Promissory Notes:

Question: What is the difference between a promissory note and a demand note under Ontario law?

Answer: A promissory note is an unconditional written promise by one party to pay another a specific sum of money at a fixed or determinable future time, and it can include terms like the interest rate and repayment conditions; a demand note is simply a promissory note with no fixed due date, meaning the amount becomes payable when the lender makes a demand. Under the Bills of Exchange Act, R.S.C. 1985, c. B-4, s. 176(1), a promissory note is defined as an unconditional promise in writing signed by the maker to pay on demand or at a fixed or determinable future time a sum certain in money to a specified person or bearer. If you need to draft or review a note, confirm whether it is truly payable on demand, or assess your rights and next steps for collecting repayment, Olson Craig Legal can help with lawyer and paralegal support across Ontario; call (226) 886-2001 to discuss your situation.

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Understanding What Constitutes As a Promissory Note and What Is Meant By a Demand Note Versus a Common Note

A promissory note is a legal document that binds one party (the issuer) to pay a specified amount of money to another party (the payor). The payor is legally obligated to make payment at the predetermined time or upon receiving a demand for repayment from the issuer. A promissory note will detail any applicable terms, including the rate of interest, if applicable, that may be accrued.

The Law

The Bills of Exchange Act, R.S.C. 1985, c. B-4, governs financial instruments such as currency, cheques, among other things, and defines a promissory note as:

A promissory note is a contract between two parties, the borrower and the lender.  A bank note is a type of promissory note issued by a bank or other financial institution.  In either circumstance, a promissory note is a written promise to pay a certain amount of money to a specific person or a specific entity at a specific time and under certain conditions.  However, unlike a promissory note, a bank note is backed by the assets of a bank and is therefore more secure.

Terms Upon Notes

A promissory note will typically include details of the principal amount due, the applicable interest rate, the parties involved including a "bearer of note" if a party is unspecified, the date of issue, the repayment terms, and the due date.

Payable Upon Demand

Demand notes are promissory notes without a specific due date as such a note becomes due upon demand of payment.

Summary Comment

A promissory note is a legal document that states a promise to pay a certain amount of money. A promissory note may take the form of a cheque, loan agreement, or other document, that serves as proof of an outstanding debt.