Canada: Québec: Acknowledgement Of Debt Saves Recovery Of Principal Bearing A Criminal Interest Rate

Pursuant to Section 347 of the Criminal Code, an effective annual interest rate that exceeds 60% of the total credit advanced under an agreement or arrangement is a criminal rate. Anyone who enters into an agreement or arrangement to receive interest at a criminal rate or who receives a payment or partial payment of the interest at a criminal rate commits an offence. The party receiving the payment is also deemed to have knowledge of the nature of the payment and that it was received at a criminal rate1. The lender may face imprisonment or fine if it requests the payment of interest at a criminal interest rate. The portion of the interest rate agreed upon between the parties which corresponds to the usurious interest rate may be unenforceable. Moreover the existence of the criminal interest rate may also affect the ability of the lender to recover the capital or principal amount of the loan granted.

Recently, the Supreme Court of Canada denied leave to appeal of the Quebec Court of Appeal's decision in Ting-Sheng Chao v. Chi-Wei Lin2. In that case, the Quebec Court of Appeal upheld the trial court's decision enjoining the full reimbursement of a loan by Lin to Chao which included interest, a portion of which was charged at a criminal rate. The lower Courts based their decision on an acknowledgement of debt executed by Chao in favour of Lin on July 24, 2008 which only acknowledged Chao's liability for indebtedness equal to the principal amount of the capital advanced to Chao, free of interest (the "Acknowledgement"). The Acknowledgement was essential to the lower Courts' decision because the Courts declared that the Acknowledgement effected novation of the original terms of the loans (without considering that the verbal agreement between Lin and Chao included the payment of interest at a usurious interest rate) and entitled Lin, the lender, to capital reimbursement. In addition to the reimbursement of the capital, the lower Courts ordered the payment of interest at the legal interest rate. It would have been interesting to see the lower Courts' decision if Chao would have made partial payments, which included the payment of interest at a usurious interest rate.


Lin, the respondent, claimed that during a three-month period, he made multiple loans to Chao who promised to reimburse him an amount exceeding the capital amount. The loans at issue were $10,000 advanced on January 13, 2008 with a return of $15,000 (50%); $10,000 advanced on January 14, 2008 with a return of $16,500 (65%); $3,000 advanced on January 15, 2008 with a return of $4,950 (65%); $5,000 advanced on January 25, 2008, with a return of $8,250 (65%); $10,000 advanced on February 25, 2008, with a return of $13,000 (30%); $10,000 advanced on March 13, 2008, with a return of $13,000 (30%); and $3,000 advanced on March 25, 2008, with a return of $4,450 (48%) for an aggregate loan advance of $51,000. In return, Chao undertook to reimburse Lin for the larger aggregate principal amount of $75,150. The parties did not document in their agreement either the time or the amount of the advances.

Chao admitted having received those amounts from Lin, however she claimed that those amounts were remitted to her by Lin for investment purposes in a game strategy at the roulette in the Casino of Montreal. She contended that considering the loss and gains over time, no amount was owed to Lin.

Trial decision

The Superior Court did not analyze the rights and obligations of the parties based on the validity of the loans which, considering the return agreed upon by the parties, would have resulted in a usurious interest rate being charged. The Superior Court's single comment regarding the interest rates was the fact that Lin, an experienced financial planner, should have known that the gain promised by Chao would constitute the receipt of interest at an illegal interest rate. However, the judge ordered Chao to reimburse $51,300 to Lin, which equaled the capital amount of the loans made by Lin to Chao, less $2,000 already reimbursed by Chao. The judge's decision was based on the Acknowledgement, which was limited to the reimbursement of the capital of the loans made by Lin to Chao. In addition to the principal amount to be paid, the judge ordered the payment of interest at the legal rate and additional indemnity pursuant to Section 1619 of the Civil Code of Québec from the date of the institution of proceedings. At the time of the trial court decision, the legal rate and the additional indemnity was 6% per annum.

Quebec Court of Appeal

Chao appealed the Superior Court's decision claiming that the loan made to her by Lin was illegal considering the interest rate agreed upon at the time the loan was made, which, for a portion of the overall loan, was greater than 60%. The Québec Court of Appeal did not share the same opinion, and based on the Acknowledgement it upheld the trial court's decision. The Quebec Court of Appeal stated that the Acknowledgment had the effect of creating novation, such that the original loan and all of its terms and conditions no longer existed. Furthermore, the Québec Court of Appeal refused to declare the nullity of the loans based on Section 23323 of the Civil Code of Québec and therefore did not accept Chao's claim that she signed the Acknowledgement without free and enlightened consent considering Lin's threats. The Court of Appeal maintained the trial court's decision and Chao had to reimburse $51,300 to Lin less $2,000 already reimbursed, plus the interest at the legal rate and the additional indemnity pursuant to Section 1619 of the Civil Code of Québec.

Supreme Court of Canada. Chao appealed the Québec Court of Appeal decision and the Supreme Court of Canada dismissed the appeal without written reasons. 


1 Section 347 of the Criminal Code stipulates that everyone who enters into an agreement or arrangement to receive interest at a criminal rate, or receives a payment or partial payment of interest at a criminal rate, is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or guilty of an offence punishable on summary conviction and liable to a fine not exceeding $25,000 or to imprisonment for a term not exceeding six months or to both.

2 2013 QCCS 5939; 2015 QCCA 1853; 2016 CanLII 47516 (CSC).

3 In the case of a loan of a sum of money, the court may pronounce the nullity of the contract, order the reduction of the obligations arising from the contract or revise the terms and conditions of the performance of the obligations to the extent that it finds that, having regard to the risk and to all the circumstances, one of the parties has suffered lesion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions