Promissory Note
A written promise to repay a loan on specified terms, enforceable as a legal instrument across Canadian provinces.
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A promissory note is a written promise by one party (the maker) to pay a specific sum of money to another party (the payee) on demand or on a specified date. Unlike an informal IOU, a promissory note is a legally enforceable instrument governed by the Bills of Exchange Act (Canada) and is admissible as direct evidence of the debt in court proceedings.
When to use a promissory note
Promissory notes are commonly used for personal loans between family members or friends; loans between a business and its shareholders; short-term financing arrangements; instalment payment obligations for goods or services; and as evidence of a debt in separation or estate matters.
Key terms
A complete promissory note should state: the principal amount; the interest rate (or confirm that the note is interest-free); the repayment terms (lump sum, instalments, or on demand); the consequences of default; whether security is provided; and whether the note may be assigned to a third party. Both parties should retain a signed original.