Jurisprudence, Interpretation and General Laws · Law relating to Negotiable Instruments

Promissory Note, Bill of Exchange and Cheque: Definitions and Differences

Updated 11 October 2026 · Fact-checked

A promissory note is a written, signed, unconditional promise by the maker to pay a certain sum to a certain person or bearer. A bill of exchange is a written, signed, unconditional order to a certain person to pay. A cheque is a bill of exchange drawn on a specified banker and payable on demand. Solve questions by testing each essential element.

Understand Promissory Note, Bill of Exchange and Cheque

The Negotiable Instruments Act, 1881 deals with three main instruments: the promissory note, the bill of exchange and the cheque. Under section 13, a negotiable instrument means any of these three payable either to order or to bearer. The key idea is that the right to receive money can pass from one person to another by delivery or by endorsement and delivery.

A promissory note (section 4) is a promise. It has two parties at the start: the maker, who promises, and the payee, who receives. It must be in writing, contain an unconditional undertaking, be signed by the maker, and promise a certain sum of money only to a certain person or to the bearer. A bank-note or currency-note is not a promissory note.

A bill of exchange (section 5) is an order. It has three parties at the start: the drawer, who gives the order, the drawee, who is directed to pay, and the payee, who receives. It must be in writing, contain an unconditional order, be signed by the maker (drawer), direct a certain person to pay a certain sum of money only, to or to the order of a certain person or the bearer. The drawee becomes the acceptor only after accepting the bill.

A cheque (section 6) is a special bill of exchange. It is drawn on a specified banker and is not expressed to be payable otherwise than on demand. It includes the electronic image of a truncated cheque and a cheque in electronic form. Section 19 says a cheque is payable on demand, and so is a note or bill in which no time for payment is specified.

A cheque may be crossed. Under section 123, two parallel transverse lines across its face, or the words "and company" or an abbreviation between two lines, with or without the words "not negotiable", make it a general crossing. Crossing is a safety device: the paying banker pays to a banker, not over the counter. Remember the three-way test for any question: is it a promise or an order, who are the parties, and is it drawn on a banker and payable on demand.

Key rules to remember

Promissory note (Section 4): Writing + unconditional undertaking + signed by maker + certain sum only + certain person or bearer; Not a bank-note or currency-note. Two parties: maker and payee.
Bill of exchange (Section 5): Writing + unconditional order + signed by drawer + directs a certain person + certain sum only + to a certain person or bearer; Three parties: drawer, drawee, payee. One person can hold more than one role.
Cheque (Section 6): Cheque = bill of exchange + drawn on a specified banker + payable on demand only; Includes electronic image of a truncated cheque and a cheque in electronic form.
Negotiable instrument (Section 13): Promissory note, bill of exchange or cheque, payable to order or to bearer; Payable to order if expressed so, or payable to a particular person without words prohibiting transfer.
Payable on demand (Section 19): No time specified (note or bill) or a cheque = payable on demand; A cheque is always on demand.
General crossing (Section 123): Two parallel transverse lines, or "and company" between lines, with or without "not negotiable"; Any such addition is deemed a general crossing.
Negotiation by delivery (Section 46): Bearer instrument: delivery. Order instrument: indorsement and delivery; Making, acceptance or indorsement is complete on delivery.

How to solve Promissory Note, Bill of Exchange and Cheque questions

Use the same method for definition, difference and problem questions on these three instruments.

1Identify the instrument by asking whether the document contains a promise or an order, and note its words.
2List the essentials of that instrument: writing, unconditional, signed, certain sum, certain person.
3Test each essential against the facts. Quote the key words from the instrument.
4Check the special tests: parties and their roles, drawn on a banker, payable on demand.
5For a cheque, check any crossing and state whether it is general, and the effect.
6If the question asks for differences, write point by point: parties, nature, acceptance, who is primarily liable, payment time.
7Give a clear conclusion that names the instrument and cites the section.

Quickest way: Promise, Order, Banker test

When to use it: Use when a short fact pattern asks you to classify a document.

Promise by the signer to pay: think promissory note (section 4).
Order to another person to pay: think bill of exchange (section 5).
Order on a banker, payable on demand: cheque (section 6).
Then scan for conditions, uncertain sums, uncertain payee or extra duties. Any of these defeats the instrument.
Write the conclusion with the section number.

