Bill of exchange and promissory note are negotiable instruments by statue and are mentioned in Negotiable Instrument Act of India. Both the promissory note and the bill of exchange are used in trade but they both are different in many ways. Here under are the differences between both the instruments in detail.
Number of parties in Promissory Note and Bill of Exchange
The parties in promissory note are the maker and the payee, it is always usually two in number. The bill of exchange on the other hand has three parties to it. They are drawer, the drawee and the payee.
Debtor and Creditor in Promissory Note and Bill of Exchange
In promissory note, the maker of the instrument is the debtor. The maker in promissory note undertakes the responsibility to pay. In the bill of exchange the maker or the drawer of the instrument is not the debtor but is the creditor. The drawer of the bill of exchange is the creditor who makes the instrument directing to whosoever it may be to pay the sum of money.
Conditionality with Promissory Note and Bill of Exchange
The maker of the promissory note is the acceptor. He accepts the same unconditionally to pay. However, in the bill of exchange the acceptor is not the originator or maker of the bill and so the same may accept the bill of exchange conditionally.
Liability with the Promissory Note and Bill of Exchange
The liability in the promissory note lies with the maker. The liability of the maker is absolute and it is primary. However, in the case of bill of exchange the liability is not conditional. The liability in the bill of exchange is secondary and it is conditional.
Payee in Promissory Note and Bill of Exchange
In bill of exchange, the maker of instrument or the drawer may be the payee but in promissory note the maker would never be a payee.
Acceptance of Promissory Note and Bill of Exchange
The promissory note needs no acceptance. The maker signs the note and it becomes a promissory note. In case of the bill of exchange, the drawee must accept the bill.
Payable to Bearer of Promissory Note and Bill of Exchange
The promissory note can never be drawn as payable to bearer. The bill of exchange can be drawn as payable to bearer. However, either of them cannot be drawn as payable to bearer on demand.
Dishonor of Promissory Note and Bill of Exchange
In case of promissory note, when it was dishonored there is no need to give notice to the maker of the promissory note. Whereas, when a bill of exchange was dishonored the notice must be served to all the parties to bill of exchange that include the drawer of the bill and the indorsers.