Promissory Notes:

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

Answer: Paladin LLP can help you understand how promissory notes and demand notes work in Ontario, so you can assess when repayment becomes due, what terms may be required, and how a written “unconditional promise to pay” is treated under the Bills of Exchange Act, R.S.C. 1985, c. B-4 (including the definition in s. 176(1)). A promissory note is generally payable at a fixed or determinable future time, while a demand note is due when the holder requests payment because it has no set due date. If you have a document you received or signed and want to confirm its meaning and enforceability, call (289) 925-1572 to speak with a paralegal at Paladin LLP.

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

A promissory note is a written document in which one party (the issuer) makes an unconditional promise to pay a certain amount of money to another party (the payor). Under a promissory note, payment is due at the stated time or upon receiving a request for repayment. A promissory note will include information about any applicable terms, such as the rate of interest, if any, that may be accrued.

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

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 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.