Promissory Notes:

Question: What’s the difference between a promissory note and a demand note in Ontario, and what key terms should be included to protect the lender and borrower?

Answer: A promissory note is a written, signed promise to repay a specific sum either on demand or at a fixed or determinable future time, while a demand note has no set due date and becomes payable when the lender asks for repayment, as defined under Bills of Exchange Act, R.S.C. 1985, c. B-4 (s. 176(1)).  For clear, enforceable documentation across Ontario, Mole Legal Services provides Paralegal and Property Management support to help you draft, review, and enforce notes with essential terms like principal, interest, parties, payment schedule or “on demand” wording, default remedies, and signatures, so you reduce disputes and improve collections; call (647) 709-5157 to get started.

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, 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.