Meaning
Section 5 of the Act defines, “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”.
A bill of exchange, therefore, is a written acknowledgement of the debt, written by the creditor and accepted by the debtor.
Major Parties
There are usually three parties to a bill of exchange drawer, acceptor or drawee and payee. Drawer himself may be the payee.
The
maker of a bill is called the ‘drawer’,
the
person who is directed to pay is called the ‘drawee’;
the
person who is entitled to receive the payment is called the ‘payee’; sometimes
the drawer himself is the payee. The specimen of a bill of exchange is given
below:
Essential conditions of a bill of exchange
(1) It must be in writing.
(2) It must be signed by the drawer.
(3) The drawer, drawee and payee must be certain.
(4) The sum payable must also be certain.
(5) It should be properly stamped.
(6) It must contain an express order to pay money and money alone.
(7) The order must be unconditional.
Difference
between bill of Exchange and Promissory note
|
Particulars |
Bill of Exchange |
Promissory note |
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1.
Definition |
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.” |
A
promissory note 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 or to the order of a certain person, or to
the bearer of the instrument. |
|
2. Number of parties |
In
a bill of exchange there are three parties –the drawer, drawee and payee |
In
a promissory note there are two parties – the maker of the note and the payee |
|
3. Promise and order |
A
bill of exchange is an order for making the payment |
A
promissory note contains a promise to make the payment |
|
4.
Acceptance |
Bill
payable after sight requires acceptance of the drawee before it is presented
for payment |
Promissory
note does not require it |
|
5. Nature of liability |
The
liability of drawer of a bill of exchange is secondary and conditional |
The
liability of the maker of a promissory note is primary and absolute |
|
6. Maker’s position |
The
maker or drawer of an accepted bill stands in immediate relation with the
acceptor and not the payee |
The
maker of promissory note stands in immediate relation with the payee |
|
7. Payable to bearer |
A
bill of exchange can be drawn payable to bearer |
A
promissory note cannot be drawn payable to bearer |
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