Characteristics of Negotiable Instruments

12-NOV-2014 16:00

    As per Section 13(a) of the Act, “Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer, whether the word “order” or “ bearer” appear on the instrument or not.”

    Important characteristics of Negotiable Instruments are:

    1. Property: The possessor of negotiable instrument is acknowledged to be the owner of property contained therein. Negotiable instrument does not simply give ownership of the instrument but right to property as well. The property in negotiable instrument can be moved without any formality. In the case of bearer instrument, the possessions pass by meager delivery to the transferee. In case of order instrument, endorsement & delivery are necessary for transfer of property.
    2. Title: The transferee of negotiable instrument is called ‘holder in due course.’ A genuine transferee for value is not affected by any flaw of title on the part of transferor or of any of the previous holders of instrument.
    3. Rights: The transferee of negotiable instrument can take legal action in his own name, in case of dishonour. A negotiable instrument can be reassigned any number of times till it is attains maturity. The holder of instrument need not give notice of transfer to the party legally responsible on the instrument to pay.
    4. Presumptions: Certain presumptions are applicable to all negotiable instruments i.e., a presumption that deliberation has been paid under it. It is not essential to write in promissory note the words ‘for value received’ or alike expressions for the reason that the payment of consideration is acknowledged. The words are typically included to generate additional substantiation of consideration.
    5. Prompt payment: A negotiable instrument facilitates the holder to anticipate prompt payment because dishonour refers to the ruin of credit of all persons who are parties to the instrument.

    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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