Difference Between Bill of Exchange and Promissory note.

Bill Of Exchange

Definition of ‘Bill Of Exchange’

A non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.

So we can explains ‘Bill Of Exchange’

Bills of exchange are similar to checks and promissory notes. They can be drawn by individuals or banks and are generally transferable by endorsements. The difference between a promissory note and a bill of exchange is that this product is transferable and can bind one party to pay a third party that was not involved in its creation. If these bills are issued by a bank, they can be referred to as bank drafts. If they are issued by individuals, they can be referred to as trade drafts.

We can distinguish or difference between bill of exchange and promissory note by the points :

1. Number Of Parties :-

Bill of exchange : There are three parties in the bill of exchange.

Promissory note : There are two parties in the promissory note.

2. Number Written By :-

Bill of exchange : It is written by the creditor.

Promissory note : It is written by the debtor.

3. Order And Promise :-

Bill of exchange : In a bill of exchange it is an order.

Promissory note : In a pro-note it is a promise to make the payment.

4. Acceptance :-

Bill of exchange : It must be accepted by the drawee before.

Promissory note : It requires no acceptance.

5. Dishonour Notice :-

Bill of exchange : In this case notice of dishonour must be given by the holder to the concerned parties.

Promissory note : In case of promissory note there is no need to serve the notice to the maker.

6. Protest :-

Bill of exchange : A foreign bill must be protested in case of dishonour.

Promissory note : Protect is not needed in case of pro-note.

7. In Sets :-

Bill of exchange : A foreign bill can be drawn in sets.

Promissory note : A pro-note cannot drawn in sets.

8. Liability :-

Bill of exchange : The drawer is liable only when the acceptor does not honour the bill.

Promissory note : The liability of pro-note maker is primary.

9. Payable To Bearers :-

Bill of exchange : A bill can be drawn if it is not drawn payable to bearer on demand.

Promissory note : A pro-note can not be drawn payable to the bearer.

10. Drawer and Payee :-

Bill of exchange : In this case drawer or payee may be the same person.

Promissory note : In case of pro-note the drawer can not become the payee.

11. Drawer’s Position :-

Bill of exchange : In this case the drawer of accepted bill stands in an immediate relation with the acceptor and not the payee.

Promissory note : The drawer of the pro-note stands immediate relations with the payee.

12. Conditional :-

Bill of exchange : The acceptance of the bill may be conditional with the holders consent.

Promissory note : A pro-note cannot be made conditional.

13. Presentment :-

Bill of exchange : In this case provision relating to presentment for acceptance is applicable.

Promissory note : Such provision is not applicable in case of promissory note.

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. Maker’s 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.