Promissory Notes:

Question: What counts as a promissory note under Canadian law, and how does a demand note differ from a common promissory note?

Answer:   In Ontario, a paralegal at Byfield Legal Services can help you understand whether a document is likely a promissory note and what “demand” means in practice, including the key difference between a demand note (payable upon demand with no fixed due date) and a common note (payable at a fixed or determinable future time). Under Bills of Exchange Act, R.S.C. 1985, c. B-4 at section 176(1), a promissory note is an unconditional written promise signed by the maker to pay a sum certain “on demand or at a fixed or determinable future time” to a specified person or bearer, and these terms typically govern enforceability, timing of payment, and how interest may apply. If you need to review language in an agreement or letter of credit-like document to see whether payment is truly due on demand or at a later date, call (289) 927-7365 to get practical guidance in plain terms.

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, 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, 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

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 promissory notes without a specific due date as such a note becomes due upon demand of payment.

Summary Comment

A promissory note is a negotiable instrument and could consist as a cheque, loan agreement, or other document evidencing indebtedness.