Promissory Notes: Negotiable Instruments Containing Express Terms Regarding Repayment

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

Answer: A promissory note is an unconditional written promise to pay a specific sum of money, governed by the Bills of Exchange Act, R.S.C. 1985, c. B-4. Demand notes, a subtype of promissory notes, do not have a fixed due date; payment is required upon request. In contrast, common notes specify a future date for repayment. When structuring these financial agreements, understanding the differences can protect your payment rights. Subscribe to our insights to stay informed about financial obligations and best practices with Lippa Legal Services, serving the Greater Toronto Area.

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, 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 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.