Promissory notes and bills of exchange are both important negotiable instruments used in business transactions. While they may appear similar, they differ in terms of structure, parties involved, and legal requirements.
Understanding the difference between a promissory note and a bill of exchange is essential for students, professionals, and anyone involved in financial dealings.
Difference between Promissory Note and Bill of Exchange
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Maker
A promissory note is written by the principal debtor who has to make payment of the note. But a bill of exchange is written by the creditor who has to receive payment.
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Mature of Contract
A promissory note is an unconditional promise to pay but a bill of exchange is an unconditional order by the drawer to the drawee.
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Parties
In a promissory note, there are two parties, the maker and payee but in case of a bill of exchange, there are three parties the drawer, drawee and payee.
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Acceptance
There is no need for the acceptance of promissory note because it is given by the debtor. The acceptance of a bill of exchange is necessary because it is ordered by the drawer (creditor) to drawee (debtor).
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Dishonor of the Document
If the promissory note is dishonoured, there is no need of going to the notary public. But if the bill of exchange (particularly foreign bill) is dishonoured.
It is necessary to get it recorded with the notary public and to obtain the certificate of dishonor from him.
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Copies
A promissory note is prepared only in one copy. But a bill of exchange (particularly a foreign bill) is prepared in sets.
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Liability
In case of promissory note, the liability of payment falls on the maker but in case of the bill, the liability falls on acceptor.
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Presentation for Payment
In case of promissory note, there is no need of getting acceptance from the maker before its presentation for payment.
But in case of a bill of exchange first it is accepted by the drawee or by any person on his behalf and after that, it can be presented for payment.
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Payment to Same Person
In case of promissory note, the maker and the payee cannot be the same person. But a bill of exchange can be payable to the same person Here the drawer and payee or the drawee and payee can be the same persons.
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Notice of Dishonor
In case of promissory note, when it is dishonoured, no notice of dishonor is necessary. But if a bill of exchange is dishonoured the notice of dishonor must be given by the holder of the instrument to the drawer and the Endorser of the document.
Conclusion
Both promissory notes and bills of exchange are widely used in financial and business transactions. While they serve a similar purpose of facilitating payments, they differ significantly in structure, parties involved, and legal formalities.
A promissory note is a simple promise to pay, whereas a bill of exchange involves a formal order to pay and requires acceptance. Understanding these differences helps in choosing the appropriate instrument for different financial situations.
