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Promissory Notes: Negotiable Instruments Containing Express Terms Regarding Repayment
Question: What is the difference between a promissory note and a demand note?
Answer: A promissory note is a written promise from one party to pay a specific sum to another party at a designated time or upon request. In contrast, a demand note is payable upon request without a fixed due date. Understanding these distinctions can be crucial for financial transactions, and Zofa Legal is here to help you navigate any legal matters related to notes and agreements.
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, addresses promissory notes as a form of financial instrument, along with currency, cheques, among other things, and specifically 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
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.