Disitinction Between Promissory Note And Bill Of Exchange

Q. Define a promissory note and bii of exchange drawing a distinction betwee two.
(2000)(2002)(2004)(2007/A)

1. Introduction:

Promissory note and bill of exchange are negotiable instruments. the negotiable instrument
recognizes only three instrument viz., a promissory note, bill of exchange and a cheque. the
essentials of the both the instruments are to great extent are same. sometimes a bill of
exchange is called a draft.

2. Definition of promissory note:

According to Sec 4 of the negotiable instrument act "A promissory note is an instrument in
writing (not being a bank note or currency note) containing an unconditional undertaking,
signed by the maker to pay on demand or at a fixed or determinable future time a certain sum of
money only to or to the order of a certain person or to the bearer of the instrument.

3. Essentials of a promissory note:

Following are the essentials of a promissory note.

(i) Written:

Promissory note must be in written form. a verbal promise to pay does not become a promissory
note.

(ii) It must contain promise to pay:

There must be a promise or an undertaking to pay. a mere acknowledgment of debt is not a

promissory note.

(iii) Unconditional promise:

It must contain an unconditional promise to pay. the promise to pay must not depend upon the
happening of some uncertain event or condition.

(iv) Signature of maker:

The maker must singed the promissory note.

(v) Maker must be a certain person:

The promissory note must indicate who is the person taking responsibility to pay the amount.

(vi) The payee must be certain:

The payee of promissory note must also a certain person.

(vii) The sum payable must also be certain

The sum payable must also be certain and definite.

(viii) The sum payable must be in Pakistani currency:

The sum of money payable must be in Pakistani currency a promissory note containing a promise
to pay a certain amount in foreign currency is not a valid promissory note.

(ix) Other legal formalities:

(i) Consideration must be lawful.

(ii) It should be dated.

(iii) It must be properly stamped.

(iv) Place should be mentioned where it is made.

(v) It is also necessary to cross all stamps affixed on the note.

4. Bill of exchange:

I. Definition:

According to Sec. 5.

"A bill of exchange is an instrument in writing containing an unconditional order, singed by the
maker, directing a certain person to pay on demand or at a fixed or determinable future time a
certain sum of money only to or the order for a certain person or the bearer of the instrument."

II. Explanation:

The person who makes the bill is called drawer. the person who is directed to pay is the drawee.
the person to whom the payment is to be made is called payee.

III. Essentials:

(i) Written:

The bill of exchange must be in writing. it may be written in any language.

(ii) Unconditional order:

The order contained in the bill of exchange must be unconditional.

(iii) Signed by the drawer:

Bill of exchange must be signed by the drawer.

(iv) The drawee must be a certain person:

The drawee of a bill of exchange must be a certain person. his name should be mentioned in it.

(v) The payee must be certain:

The payee of the bill also be a certain person.

(vi) The sum payable must be certain:

The sum payable must be certain and definite.

(vii) Pakistani currency:

The sum payable must be Pakistani currency.

(viii) Other legal formalities:

(i) It should be dated.

(ii) Name of place where it is drawn.

(iii) It should be attested.

(iv) It should be properly stamped.

5. Distinction between promissory note and a bill of exchange:

I. Number of parties:

In promissory note there are two parties.

In a bill of exchange there are three parties.

II. Promise and order:

In an promissory note there is a promise to pay.

In an bill of exchange there is an order to pay.

III. Nature of liability:

Liability of the maker of promissory note is primary.

Liability of the maker of a bill of exchange is secondary in nature.

IV. Position of make:

The maker of a promissory note stands in an immediate relation with the payee.

In bill of exchange, the drawn of bill stands in an immediate relation with the drawee and the
drawee with payee.

V. As to liability of drawer:

The maker of a promissory note is a debtor.

The drawer of bill of exchange is the creditor.

VI. Payable to bearer:

A promissory note can not be drawn payable to bearer.

A bill of exchange can be drawn payable to bearer.

VII. As to acceptance:

A promissory note needs no acceptance.

A bill of exchange needs acceptance by the drawee.

VIII. Payable to maker:

A promissory note cannot made payable to maker himself.

A bill of exchange can be make payable to the maker himself.

IX. As to notice of dishonour:

In case of dischonour of promissory note there is no need to give a notice of dischonour to the
maker.

In case of dishonour of a bill of exchange there is a need to give notice to all the parties of bill.

X. As to protest:

A promissory note need not to be protested.

A foreign bill of exchange must be protested for dishonour.

XI. As to copies:

A promissory not can not be drawn in sets.

Abill of exchange can be drawn in sets.

6. Conclusion:

A promissory note and bill of exchange are two different types of negotiable instrument. in a bill
of exchange the drawer does not make a promise to pay the money himself but orders a third
person to make the payment. in a promissory note there is a promise to pay the money.