Book-Keeping and Accountancy · Ch 7 — Bills of Exchange
Distinguishing a Bill of Exchange from a Promissory Note
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Distinguishing a Bill of Exchange from a Promissory Note
Both a Bill of Exchange and a Promissory Note are negotiable instruments recognised under the Negotiable Instruments Act, 1881, and both evidence a promise to pay money — but they differ in several important respects that the MSBSHSE HSC Accountancy examination regularly tests.
| Basis | Bill of Exchange | Promissory Note |
|---|---|---|
| Who makes it | The creditor (drawer), ordering the debtor to pay | The debtor (maker), personally promising to pay |
| Nature of the instrument | Contains an order to pay | Contains a promise to pay |
| Number of parties | Three — drawer, drawee, payee (drawer and payee may be the same) | Two — maker and payee |
| Acceptance | Must be accepted by the drawee before it becomes binding on them | No acceptance needed — the maker is liable from the moment it is signed |
| Primary liability | The drawee/acceptor is primarily liable; the drawer remains liable if the drawee dishonours it | The maker alone is primarily and unconditionally liable |
| Maker and payee the same person? | Drawer and payee are commonly the same; but drawer and drawee can never be the same person | Never — the maker and payee must always be different persons |
| Governing provision | Section 5, Negotiable Instruments Act, 1881 | Section 4, Negotiable Instruments Act, 1881 |
Definition 1Promissory Note
Under Section 4 of the Negotiable Instruments Act, 1881, an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to, or t …
Definition 2Maker
The person who signs and issues a promissory note, personally undertaking to pay it; analogous to, but legally distinct from, the drawee/accep …