Promissory Notes that are Due on Demand

Promissory Notes that are Due on Demand

William Shakespeare gave us the famous line from Hamlet “Neither a Lender Nor Borrower Be”. If Polonius would have known more about Promissory Notes, he may have thought differently. Promissory notes create a legal obligation when there is a loan of money or someone promises to pay for a product or service at a later time or in several payments. What is lesser known are Promissory Notes that are due on demand, more commonly known as a Due on Demand Promissory Note. Simply put, it gives the holder (the owner) of the note the right to demand payment at any time, or after a specific time. The Arizona Legal Form Library would like to touch on why you might use this type of Promissory Note.

When to Use a Due on Demand Promissory Note

First and foremost, a Promissory Note is used when loaning or borrowing money.  The loan can be between family or friends or it may be a loan between an individual and a bank, a store or other legal entity.  A Due on Demand Promissory Note is generally made between two individuals; it gives the lender and the borrower a time frame and/or expectation of when the loan will be paid back in full. For the lender, it can be a good way to acquire more control over a loan made to family or friends. The Due on Demand Promissory Note differs from a standard Promissory Note because it is payable “on demand” and not under a payment plan.  At anytime after the “due on demand date” the lender has the right to demand repayment from the borrower.  The demand amount includes the accrued interest as stated in the terms of the Promissory Note.

Arizona Revised Statutes Section 44-1201(A) provides that “Interest on any loan, indebtedness or other obligation shall be at the rate of ten per cent per annum, unless a different rate is contracted for in writing, in which event any rate of interest may be agreed to.  . . . ”  In the past Arizona did have statutes governing usury (an unconscionable amount of interest) but in 1980 the Arizona legislature amended the general usury statute to allow any interest rate agreed to in writing; thus there was thus no longer any limit on the interest that could be charged.  There are administrative regulations established by the Arizona Department of Financial Institutions which govern certain practices including lending and interest in professions such as banking and insurance but agreements between private individuals do not fall within this type of administrative oversight.

The Due on Demand Promissory Note is not a customary note but it works well under circumstances where no payment is expected until a certain date and both parties agree that no payment will be made during the period of time between the date the loan is made and the date of repayment.