Types of Negotiable Instruments and Features of them

A negotiable instrument is a commercial document with 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.

Types of negotiable instrument

The negotiable instruments fall under the following two categories:

  1. Negotiable instrument by statute: Negotiable instrument acts state three instruments. Cheque, bill of exchange and promissory notes are as negotiable instruments. They are therefore called negotiable instruments by statute.
    • Promissory notes: The promissory note is an instrument in writing containing an unconditional under ta« signed by the nukesp.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: the-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.
    • Cheque: A cheque is a bill of exchange drawer a specified banker not expressed to be payable otherwise then on demand. It is an instruments in writing, containing unconditional order, signed by the maker (depositor), directing a certain banker to pay a certain sum of money to bearer of that instrument.
  2. Negotiable instruments by custom or usages: some other instruments have acquired the character of negotiability by customs or usage of trade. The government promissory notes, delivery orders and railway receipts have been held to be negotiable by usage or custom of the trade.

Distinction between negotiability and transferability

There are certain differences between negotiability and transferability. These are given below:

ProcedureNegotiation means transfer of a negotiable instrument in accordance with the procedure laid down in the negotiable instruments act i.e. by delivery in case and of bearer instrument and by delivery and endorsement in case of order instrument.Transferability means the ability of transfer of a right as an actionable claim by deed or otherwise.
TittleIn case of negotiation the holder in due course have a better title than the transferor.In case of transfer the transferee gets the right of transferor
Notice of transferIn case of transferability the transferee must give notice to the debtor.In case of negotiation on notice to the debtors required to be given.
Proof of considerationIn case of negotiation consideration is presumed.In an assignment or transformation there is no presumption of consideration and the party claiming has to prove consideration.

Essential features of negotiable instrument

  1. Transferability: The negotiable instruments are easily transferable from person to person and the ownership of the property in the instrument may be passed on by more delivery in case of bearer instrument or by endorsement and delivery in .ease of an order instrument.
  2. Title: A negotiable instrument confers absolute and good title on the transferee T who takes it in good faith for value and without notice of the fact that the /transferor had defective title therefore, type.
  3. Holder in due course: A holder in due course possesses the right to sue upon the instrument in his own name. Thus he can recover the amount of the instrument from the party liable to pay other on.
  4. Instrument on writing: the law requires that a cheque, bill of exchange or promissory note must be an instrument in writing.
  5. Unconditional order / promise: A cheque and a bill of exchange contain an order to the drawee where promissory note contains a promise by the maker to creditor. The promise and order of these instruments must be unconditional one.
  6. The amount of the instrument must be certain: the order or promise of these instruments must be to pay a certain sum of money and not any uncertain amount anything else.
  7. The instrument must be payable either “to order” or “to bearer: According to season 13, the negotiable instruments must be payable either ‘”to order’ or “to bearer”.
  8. The payment must be a certain person: the person to whom payment of the instrument is to be made must be a certain person.
  9. The payee may be more than one person.
  10. Time of payment.
  11. Signature of the drawer/promisor/maker.
  12. Delivery of the instrument is essential.