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“A promissory note is an instrument in writing (not being a bank note or 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 bearer of the instrument.”


Indian Negotiable Instrument Act. Promissory note is a promise to make the payment of certain specified amount to the creditor on demand or after expiry of certain period.


Special Features of Promissory Note


  1. It is a promise.
  2. It is a document in writing.
  3. It is a promise to pay specified amount.
  4. Payment may be made on demand or after the expiry of certain period.
  5. The promise to make payment is unconditional.


Parties to Promissory Note


  1. Maker. It is the debtor who promises to make the payment. It must be signed by its maker.
  2. Payee. The person who receives the payment of the promissory note is the payee. In case of Promissory Notes payee may be the person who has been addressed in it or who is its holder.


Advantages of Promissory Note


  1. It is an easy method of borrowing and making payment.
  2. It is itself an evidence of debt.
  3. Acceptance is not required.
  4. Noting is not required.


Difference between Bills of Exchange and Promissory Notes


Points of Difference    Bills of Exchange Promissory                                     Notes

1. Parties                     There are three parties in the bills, i.e.,     There are two parties in promissory

drawer, drawee and payee.                              notes, i.e., maker and payee.

2. Drawer                    It is drawn by the creditor.                              It is made by the debtor.

3. Acceptance              Acceptance is must.                                         Acceptance is not required.

4. Nature                     It is an order to the debtor to make pay-                   It is a promise to make payment.


5. Copies                     In case of foreign bills, three sets are pre-    Only one copy is prepared.

pared. In case of inland bills only one

copy is prepared.

6. Stamps                     Stamps are not fixed on bills, payable ‘on      Stamps are fixed.

demand’ stamps are affixed on term bills.

7. Noting                      In case of dishonour of the bills it is noted        Promissory notes cannot be noted.

and protested.

8. Liabilities                 In case of bills accepted jointly by two or         If promissory note is made jointly

more persons, the liability of the                      the liability will be both joint

drawees will be joint.                                      and individual.

9. Receiver                   Drawer can be the payee of the bill.                Maker cannot be the payee of                                promissory note.