Promissory Note:

Learning Objectives:

1. Define and explain promissory note.

Definition and Explanation:

There is another method of payment similar to bill of exchange i.e., promissory note. In this method, in place of the seller drawing a bill of exchange on the purchaser, the purchaser himself makes a written promise to pay the amount to the seller. It is defined as an instrument in writing containing an unconditional promise, 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.

Difference Between Bill of Exchange and Promissory Note:

Learning Objectives:

1. What is the difference between bill of exchange and promissory note?

A bill of exchange differs from a promissory note on the following points:

Promissory Note	Bill of Exchange
It is promise to pay	It is an order to pay
There are only two parties the drawer, and the payee.	There are three parties, the drawer, the drawee, and the payee.
There is no necessity of acceptance	It must be accepted
The maker is primarily liable	The drawer is not primarily liable.
It is never drawn in sets	Foreign bills are specially drawn in sets.
Protesting is not necessary after dishonour	A foreign bill must be protested upon dishonor.

Difference Between Bill of Exchange and Cheque/Check:

Learning Objectives:

1. What is the difference between bill of exchange and cheque/check?

Check	Bill of Exchange
It is drawn on a banker	It may be drawn on any party or individual.
It has three parties - the drawer, the drawee, and payee.	There are three parties - the drawer, the drawee, and the payee.
It is seldom drawn in sets	Foreign bills are drawn in sets
It does not require acceptance by the drawee.	It must be accepted by the drawee before he can be made liable to pay the bill.
Days of grace are not allowed to a banker	Three days of grace are always allowed to the drawee.
No stamp duty is payable on checks	Stamp duty has to be paid on bill of exchange.
It is usually drawn on the printed f	It may be drawn in any paper and need not necessarily be printed.