Promissory Notes:

Question: What’s the difference between a demand note and a common promissory note in Ontario, and how do they affect when payment is legally due?

Answer: Olson Craig Legal can help if you’re dealing with repayment timing on a debt instrument by clarifying whether your document is a demand note (no fixed due date, due upon demand) versus a common promissory note (due at a fixed or determinable future time), and by reviewing the wording for key terms like the unconditional promise, parties, interest rate, and sum certain so you know what you may owe and when collection can begin, call (226) 886-2001 to speak with a lawyer and paralegals in Ontario.   If you’re the borrower, ask for a copy of the note and any related demand/notice records to confirm the due date and required steps before you respond.   If you’re the lender, document the demand method and keep proof of service to support enforceability.   Under the Bills of Exchange Act, R.S.C. 1985, c. B-4 (s. 176(1)), a promissory note is an unconditional written promise to pay on demand or at a fixed or determinable future time a sum certain in money.

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

A promissory note is a form of negotiable instrument whereby a party (the issuer) makes an unconditional promise in writing to pay a sum of money to another party (the payee).  Payment becomes due under a promissory note at fixed time stated within the promissory note or upon receipt of a demand for repayment. A promissory note will also contain details of any applicable terms such as a rate of accruing interest, if any.

The Law

The Bills of Exchange Act, R.S.C. 1985, c. B-4, addresses promissory notes as a form of financial instrument, along with currency, cheques, among other things, and specifically 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

Usual terms that may be shown upon a note include the principal amount due, the applicable interest rate, the parties to the note including a party who may be unspecified and simply known as a "bearer of note", the date of issue, the repayment terms, and the due date.

Payable Upon Demand

Demand notes are a type of promissory note but differ whereas a demand note lacks a specified due date and instead becomes due upon request of payment.

Summary Comment

A promissory note is a negotiable instrument and could consist as a cheque, loan agreement, or other document evidencing indebtedness.