A Canadian Promissory Note is a negotiable instrument governed by the Bills of Exchange Act (R.S.C., 1985, c. B-4) in which one party (the maker) makes an unconditional written promise to pay a specified sum of money to another party (the payee) either on demand or at a fixed or determinable future date. It is the most common legal instrument for documenting private loans between individuals, family members, or businesses in Canada.

Under s. 176 of the Bills of Exchange Act, a promissory note must contain an unconditional promise to pay a sum certain in money, be signed by the maker, and be payable to a specified person or to bearer. If the note meets these statutory requirements, it qualifies as a negotiable instrument — meaning the payee can transfer it to a third party (a holder in due course), who acquires independent rights to enforce the note regardless of defences between the original parties.

Interest on promissory notes is regulated by two federal statutes. The Interest Act (R.S.C., 1985, c. I-15) requires that any interest rate be expressed as an annual rate — if the note states interest on a monthly, weekly, or per-period basis without disclosing the equivalent annual rate, the lender can recover only 5% per annum under s. 4. The Criminal Code s. 347 makes it a criminal offence to charge an effective annual rate of interest exceeding 48% (which includes all fees, charges, and penalties that constitute interest under the broad statutory definition). Bill C-46 amended this threshold to 35% for most consumer and commercial agreements, with limited exceptions for certain regulated lenders.

Provincial limitation periods govern enforcement. In Ontario, BC, and Alberta, the basic limitation period is two years from the date the cause of action was discovered. For demand notes, the limitation period typically begins when a demand for payment is made. If the borrower becomes insolvent, the lender's claims under the promissory note are governed by the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) and rank as unsecured debt unless the note is secured by collateral registered under the provincial PPSA.

When a family member or friend lends money to another individual and both parties want a legally enforceable record of the loan amount, repayment schedule, and interest terms — preventing the relationship damage that occurs when verbal promises are forgotten or disputed.

When a small business borrows from a private lender, angel investor, or shareholder and needs to document the debt obligation separately from any equity investment or shareholders' agreement, providing clear evidence of the loan for CRA tax reporting purposes.

When a vendor agrees to accept deferred payment for goods or services delivered, converting an accounts receivable balance into a formal promissory note with a defined repayment schedule and default remedies.

When a buyer in a business acquisition or asset purchase finances part of the purchase price through seller financing, and the parties need a promissory note that documents the deferred payment terms, interest, and the seller's remedies if the buyer defaults.

When a tenant owes back rent and the landlord agrees to a structured repayment plan, formalizing the debt acknowledgment in a promissory note that resets the provincial limitation period and provides clear enforcement rights.

Without a written promissory note, the lender bears the burden of proving the existence, amount, and terms of the loan — a burden that is extremely difficult to discharge when the only evidence consists of bank transfers and verbal conversations.

Principal Amount — The exact sum borrowed, expressed in Canadian dollars. Under the Bills of Exchange Act, the amount must be a sum certain in money. If the note covers a loan with additional fees or charges, clarify which amounts form part of the principal and which are separate obligations.

Interest Rate and Disclosure — If the note bears interest, state the rate as an annual percentage as required by the Interest Act s. 4. Specify whether interest is simple or compound, the compounding frequency (monthly, quarterly, annually), and confirm that the effective annual rate including all fees does not exceed the Criminal Code s. 347 threshold. If the note is interest-free, state this explicitly.

Repayment Terms — Define whether the note is payable on demand, on a fixed maturity date (lump sum), or through scheduled instalments (weekly, bi-weekly, monthly). For instalment notes, specify the amount and due date of each payment, the total number of payments, and the final payment date.

Default and Acceleration — Define what constitutes default (missed payment, partial payment, borrower insolvency) and the lender's right to accelerate the entire outstanding balance. Include a cure period (typically 5 to 15 business days) giving the borrower an opportunity to remedy the default before acceleration applies.

Late Payment Penalties — A reasonable late fee or penalty interest rate for missed payments. The late fee must not cause the total effective interest rate to exceed the Criminal Code limit. Common structures include a flat fee per late payment or a penalty interest rate applied to the overdue amount.

Prepayment Rights — Specify whether the borrower may prepay the note in full or in part without penalty. Under Interest Act s. 10, any borrower of money on a mortgage of real property may repay after five years upon giving three months' notice. For non-mortgage promissory notes, prepayment rights are contractual and should be explicitly stated.

Security — If the note is secured by collateral (personal property, real estate, or a personal guarantee), describe the security interest and reference the applicable provincial PPSA registration or mortgage registration requirements. Unsecured notes rank behind secured creditors in bankruptcy proceedings.

Waiver of Presentment — Under the Bills of Exchange Act, the holder of a note must present it for payment at maturity. Including a waiver of presentment, notice of dishonour, and protest simplifies enforcement and is standard practice in Canadian promissory notes.

Governing Law — The province whose laws govern the note, which determines the applicable limitation period, court jurisdiction for enforcement, and any provincial consumer lending regulations that may apply.