A promissory note for $47,000 and a dishonoured cheque for $12,500 sit in the files of a small equipment repair and fabrication business operating out of an industrial park in southwestern Ontario. The promissory note, dated 14 months ago, bears the signature of the sole proprietor of a landscaping operation and promises payment of the principal sum plus interest at 6 percent per annum, payable in full 12 months from the date of execution. The cheque, drawn on a credit union account and dated 3 months ago, was returned marked "insufficient funds" after the fabrication business deposited it in the ordinary course.

The promissory note arose from a transaction in which the fabrication business sold a refurbished commercial mower and a custom trailer hitch assembly to the landscaping operator. At the time of sale, the landscaping operator lacked the funds to pay outright and proposed a deferred payment arrangement. The parties agreed that the landscaping operator would sign a promissory note for the full purchase price, with the fabrication business retaining no security interest in the equipment. The note was prepared without legal assistance, handwritten on a single sheet, and signed by both parties. The fabrication business owner endorsed the note and placed it in a filing cabinet, intending to present it for payment when it matured.

The dishonoured cheque relates to a separate transaction. A general contractor engaged the fabrication business to manufacture custom steel brackets for a commercial renovation project. Upon delivery of the brackets, the contractor tendered a cheque for $12,500 drawn on a credit union account. The fabrication business deposited the cheque 4 days later, and within a week the credit union returned it unpaid. The contractor has since claimed that the brackets were defective and failed to meet the specifications agreed upon, asserting that any obligation to pay has been extinguished by the fabrication business's breach of the underlying supply agreement.

The promissory note matured 2 months ago. When the fabrication business owner contacted the landscaping operator to demand payment, the landscaping operator refused, alleging that the mower had a latent mechanical defect that rendered it unusable within weeks of delivery and that the fabrication business had misrepresented its condition at the time of sale. The landscaping operator maintains that fraud and failure of consideration excuse any obligation under the note.

The fabrication business owner now holds 2 unpaid instruments totalling $59,500 and faces competing claims from both obligors that their respective obligations should not be enforced. The owner must determine what rights flow from each instrument, what procedural steps are required to pursue collection, and what defences the obligors might successfully raise.