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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 have a specified due date and is payable upon request. In contrast, a common promissory note outlines a specific repayment date and may include terms such as interest rates and repayment conditions. If you require assistance navigating these financial instruments, Freed Legal Services LLP is here to help you understand your options effectively.
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, governs financial instruments such as currency, cheques, among other things, and defines a promissory note as:
176 (1) A promissory note is 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.
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.
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