Promissory Note: Definition
A promissory note is an instrument in writing (not a banknote or currency note) that contains an unconditional undertaking, signed by the maker, to pay a certain sum of money only to a certain person or entity.
Promissory Note: Explanation
A promissory note is an unconditional promise in writing made by one person to another, stating that they will pay a specific sum of money on demand or after a specific period or at a specific future date.
Specimen/Format of Promissory Note
Features of Promissory Note
- It must be in writing
- It must be signed by the maker
- It is a promise to pay
- The promise to pay must be unconditional
- The amount payable must be certain
- The amount must be expressed in terms of money only
- Acceptance is not required
- It can be endorsed
Difference between Promissory Note and Bill of Exchange
Differences | Promissory Note | Bill of Exchange |
1. Maker | A promissory note is made by a debtor. They are required to pay the amount of the instrument. | It is drawn or made by a creditor, who is the only person who can receive the amount of the bill. |
2. Parties | There are two parties in a promissory note (i.e., maker and payee). | There are three parties in a bill of exchange (i.e., drawer, drawee, and payee). |
3. Promise and Order | An unconditional promise to pay. | An unconditional order to pay. |
4. Nature of Liability | Liability of maker is primary. | Liability of drawer is secondary. |
5. Acceptance | No need for acceptance to become a complete legal instrument. | Acceptance is necessary to become a complete legal instrument (except for demand bills). |
6. Payable to Dishonor | Cannot be drawn payable to the maker. | Can be drawn payable to the maker. |
7. Notice of Dishonor | Notice of dishonor of promissory note is not compulsory. | Notice of dishonor of bill of exchange is compulsory. |
8. Protest | Protest against dishonor is not necessary. | Protest against dishonor of foreign bill of exchange is considered necessary. |