Promissory Notes:

Question: Is a demand note a promissory note, and when can the lender collect the amount in Ontario?

Answer: Yes, a demand note is a type of promissory note where the issuer makes an unconditional written promise to pay, but instead of stating a fixed due date it becomes due “on demand” for repayment. Under the Bills of Exchange Act, R.S.C. 1985, c. B-4, a promissory note is an unconditional promise in writing to pay on demand or at a fixed or determinable future time, for a sum certain, signed by the maker. If you’re dealing with a demand note versus a common (fixed-due) note, Access Ontario Legal Services can help you understand what the document requires, what counts as a valid demand, and how to respond if repayment is requested.   For practical guidance from a paralegal in Ontario, call (905) 302-1851 today.

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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.

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

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

Summary Comment

A promissory note is a legal document that states a promise to pay a certain amount of money. A promissory note may take the form of a cheque, loan agreement, or other document, that serves as proof of an outstanding debt.