Promissory Notes:

Question: Do I need a demand note or a common promissory note for my Ontario loan agreement?

Answer: In Ontario, a promissory note is an unconditional written promise by a borrower (maker) to pay a specified sum of money to a lender (payee) either on demand or at a fixed or determinable future time, and Bills of Exchange Act, R.S.C. 1985, c. B-4, s. 176(1), sets out the core definition.   A “demand note” is a promissory note with no fixed due date, so the amount becomes due when the lender makes a demand for payment, while a “common note” (often understood as having a stated maturity date) sets when repayment is required.   If you are preparing or reviewing one of these documents, White Owl Legal can help you get the wording and terms right for enforceability and clarity, including principal, interest, parties, and repayment terms, so both sides know exactly when payment is due.   Call (289) 839-3075 to speak with a paralegal at White Owl Legal 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 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.

Note: Please contact White Owl Legal by phone at: (289) 839-3075 to discuss any specific questions that you may have.

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.  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 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.