Promissory Note Bill of Exchange

It is promise to pay It is an order to pay

There are only two parties the
drawer, and the payee.
There are three parties, the
drawer, the drawee, and the
payee.
There is no necessity of
acceptance
It must be accepted
The maker is primarily liable The drawer is not primarily liable.
It is never drawn in sets
Foreign bills are specially drawn in
sets.
Protesting is not necessary after
dishonour
A foreign bill must be protested
upon dishonor.











Nine differences between a promissory note and a
bill of exchange
The points of distinction between a promissory note and a bill of exchange are as follows:
1. Number of parties:
In a promissory note there are two parties the maker of the note and the payee. In a bill of exchange
there are three parties the drawer, the drawee and the payee.
2. The maker of a note cannot be the payee.
In the case of a promissory note the maker cannot be the payee for the simple reason that the same
person cannot be both the promisor and the promisee. But in a bill of exchange the drawer and the
payee may be one and the same person as where a bill is drawn Pay to me or my order.
3. Promise and order:
In a promissory note there is a promise to make the payment whereas in a bill of exchange there is
an order for making the payment.
4. Acceptance:
A promissory note requires no acceptance as it is signed by the person who is liable to pay. The
drawer of a bill of exchange is generally the creditor of the drawee and therefore it must be accepted
by the drawee before it can be presented for payment.
5. Nature of liability:
The liability of the maker of a pro-note is primary and absolute but the liability of a drawer of a bill of
exchange is secondary and conditional. It is only when the acceptor does not honour the bill that the
liability of the drawer arises as a surety. (Sees. 30 and 32).
6. Makers position: The maker of a promissory note stands in immediate relation with the payee,
while the maker or drawer of an accepted bill stands in immediate relation with the acceptor and not
the payee (Explanation to Sec. 44).
The position of the maker of a pro-note also differs from the position of the acceptor of a bill. A
promissory note must contain an unconditional promise to pay and therefore the maker, who himself
is the originator of a note, cannot make it conditional.
In the case of a bill of exchange although the drawer, who is the originator of a bill, has to make an
unconditional order to pay but under Section 86 the acceptor may accept the bill conditionally.
7. Payable to bearer:
A promissory note cannot be drawn payable to bearer, while a bill of exchange can be so drawn
provided it is not drawn payable to bearer on demand.
8. Notice of dishonour:
In case of dishonour of a bill of exchange, notice of dishonour must be given by the holder to all
prior parties who are liable to pay (including the drawer and endorsers), whereas in case of
dishonour of a promissory note, no notice is necessary to the maker.
9. Applicability of certain provisions:
The provisions relating to presentment for acceptance, acceptance, acceptance supra protest and
drawing of bills in sets are applicable only to a bill of exchange, they are not applicable to a
promissory note.
Difference between Promissory note and bill of
exchange
BALBIR
(1) Parties.
There are three parties to a bill of exchange, namely, the drawer, the drawee and the payee; while in a
promissory note there are only two parties maker and payee.
(2) Nature of payment.
In a bill of exchange, there is an unconditional order to pay, while in a promissory note there is an
unconditional promise to pay.
(3) Acceptance.
A bill of exchange requires an acceptance of the drawee before it is presented for payment, while a
promissory note does not require any acceptance since it is signed by the persons who is liable to
pay.
(4) Liability.
The liability of the maker of a promissory note is primary and absolute, while the liability of a drawer
of bill of exchange is secondary and conditional. It is only when the drawee fails to pay that the
drawer would be liable as a surety.
(5) Notice of dishonor.
In case of dishonor of bill of exchange either due to non-payment or non-acceptance, notice must be
given to all persons liable to pay. But in the case of a promissory note, notice of dishonor to the
maker is not necessary.
(6) Makers position.
The drawer of a bill of exchange stands in immediate relationship with the acceptor and not the
payee. While in the case of a promissory note, the maker stands in immediate relationship with the
payee.
(7) Nature of acceptance.
A promissory note can never be conditional, while a bill of exchange can be accepted conditionally.
(8) Copies.
A bill of exchange can be drawn in sets, but a promissory note cannot be drawn in sets.
(9) Payable to bearer.
A promissory note cannot be made payable to a bearer, while a bill of exchange can be so drawn
provided it is not payable to bearer on demand.
(10) Payable to maker.
In a promissory note, the maker cannot pay to himself. While in the case of a bill of exchange, the
drawer and the payee may be one person.
(11) Protest.
Foreign bills must be protested for dishonor when such protest is required by the law of the place
where they are drawn. But no such protest is required in the case of a promissory note.






Advantages of Bills of Exchange
Learning Objective:
1. What are the main advantages of bills of exchange?
The following are the advantages of a bill of exchanges:
1. It is a legal evidence of debt.
2. It is a convenient method for the transfer of debt
3. A creditor can sue on the bill itself
4. It is a negotiable instrument and can be transferred for settlement of
ones debt without difficulty.
5. It can be cashed before due date by discounting.
6. A debtor enjoys the benefit of full period of credit.
7. It affords an ease means of transmitting money from one place to
another.
It is for the aforesaid advantage, a buyer can easily be included to purchase
goods and accept bills drawn on him by the seller when he is not prepared to
pay cash at the time of purchase