Section 4 of N.I. Act defines Promissory Note
“It is an instrument in writing (not being a bank-note or a currency note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to , or to the order of , a certain person, or to the bearer of instrument.”
The definition of a promisory note in Section 4 is exhaustive and excludes from the category of notes which do not fall within its terms.
To make a promissory note, there must be an express undertaking or promise to pay the amount mentioned. A mere acknowledgement is not sufficient ; it has to be followed by an undertaking to pay. It is essential that the instrument must indicate a promise by the maker to make the payment , though the the word “promise to pay” may not be used.
Section 5 of N.I. Act defines a bill of exchange –
“A Bill of Exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person, to pay a certain sum of money only to , or to the order of , a certain person or to the bearer of the instrument.”
Thus , in a bill of exchange, one peroson makes an order to another person to pay a certain sum of money to someone. A bill of exchange is sometimes called a ‘draft’.
A Bill of Exchange differs from a promissory note in the following respects:
- In a promissory note, there are 2 parties- maker and payee. In Bill of Exchange, there are three parties – drawer ( person who gives the order), drawee (person to whom the order to pay is given) and payee (person to whom the amount is payable).
- In a promissory note, there is promise to make the payment whereas in a bill of exchange there is an order for making the payment.
- A promissory note can’t be made payable to the maker himself whereas in a bill of exchange the drawer may order the payment to be made to himself also.
- A promissory note is an unconditional order ; a bill of exchange is also an uconditional order but under Secton 86 the acceptor may accept a Bill of Exchange conditionally.
- The liability of the maker of a promissory note is primary ; in a bill of exchange which has been accepted , the liability of acceptor is primary whereas liability liability of drawer arises if acceptor doesn’t honour the bill of exchange.
- Generally , person signing a promissory note is debtor of the payee. i.e. there is a debtor and creditor relationship which necessiates the writing of the note. In a bill of exchange , the drawer is generally the creditor of the drawee on whom the bill is drawn.
- Certain provisions like presentment for acceptance, acceptance or drawing of bills in sets are applicable only to a Bill of Exchange, they are not applicable to a promissory note.