Promissory Notes:

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

Answer: A promissory note is a written, unconditional promise to repay a specific sum (often with stated interest and repayment terms) either on a set date or when demanded, while a demand note is a promissory note that becomes due only when the lender makes a demand for payment; for clear, practical help reviewing or enforcing a note across Ontario, contact Vescio Legal Services (Paralegal) and call (416) 400-8255.  In Canada, promissory notes are defined under Bills of Exchange Act, R.S.C. 1985, c. B-4, s. 176(1), which sets out key requirements like being in writing, signed, and payable on demand or at a fixed or determinable future time.

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 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 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.