What is a Promissory Note? – Definition
A promissory note is an instrument in writing (Not being a banknote 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 bear of the instrument”.
A promissory note is an unconditional promise in writing made by one person to another, to 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.
- Promise to pay must be unconditional.
- The amount of payable must be certain.
- 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
|Points of Distinction||Promissory Note||Bill of Exchange|
|1. Maker||A promissory note is made by debtor. He is to pay the amount of the instrument.||It is drawn or made by a creditor. He is the person who is to receive the amount of the bill.|
|2. Parties||There are two parties in 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||It is an unconditional promise to pay.||It is 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 demand bill)|
|6. Payable to Dishonor||It cannot be drawn payable to the maker.||It 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.|