Promissory Notes: Negotiable Instruments Containing Express Terms Regarding Repayment

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

Answer: A demand note is a type of promissory note that does not specify a due date, requiring repayment upon demand, unlike a common promissory note, which includes a fixed or determinable future date for payment. Crafting tailored terms on your promissory note can facilitate seamless agreements between parties. For personalized legal guidance in understanding and drafting notes, consider reaching out to DK Legal Practice, serving Oakville, Toronto, and nearby areas.

Understanding What Constitutes As a Promissory Note and What Is Meant By a Demand Note Versus a Common Note

A promissory note is a form of negotiable instrument whereby a party (the issuer) makes an unconditional promise in writing to pay a sum of money to another party (the payee).  Payment becomes due under a promissory note at fixed time stated within the promissory note or upon receipt of a demand for repayment. A promissory note will also contain details of any applicable terms such as a rate of accruing interest, if any.

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.  A bank note is a type of promissory note issued by a bank or other financial institution.  In either circumstance, a promissory note is a written promise to pay a certain amount of money to a specific person or a specific entity at a specific time and under certain conditions.  However, unlike a promissory note, a bank note is backed by the assets of a bank and is therefore more secure.

Terms Upon Notes

A promissory note will typically include details of the principal amount due, the applicable interest rate, the parties involved including a "bearer of note" if a party is unspecified, 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 negotiable instrument and could consist as a cheque, loan agreement, or other document evidencing indebtedness.