Can a seller sell or assign a vendor take-back note?

A vendor take-back note is the buyer’s written promise to pay the seller part of the price later. Whether the seller can pass that right on depends on the note’s wording and how the transfer is made. This page covers the federal Act and Ontario’s statutes; elsewhere, ask a lawyer.

Negotiating a note under the federal Act

Section 186(1) of the Bills of Exchange Act applies its provisions on bills to notes, with such modifications as the circumstances require, subject to Part IV and the exceptions in that section. Under section 59, a bearer bill is negotiated by delivery and an order bill by the holder’s endorsement. Under section 61, the endorsement must be written on the bill itself (an allonge counts), signed by the endorser, and cover the entire bill; a partial endorsement is not a negotiation. Under section 20(1), a bill with words prohibiting transfer, or indicating an intention that it should not be transferable, is valid between the parties but is not negotiable.

What the person who takes the note gets

Under section 73(b), a holder in due course holds a bill free from any defect of title of prior parties and from mere personal defences available to prior parties among themselves. Section 55(1) sets the conditions for being one, including good faith, value and no notice of a defect in the negotiator’s title. Ask a lawyer which defences could still be raised.

Assigning a debt in Ontario

Section 53(1) of Ontario’s Conveyancing and Law of Property Act covers an absolute assignment of a debt, in writing under the assignor’s hand and not purporting to be by way of charge only, where express notice in writing has been given to the debtor or other person liable to pay. Subject to all equities that would have had priority over the assignee’s right, it passes the legal right to the debt from the date of that notice. This is Ontario’s rule only.

Security and other documents

Under Ontario’s Personal Property Security Act, section 47(1), a financing change statement may be registered where a security interest is perfected by registration and the secured party has assigned its interest. Section 21(2) says the assignee succeeds, as far as perfection goes, to the assignor’s position at the time of assignment. Ask whether the note or any agreement with the buyer’s bank limits who may hold it, and ask a tax adviser about tax. For what a note contains, see this page on vendor take-back promissory notes.