Introduction
- Bill of exchange and promissory note are types of negotiable instrument act. A bill of exchange or a promissory note is payables either to the order or bearer deemed as the instruments under the negotiable instrument act, 1881.
- A bill of exchange is a type of negotiable instrument raised from the trade transactions. A promissory note is undertaken from the borrower to pay a certain sum of amount to the lender.
Bill of Exchange
- Bill of exchange comes under section 5 of negotiable instrument act, 1881 "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 to the order a certain person or to the bearer of the instrument"
- It is an agreement between two party customer and seller used mainly in global trade.
- Bill of exchange is a documentation that a buyer party has accepted to pay a selling party a sum of money at a proposed time for delivered goods and services.
- Both the parties generally engage with the bank to issue a bill of exchange due to a risk associated with trading.
- The acceptor of a bill of exchange is liable to settle his liability as a principal debtor under the act.
Types of Bill of Exchange
1) Trade bill2) Accommodation bill
Characteristics of Bill of Exchange
- In a bill of exchange, there must be a proper dated and amount must be specific.
- It must carry an order it means the drawer of the bill of exchange directs the drawee to pay a certain sum to the payee.
- The drawee must accept the bill.
Promissory Note
- The promissory note comes under the section 5 of negotiable instrument act, 1881 " A promissory note is an instrument in writing, contains an unconditional undertaking, signed by the maker to pay a certain sum of a company only to the order of the certain person to the bearer of the instrument.
- The promissory note is in written and signed by the maker, who is a promisor, is a negotiable instrument.
- It is an undertaking from the buyer to pay a certain sum of money to the lender.
- The person to whom payment is guaranteed is called a payee or owner.
- A promissory note can be either payable on demand or at a specific time.
Characteristics of Promissory Note
- The promissory note is a written promise with specific due to pay money to the lender
- There must be a signature of the drawer.
- Both the promisor and promise must be certain.
Difference Between Bill of Exchange and Promissory Note
Parties Involved:
In a bill of exchange, there are three parties i.e. the drawer and the drawee an payee. While in a promissory note there are only two parties i.e. the maker and the payee.Type of Payment
In a bill of exchange, the nature of payment is unconditional order to pay while in a promissory note, it is unconditional promise to pay.Acceptance
A bill of exchange requires an acceptance of the drawee before it is presented for payment. In a promissory note, there is no need to accept as it is signed by the person who is responsible to pay.Accountability
The liability of a drawer in a bill of exchange is secondary and conditional. In a promissory note, the liability of maker is primary and absolute.Notice of Dishonor
In a bill of exchange, if the payment fails in that case notice must be given to all persons are responsible to pay. In a promissory note, the notice of dishonour to the maker is not necessary.Protest
In a bill of exchange, there must be a protection in case of dishonour while in a promissory note there is no protest at all.Position of Maker
In a promissory note, the make has an immediate relationship with the payee while in bill of exchange drawer is in an immediate relationship with the acceptor and not with the payee.
