine that they will not be breaching the terms of any other security interest registered against the land, such as an existing mortgage from a banking institution.
Just as with promissory notes, a mortgage may have specific terms for repayment, or it may be payable on demand. However, the time limit for enforcing rights under a mortgage are different from that of a promissory note. Under the Real Property Limitations Act, no action can be brought to recover any sum of money secured by a mortgage unless it is brought within ten years from the date the present right to receive such money became effective. There are numerous criteria under the legislation which outline the meaning of a ‘present right’, so it is important to speak with a trusted legal professional if you are considering your rights under a mortgage.
Ultimately, the ability to support family and friends by lending money is an incredibly powerful tool. Regardless of the trust between individuals, every debt obligation should have transparency and a mutual understanding from the outset so as to avoid any surprises or conflict concerning repayment in the end. For more information on loans or mortgages, be sure to contact Liddiard Law today.
Michael Liddiard, BA MA JD | Liddiard Law Professional Corporation | michael@liddiardlaw.ca