Common mistakes in Promissory Note, Bill of Exchange and Cheque

Calling a document a promissory note because it uses the word 'promise', without checking whether it is unconditional.
Students match keywords and skip the test of conditions.
Fix: Check for a condition that may never happen. In the Act's illustration, a promise to pay on D's death only if D leaves enough is not a promissory note.
Saying a bill of exchange has only two parties.
It is confused with the promissory note.
Fix: Name drawer, drawee and payee. The note has maker and payee.
Treating every IOU as a promissory note.
The words look like an acknowledgement of debt.
Fix: Under illustration (c) to section 4, a bare 'Mr. B, I O U Rs. 1,000' is not a promissory note. Illustration (b), which acknowledges a debt and says it is to be paid on demand, is a promissory note. Read the actual words of each document.
Thinking a cheque can be payable after a fixed period.
Students mix cheque and time bills.
Fix: A cheque is drawn on a banker and not expressed payable otherwise than on demand.
Writing that a cheque crossed 'not negotiable' is a special crossing.
The words 'not negotiable' are confused with naming a bank.
Fix: Under section 123, two parallel lines with or without 'not negotiable' is a general crossing.
Allowing a promise to pay a sum and also deliver goods to qualify as a note.
Students overlook the word 'only' in 'a certain sum of money only'.
Fix: Money must be the only thing promised. The Act's illustration of Rs. 500 plus a black horse is not a note.

Worked examples

Example 1

A signs: 'I promise to pay B Rs. 500 seven days after my marriage with C.' Is it a promissory note? Compare it with 'I promise to pay B or order Rs. 500.'

Show the solution

Section 4 requires an unconditional undertaking to pay a certain sum only to a certain person or order.
The second instrument is a signed written promise to pay Rs. 500 to B or order. All elements are met.
The first instrument ties payment to A's marriage with C. Section 4, illustration (f), deals with these very words, 'seven days after my marriage with C', and says the instrument is not a promissory note.
The second paragraph of section 5 applies to both section 4 and section 5. It says a promise is not conditional merely because the time for payment is a certain period after an event that, by ordinary expectation, is certain to happen, although the time of its happening may be uncertain. A marriage is not an event certain to happen, so this paragraph does not save the promise.
So the first promise is conditional.

Answer: The first instrument is not a promissory note, as section 4 illustration (f) shows, because the promise is conditional. The second, 'I promise to pay B or order Rs. 500', is a valid promissory note under section 4.

Example 2

Distinguish a bill of exchange from a cheque, and state when a cheque is crossed generally.

Show the solution

Define each: a bill of exchange (section 5) is a written unconditional order signed by the maker, directing a certain person to pay a certain sum only to a certain person or bearer. A cheque (section 6) is a bill of exchange drawn on a specified banker and not expressed payable otherwise than on demand.
Drawee: in a bill it may be any certain person; in a cheque it must be a specified banker.
Time of payment: a bill may be payable on demand or after a period; a cheque is payable on demand only (sections 6 and 19).
Acceptance: as a general principle, a time bill is presented to the drawee for acceptance; a cheque is presented for payment at the bank on which it is drawn. Under section 72, to charge the drawer, a cheque must be presented at that bank before the relation between the drawer and his banker has been altered to the drawer's prejudice.
Crossing, the second part of the question: section 123 says a cheque is crossed generally where it bears across its face two parallel transverse lines simply, or the words 'and company' or an abbreviation between two parallel transverse lines, with or without the words 'not negotiable'.

Answer: A cheque is a special bill of exchange drawn on a specified banker and payable on demand. The differences lie in the drawee, the time of payment and presentment (a cheque is presented to the drawee bank for payment, and under section 72 must be so presented to charge the drawer). A cheque is crossed generally under section 123 when two parallel transverse lines, or 'and company' or an abbreviation between such lines, appear across its face, with or without 'not negotiable'.

Exam tips

Begin every answer with the section number and the definition in your own words, then list the essentials.
Memorise parties: note (maker, payee), bill (drawer, drawee, payee), cheque (drawer, drawee bank, payee).
For a difference question, use at least five points in a two-column style written as lines, not a table.
Use the Act's illustrations on conditional promises, IOU and the black horse as ready examples.
End with a one-line conclusion that names the instrument, so the examiner sees the final answer.

Practice questions from Law relating to Negotiable Instruments

Promissory Note, Bill of Exchange and Cheque in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Promissory Note, Bill of Exchange and Cheque: frequently asked questions

What is the main difference between a promissory note and a bill of exchange?

A promissory note contains a promise by the maker to pay, while a bill of exchange contains an order by the drawer to another person to pay. A note has two original parties, and a bill has three. A bill may need acceptance by the drawee, but a note does not.

Is a cheque a bill of exchange?

Yes. Section 6 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. It includes an electronic image of a truncated cheque and a cheque in electronic form.

What makes a cheque crossed generally?

Under section 123, two parallel transverse lines across its face make it crossed generally. The words 'and company' or an abbreviation between two parallel lines have the same effect. Adding 'not negotiable' does not change this.

Is a bank-note a promissory note?

No. Section 4 expressly excludes a bank-note or a currency-note from the definition of a promissory note.

When is an instrument payable on demand?

Under section 19, a note or bill with no time for payment specified is payable on demand. A cheque is always payable on demand.