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Promissory Note is defined in Section 4 of the Negotiable Instruments Act, 1881. It is an instrument signed by the maker containing an unconditional undertaking to pay a certain sum of money only to the order of a certain person. A bill of exchange is defined under Section 5 of the Negotiable Instruments Act, 1881. It is an instrument containing an unconditional order, signed by the maker, directing a person to pay a certain sum of money only to the order of a certain person or the bearer. The general differences between a promissory note and a bill of exchange are as follows:
1.      Number of Parties
In a Promissory Note there are two parties. In a Bill of Exchange, there are three parties.Parties in a promissory note are called maker and payee while in Bill of exchange there is drawer, drawee and payee.
2.      Nature of the Instrument
In a promissory note there is a promise to make the payment by the maker to the payee at a certain time. It is called an unconditional undertaking. In a Bill of exchange, it is an unconditional order to make the payment.
3.      Nature of liability
The maker of the promissory note has primary liability. If the payee demands the maker has to pay directly to him. In a Bill of exchange, the drawee has the primary liability. In case of a cheque which is a bill of exchange, the bank has to honour the cheque. The drawer will be liable in case the bank dishonours the cheque for some reasons.
4.      Self-payment
As the promissory note has only two parties, one cannot make it payable to himself. But in a bill of exchange, the drawer can make payment to the drawee of the instrument.
There are also other differences noted in some texts. But the above are the basic differences between a promissory note and a bill of exchange.

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  1. To whom it may concern

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    Gopalji Sahay
    Director, Buddha Law Institute, Gaya (BIHAR)
    Mobile-9771018211. EMAIL-gjsahay@gmail.com

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  2. Thanks for the nice insight into the legalities of promissory notes. I haven't heard some of these legal terms, and it's good to hear more about these details.

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