Promissory Note Legal Definition:

An unconditional, written and signed promise to pay a certain amount of money, on demand or at a certain defined date in the future.

Related Terms: Bill of Exchange , Allonge , Acceleration Clause , Usury

An unconditional, written and signed promise to pay a certain amount of money, on demand or at a certain defined date in the future.

In Byles on Bills of Exchange, authors M. Megrath and F. Ryder write, at page 317:

"No precise words of contract are essential in a promissory note providing that the legal effect is an unconditional promise to pay and also that there is evidence of the intention of the parties to make a promissory note."

Similarly, in Khan v Attar Singh, Justice Atkin held:

"It is ... doubtful whether a document can properly be styled a promissory note which does not contain an undertaking to pay, not merely an undertaking which has to be inferred from the words used. It is plain that the implied promise to pay arising from an acknowledgment of a debt will not suffice...."

A promissory note is similar to, but differs from, an IOU or a check (aka cheque).

Canada's Bills of Exchange Act (Revised Statutes of Canada 1985, Chapter B-4, at §176, published at canlii.org/ca/sta/b-4/) defines a promissory note as:

"... an unconditional promise in writing made by one person to another person, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer."

Contrary to a bill of exchange, a promissory note is not drawn on any third party holding the payor’s money. It is a direct promise from the payor to the payee.

REFERENCES:

  • Khan v Attar Singh, [1936] 2 All ER 489. As cited by Bradley Crawford in Payment, Clearing and Settlement in Canada, Vol. 2 (Toronto: Canada Law Book, 2002)..
  • Magrath, M., and Ryder, F., Byles on Bills of Exchange, 25th Edition ( London: Sweet & Maxwell, 1983) page 317

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