Although the fundamentals of a bill of exchange are very close to that of a promissory note, yet there are several points of distinction between the two, which are given as follows.
Differences between a Promissory Note and Bill of Exchange
1. Number of parties: A promissory note is a two-party instrument with a maker and the payee, both being distinct and different persons. In a bill of exchange there are three parties — drawer, drawee and payee. It is possible that any two out of three positions may be filled up by the same person, i.e., drawer and drawee may be the same person, drawee and payee may be the same person, and drawer and payee may be the same person.
2. Promise and order: A promissory note contains an unconditional undertaking to pay the drawee, whereas a bill contains an unconditional order to pay.
3. Maker as a payee: In case of a promissory note the maker cannot be the payee. That is, a pro-note cannot be made payable to the maker. But in a bill of exchange, the drawee and the payee may be one and the same person when a bill is drawn as ‘pay to me or my order‘.
4. Nature of liability: The liability of the maker of a pro-note is primary and absolute since the maker himself promises to pay. But the liability of the drawer of a bill is secondary and conditional. He becomes liable to pay only when the drawee or acceptor refuses to honour the bill or fails to pay.
5. Acceptance: A pro-note does not require any acceptance before it is presented for payment as it is payable by a person who makes it. A bill of exchange, on the other hand, generally requires acceptance of the drawee before it is presented for payment since it is payable by the other person directed by the drawer. The acceptance, however, may be conditional.
6. Maker’s position: In a pro-note, the maker stands in immediate relationship with the payee, but the drawer of a bill stands in immediate relation with the acceptor and not the payee.
7. Payable to bearer: A pro-note cannot be made payable to bearer, even if it is made payable otherwise than on demand. A bill can be made payable to bearer provided it is not made payable to bearer on demand.
8. Notice of dishonor: In case of dishonour of a pro-note, no notice (of dishonor) is needed to be given to maker. But when a bill is dishonored, due notice must be given by the holder to all the parties who are liable under the bill, particularly the drawer and the immediate endorsee. If notice of dishonor is not given, such parties will not be liable to pay.
9. Protest: No protest is necessary in case of a promissory note. But foreign bills must be protested for dishonor, if the law of the land, where they are drawn, so requires. The term ‘protest‘ refers to a formal certificate of dishonor issued by the Notary Public to the holder of a bill in question.
10. Exemption: The provisions related to presentment for acceptance, acceptance supra protest, drawing of bills-in-sets, especially foreign bills, do not apply in case of promissory notes. All these provisions are applicable to a bill of exchange.