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Note, Bill of Exchange

1. A promissory note contains an unconditional promise to pay a certain sum of money, while a bill of exchange contains an unconditional order to pay. 2. A promissory note has two parties (maker and payee), while a bill of exchange has three parties (drawer, drawee, and payee). 3. The key differences are that a promissory note represents a debt between the maker and payee, while a bill of exchange sets up a credit relationship between the drawer and drawee, with the payee receiving the ordered payment.

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362 views

Note, Bill of Exchange

1. A promissory note contains an unconditional promise to pay a certain sum of money, while a bill of exchange contains an unconditional order to pay. 2. A promissory note has two parties (maker and payee), while a bill of exchange has three parties (drawer, drawee, and payee). 3. The key differences are that a promissory note represents a debt between the maker and payee, while a bill of exchange sets up a credit relationship between the drawer and drawee, with the payee receiving the ordered payment.

Uploaded by

Juhi Jethani
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Negotiable Instruments

Act 1881
Difference between promissory
note, bills of exchange and
cheque
Promissory Note
 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
only to, or to the order of, a certain
person, or to the bearer of the instrument
Promissory Note
 The person who makes the promissory
note and promises to pay is called maker
 The person to whom the payment is to be
made is called payee
Essential Elements Promissory
Note
 Writing – the instrument must be in
writing
 Promise to pay – the instrument must
contain an express promise to pay
 Definite and unconditional – the promise
to pay must be definite and unconditional
Essential Elements Promissory
Note
Promise to pay may be subject to a condition
which according to the ordinary experience of
mankind is bound to happen; it is not conditional
when
 It depends upon an event which is certain to happen
though the time of its happening may be uncertain
 The promise to pay at a particular place or after a
specified time
Essential Elements Promissory
Note
 Signed by the maker – the instrument
must be signed by the maker, otherwise it
is incomplete and of no effect
 Certain parties – the instrument must
point out with certainty as to who the
maker is and who the payee is.
Promissory note can’t be made payable to
the maker himself; such a note is a nullity
Essential Elements Promissory Note
 Certain sum of money – the sum payable must be
certain and must not be capable of contingent additions
or subtractions; the sum payable is certain when
 It is payable with interest; but if it is not stated the
instrument is not a promissory note
 It is payable at an indicated rate of exchange
 It is payable by installments, with a provision that on
default being made in payment, the balance unpaid shall
become due
Essential Elements Promissory
Note
 Promise to pay money only – the payment to be
made under the instrument must be in the legal
tender money of India
 Bank note or currency note is not a promissory
note – because bank note or a currency note is
money itself
 Formalities like number, date, place,
consideration, etc.
Essential Elements Promissory
Note
 It may be payable on demand or after a
definite period of time – on demand mean
payable immediately
 It cannot be made payable to bearer on
demand
Specimen of Promissory Note
Bill of Exchange
 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.
Bill of Exchange
 There are three parties to a bill of exchange,
viz. drawer, drawee and the payee
 The person who gives the order to pay or who
makes the bill is called drawer
 Person who is directed to pay is called drawee
 Person to whom the payment is made is called
payee
Bill of Exchange
 When the drawee accepts the bill, he is
called acceptor
 When the payee named in the bill is
fictitious, the bill is treated as payable to
bearer
Essential Elements Bill of
Exchange
 It must be in writing
 It must contain an order to pay
 The order must be unconditional
 It requires three parties, i.e., the drawer,
drawee, and payee
Essential Elements Bill of
Exchange
 The parties must be certain
 The sum payable must be certain
 It must contain an order to pay money
 The formalities relating to number, date, place
and consideration, though usually found in bills,
are not essential in law. But a bill must be affixed
with the necessary stamp
Distinction between Bill of Exchange
and Promissory note
1. In a note there are 1. In a bill there are
two parties – maker and three parties – drawer,
the payee drawee and payee

2. Note contains 2. Bill contains


unconditional promise to unconditional order to
pay pay

3. The maker of the note 3. The drawer of a bill is


is the debtor and he the creditor who directs
himself undertakes to the drawee (his debtor)
pay to pay
Distinction between Bill of Exchange
and Promissory note
4. The maker of a note 4. The acceptor may
corresponds in general to accept the bill
the acceptor of a bill; he conditionally because he
cannot undertake to pay is not the originator of
conditionally the bill
5. The liability of the 5. The liability of the
maker is primary and drawer is secondary and
absolute conditional

6. Note cannot be made 6.The drawer and the


payable to the maker payee may be one and
himself the same person
Distinction between Bill of Exchange
and Promissory note
7. Note requires no 7. Bill payable after sight
acceptance as it is signed or after a certain period
by the person who is must be accepted by the
liable to pay drawee before it is
presented for payment
8.Note cannot be drawn 8. Bill can be drawn so.
payable to bearer

9.The maker of the note 9. Drawer of the bill


stands in immediate stands in immediate
relation with the payee relation with the acceptor
and not the payee
Distinction between Bill of Exchange
and Promissory note
10. In case of dishonour 10. In case of dishonour
of note no notice is of bill either by non-
required to be given to acceptance or by non-
the maker payment, due notice of
dishonour must be given
to all the persons who are
to be made liable
11. No protest is 11. Foreign bills must be
required for foreign notes protested for dishonour
for dishonour when such protest is
required by the law of the
place where they are
drawn

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