Promissory Notes:

Question: How do I know if my note is a promissory note or a demand note in Canada?

Answer: Vagans Legal can help you confirm whether a document is a promissory note and whether it is payable on demand (a demand note) versus having a fixed or determinable due date, based on the written promise to pay, the signatures, the amount, and whether the terms say it becomes due when the issuer demands payment. Under the Bills of Exchange Act, R.S.C. 1985, c. B-4, a promissory note must be an unconditional written promise to pay on demand or at a fixed or determinable future time, a sum certain in money, signed by the maker. If you want a quick, practical review of your wording and repayment terms before acting, call (416) 473-8472.

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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, 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.  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 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.