Promissory Notes:

Question: What is the difference between a promissory note and a demand note under Canadian law, and when should I get Paralegal help in Ontario?

Answer: A promissory note is an unconditional written promise by one person (the maker) to pay another person (the payee) a fixed or determinable amount of money on demand or at a fixed or determinable future time, and the definition is set out in Bills of Exchange Act, R.S.C. 1985, c. B-4. A demand note is a type of promissory note where there is no fixed maturity date, so payment becomes due when the issuer makes a demand, while a “common note” typically has a stated due date. If you are dealing with a debt collection claim, an unpaid loan, or you are unsure whether a document qualifies as a promissory note or a demand note, Thamar Bilingual Legal Services Ontario (Bilingual Paralegal Services in English, Français across Ontario) can help you understand what your document requires and what your next steps are; call (647) 818-7974 to discuss your situation.  

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.  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.