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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 becomes payable upon the lender's request rather than having a fixed due date. In contrast, a common promissory note specifies a particular repayment date or a determinable future time. Governed by the Bills of Exchange Act, R.S.C. 1985, c. B-4, both forms of notes are legal financial instruments in Canada. For assistance with financial documentation and legal support, reach out to Civil Litigations Paralegal Services today.
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, 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
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 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.
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