Define the term ‘negotiable instrument’ and explain its characteristics

The term ‘negotiable’ means transferable and the word ‘document’ means ‘in writing’. Therefore, negotiable means a  written promise or order to pay money which may be transferred from one person to another.

Section 13 of the Negotiable Instruments Act, 1881 states – “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees. [Section 13(2)].

The characteristics of a Negotiable Instrument are:

1.  Witting and Signature according to the rules – A Negotiable Instrument must be in writing and signed by the parties   according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.

2.  Payable by Money – Negotiable Instruments are payable by the legal tender money of India. The

Liabilities of the parties are governed in terms of such money only.

3.  Unconditional Promise – If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.

4.  Freely transferable – A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.

5.  Acquisition of Property – Any person who possesses a negotiable instruments, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument. When it is payable to bearer, the property in its passes from one holder to another by mere delivery. If it is payable to order, the property passes by endorsement, i.e. by the signature of its holder on its back and its delivery.

6.  Acquisition of Good Title – The holder in due course, i.e. the transferee of a negotiable instrument in good faith and for  value, acquires a good title to the instrument even if the title of the transferor is defective. Further his title will not be affected, by any defect in the title of the transferor.

7.  No Need of Giving Notice – There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.

8.  Right of the Holder in Due Course – The holder in the due course remains unaffected by certain defences, which might be available against previous holders, as for example , fraud, to which he is not a party.

9.  Certain Presumptions – Unless contrary proved certain presumptions are in the made case of all negotiable instruments. Consideration, date, signature of holder in due course, for example, is presumed

in the case of all instruments. The presumptions from Special rules of Evidence under section 118 to 119.