Difference between Bills of Exchange and Promissory Note

Negotiable Instruments Act' 1881 Notes
Business Laws Notes B.Com 1st & 2nd Sem CBCS Pattern

Bills of Exchange Meaning

A bill of exchange or “draft” is a written order by the drawer to the drawee to pay money to the payee. It is an unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated. Bills of exchange are used primarily in international trade, and are written orders by one person to his bank to pay the bearer a specific sum on a specific date.

As per Section 5 a “bill of exchange” is “an 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.” 

Promissory Note Meaning

Promissory Note, in the law of negotiable instruments, is a written instrument containing an unconditional promise by a party, called the maker, who signs the instrument, to pay to another, called the payee, a definite sum of money either on demand or at a specified or ascertainable future date. The note may be made payable to the bearer, to a party named in the note, or to the order of the party named in the note.

According to the Section 4 of the Negotiable Instrument Act, 1881 “A Promissory Note is an instrument in writing not being a bank note or a current note containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or do the order of, a certain person, or to the bearer of the instrument.”

In other words, we can say that a promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand to the payee, or at fixed or determinable future time, certain in money, to order or to bearer.

 Difference between bill of exchange and Promissory Note

Also Read:

Basis

Bill of Exchange

Promissory Note

Parties

There are 3 parties – drawee, drawer and payee.

There are 2 parties – maker or promisor and payee or promisee.

Drawer

It is drawn by the creditor

It is drawn by the debtor

Order or Promise

It contains an order to make payment. There can be three parties to it, viz. the drawer, the Drawee and the payee.

It contains a promise to make payment. There are only two parties to it, viz. the drawer and the payee.

Acceptance

It requires acceptance by the Drawee or someone else on his behalf.

It does not require any acceptance.

Payee

Drawer and payee can be the same party

Drawer cannot be the payee of it

Set

A bill of exchange can be drawn in sets.

Promissory note cannot be drawn in sets.

 

Notice

The maker of the bill of exchange is secondarily and conditionally liable to payee. He becomes liable to pay only when the drawee refuses to honour the bill. Drawer stands in immediate relation to the drawee or acceptor and not the payee.

The maker of the Promissory note is primarily and absolutely liable to payee. Promisor stands in the immediate relation to the payee.

Notice

In case of its dishonour due notice of dishonour is to be given by the holder to the drawer

No notice needs to be given in case of its dishonour


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