Promissory Notes: Negotiable Instruments Containing Express Terms Regarding Repayment

Question: What’s the difference between a promissory note and a demand note in Ontario?

Answer: In Ontario, a promissory note is a written, unconditional promise by the maker to pay a specific sum to a payee either on demand or at a fixed or determinable future time, while a demand note is simply a promissory note with no set due date that becomes payable when the lender makes a demand for repayment under Bills of Exchange Act, R.S.C. 1985, c. B-4.   Wennekers.Legal™ provides Legal Services in Ontario to help you draft, review, or enforce promissory notes, including key terms like principal, interest, repayment conditions, and signatures.

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, 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, where the borrower agrees to pay a certain amount of money to the lender at a specific time and under certain conditions. A bank note is a type of promissory note issued by a bank or other financial institution; but, it is backed by the assets of the bank which makes a bank note more secure than a regular promissory note.

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 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.