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 legal document that binds one party (the issuer) to pay a specified amount of money to another party (the payor). The payor is legally obligated to make payment at the predetermined time or upon receiving a demand for repayment from the issuer. A promissory note will detail any applicable terms, including the rate of interest, if applicable, that may be accrued.

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, 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 a type of promissory note but differ whereas a demand note lacks a specified due date and instead becomes due upon request of payment.

Summary Comment

A promissory note is a legal document that states a promise to pay a certain amount of money. A promissory note may take the form of a cheque, loan agreement, or other document, that serves as proof of an outstanding debt.