Promissory Note and Bill of Exchange – Meaning and Difference

Promissory Note and Bill of Exchange


Promissory Note and Bill of Exchange

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 ExchangePromissory NoteBill 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 orderThe 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 drawerA promissory note can be presented for payment without any prior acceptance of makerIt must be accepted by the drawer or someone on his behalf before presenting liability of the drawer is secondary and conditionalLiability of the maker is primary and absoluteLiability of the drawer is secondary and conditionalA Promissory cannot be drawn payable to bearerA Bill of Exchange can be drawn payable to bearer but not on demandIn case of dis-honor no notice is necessaryA Notice must be given by the holder to all prior parties who are liable to payProvisions like drawing in sets, acceptance, supra protest are not applicableProvisions like drawing in sets, acceptance, supra protest are applicableMaker stands in immediate relation with the payeeThe drawer stand in immediate relationship with the acceptor

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