When Are Promissory Notes and Guarantees Enforceable in Ontario?

Can a Lender Still Enforce a Promissory Note Years After It Was Signed?

Yes — but only if the limitation period has not expired, or if something has reset or extended it. In Constantine Enterprises Inc v. Mizrahi, 2026 ONSC 3506 (CanLII), the Ontario Superior Court of Justice examined multiple defences to enforcement of promissory notes and personal guarantees, and rejected every one of them. The result: full judgment in favour of the lender.

If you are on either side of a dispute involving a promissory note or guarantee, this decision is a useful reminder of how courts assess these claims — and how difficult it is to escape a clearly worded commercial obligation.

What Restarts the Clock on a Limitation Period in Ontario?

A limitation period can be restarted — or preserved — through acknowledgement, partial payment, or a contractual extension. Ontario’s Limitations Act, 2002 provides specific rules for each of these situations.

In this case, the court found that the two-year limitation period had not expired for several reasons. Receivership proceedings were launched within two years for the corporate instruments. Partial payments made by court-appointed receivers qualified as acknowledgements under section 13(11) of the Act. Written communications — including emails — were found to constitute an acknowledgement of a personal note under section 13(1). And a business agreement contained a contractual extension clause that fell within section 22(5) of the Act. Each of these mechanisms independently kept the claims alive. The limitations defence was dismissed entirely.

If you are worried about whether a debt claim against you is time-barred, or whether your own claim is still within time, speaking with our Ontario litigation lawyers early is essential — because even a single email or payment can reset the clock.

Does Failing to Cooperate in a Property Sale Cancel a Debt?

No — a debtor’s allegation that the other side obstructed a sale does not erase a clearly worded payment obligation. The borrower in this case argued that an alleged failure to cooperate in a unit sale under a retail project defeated the obligation to repay the promissory note.

The court rejected this argument for several reasons. The note itself contained explicit no set-off and enforceability clauses, meaning the borrower could not reduce or withhold payment based on side disputes. Conditions from an earlier term sheet were not carried forward into the final note — so they simply did not apply. Crucially, there was no credible evidence that a ready, willing, and able buyer or financing actually existed. Without that foundation, the obstruction defence had nothing to stand on.

Can Allegations of Bad Faith or Fiduciary Duty Breach Reduce What You Owe?

Generally, no — not when the underlying note or guarantee contains a clear no set-off clause. The borrower raised allegations of bad faith conduct and breaches of fiduciary duty related to separate negotiations. These are serious legal concepts, but they do not automatically override the plain terms of a signed commercial agreement.

The court noted that prior civil claims on these same allegations had already been struck without leave to amend. The no set-off clauses in the notes expressly barred unliquidated counterclaims. The allegations themselves were described as vague and unsubstantiated — not enough to raise a genuine issue requiring a trial. This part of the defence was dismissed.

Does a Lender Have to Exhaust All Remedies Before Calling a Personal Guarantee?

Not necessarily — if the lender has already taken meaningful steps to realize on its security, a demand on a personal guarantee is not premature. This is a common misconception: many guarantors believe a lender must pursue every possible avenue against the borrower before turning to the guarantor.

In this case, court-appointed receivers had been put in place, assets had been sold, and distributions had been made. A receiver in one project had already been discharged. The court found there was nothing further to exhaust against the borrowers. The argument that the guarantee demand was premature was rejected, and judgment was granted.

If you have signed a personal guarantee on a commercial loan, you should understand exactly when and how the lender can call on it — ideally before you sign, but certainly before a demand arrives.

What Makes a Promissory Note Difficult to Challenge in Court?

Clear, unambiguous language is the single biggest factor. When a note contains explicit no set-off clauses, enforceability provisions, and no incorporation of prior term sheet conditions, a borrower has very little room to manoeuvre.

Courts will not rewrite commercial agreements between sophisticated parties. If you signed a note or guarantee with those kinds of provisions, your defences are limited to things like fraud, fundamental misrepresentation, or a genuine limitation period argument — and even those face a high bar. Vague allegations, unsupported claims, and recycled arguments from previously struck pleadings will not carry the day.

Practical Takeaways for Borrowers and Guarantors

• Read the no set-off clause carefully. If your note or guarantee contains one, you likely cannot withhold payment because of a side dispute — even a legitimate one — without separate legal proceedings.
• Track every payment and communication. Partial payments and written acknowledgements can restart the limitation clock, which matters whether you are the lender or the borrower.
• Do not assume a guarantee demand is premature. Once a lender has taken reasonable steps to realize on security, courts may find the guarantee is properly callable.
• Conditions from a term sheet do not automatically survive into the final agreement. If a condition matters to you, make sure it appears in the signed note — not just in earlier negotiations.
• Struck claims cannot be relitigated as defences. If a civil claim has been struck without leave to amend, raising the same allegations as a set-off or counterclaim is unlikely to succeed.

If you are facing a demand on a promissory note or personal guarantee — or if you need to enforce one — our commercial litigation lawyers in Burlington and across Ontario can help you understand your position before matters escalate. UL Lawyers also regularly assists clients in Toronto and the surrounding region; if you are based in the city, our Toronto litigation team is available for a free initial consultation.

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This article is automated commentary on a public court decision and is for general information only — not legal advice. Decisions rely on facts unique to each case. If you are affected by a similar issue, contact a lawyer for advice specific to your situation.