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 written document in which one party (the issuer) makes an unconditional promise to pay a certain amount of money to another party (the payor). Under a promissory note, payment is due at the stated time or upon receiving a request for repayment. A promissory note will include information about any applicable terms, such as the rate of interest, if any, 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

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 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.