Promissory Notes: Negotiable Instruments Containing Express Terms Regarding Repayment

Question: What is the difference between a promissory note, a demand note, and a common note?

Answer: A promissory note is a written promise by one party to pay a specific amount to another, either on demand or at a set future date, as defined under the Bills of Exchange Act, R.S.C. 1985, c. B-4. A demand note is a type of promissory note that becomes payable upon request, lacking a fixed due date. Conversely, a common note typically refers to a more informal agreement without the legal formalities of a promissory note. Understanding these differences can help you navigate financial agreements with confidence. For personalized assistance tailored to your unique situation, contact Benchmark Legal Offices for a consultation.

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.

The Law

The Bills of Exchange Act, R.S.C. 1985, c. B-4, governs financial instruments such as currency, cheques, among other things, and 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 negotiable instrument and could consist as a cheque, loan agreement, or other document evidencing indebtedness.