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.

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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 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.

Note: Please contact Paladin LLP by phone at: (289) 925-1572 to discuss any specific questions that you may have.

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

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.