Types of Negotiable Instruments (Features, Function, Practice)

Negotiable Instruments types Features, Function, PracticeNegotiable instruments are is a commercial document that satisfies certain conditions and transferable either by the application of law as by the custom of bleed concerned.

This instrument can be transferred freely from hand to hand and has the legal life that can be transferred by more delivery or endorsement.

Most Common types of negotiable instruments are;

  • Promissory notes.
  • Bill of exchange.
  • Check.
  • Government promissory notes.
  • Delivery orders.
  • Customs Receipts.

Most negotiable instruments fall under the following two categories; the Negotiable instrument by statute and Negotiable instruments by custom or usages.

Negotiable instrument acts state three instruments. check, bill of exchange and promissory notes are negotiable instruments. They are therefore called negotiable instruments by statute.

Negotiable instruments by Statute are;

Promissory Notes as Negotiable Instrument

promissory-notes-as-negotiable-instrumentThe promissory note is a signed document of written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.

The promissory note is an instrument in writing containing an unconditional rule signed by one party to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.

Thus a promissory note contains a promise by the debtor to the creditor to pay a certain sum of money after a certain date. The debtor is the maker of the instrument.

Bill of Exchange as Negotiable Instrument

Bill of Exchange as Negotiable InstrumentThe Bill of Exchange contains an order from the creditor to the debtor to pay a certain person after a certain period.

The person who draws it is called drawer (creditor) and the person on whom it is drawn is called drawee (debtor) or acceptor.

The person to whom the amount is payable is called payee.

Check as Negotiable Instrument

Check as Negotiable InstrumentA Check (cheque in royal Britain) is a bill of exchange drawer a specified banker not expressed to be payable otherwise than on demand.

It is an instrument in writing, containing unconditional order, signed by the maker (depositor), directing a certain banker to pay a certain sum of money to the bearer of that instrument.

Some other instruments have acquired the character of negotiability by customs or usage of trade.

Negotiable instruments by custom or usages are mainly, the government promissory notes, delivery orders, and railway receipts have been held to be negotiable by usage or custom of the trade.