Promissory Note and Bill of Exchange
A Promissory note and Bill of Exchange are two negotiable instruments recognised under the Negotiable Instruments Act, 1881.
According to section 4 of the Indian contract Act “A promissory note is an instrument in writing ( not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of a certain person, or only to bearer of the instrument.”
According to section 5 of the Indian contract Act ” A bill of exchange is a instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.”
Difference between Promissory Note and Bill of Exchange
| Promissory Note | Bill of Exchange |
| A Promissory note is a Two party instrument with a maker and a payee | A Bill of Exchange is a Three party instrument with a Drawer, a Drawee and a payee. The payee is the maker. |
| The Maker of a promissory note cannot be the payee or his order | The drawer and the payee may be the same person |
|
A promissory note contains an unconditional promise by the maker to pay the payee or his order |
A Bill of Exchange is an unconditional order to the drawee to pay according to the directions of the drawer |
| A promissory note can be presented for payment without any prior acceptance of maker | It must be accepted by the drawer or someone on his behalf before presenting liability of the drawer is secondary and conditional |
| Liability of the maker is primary and absolute | Liability of the drawer is secondary and conditional |
| A Promissory cannot be drawn payable to bearer | A Bill of Exchange can be drawn payable to bearer but not on demand |
| In case of dis-honor no notice is necessary | A Notice must be given by the holder to all prior parties who are liable to pay |
| Provisions like drawing in sets, acceptance, supra protest are not applicable | Provisions like drawing in sets, acceptance, supra protest are applicable |
| Maker stands in immediate relation with the payee | The drawer stand in immediate relationship with the acceptor |