Distinction between a Bill of Exchange and a Promissory Note

1) In a promissory note, the maker unconditionally undertakes to pay, whereas in a bill of exchange or ‘hundi’, the maker gives an unconditional order directing a certain person other than himself to pay.

 


2) The maker of a bill of exchange is called a drawer and the person thereby directed to pay is called the drawee. The liability of the maker of a promissory note is absolute, because he unconditionally binds himself to pay, whereas the obligation undertaken by the drawer of a bill is only conditional, since he becomes only a surety for payment by the drawee.

 

3) The maker of the promissory note becomes the principal debtor, as he accepts the primary liability to pay. According to the tenor of a bill of exchange, it is only when the drawee fails to pay that the drawer would be liable as surety. An instrument on which the word ‘hundi’ is mentioned may be either a promissory note or a bill of exchange. The word ‘hundi’ on the stamp does not determine the character of the document. To determine the character of the document, the court will look to the provisions of the document itself.

 

4) A bill of exchange requires three parties: a drawer. drawee and payee. It is possible that the same person may fill in the place of the drawer and drawee or acceptor. A promissory note requires two parties — both being distinct and different persons.

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