NEGOTIABLE INSTRUMENTS ACT

Question No.
What is meant by Negotiable Instrument? What are main Characteristics of it?

Meanings
The word negotiable means “Transferable by delivery ”, and the word instrument mean “A written document,
which creates a right in favour of some person”.
DEFINITION
According to section 13 of the negotiable instrument act 1881, “A negotiable instrument means a promissory note,
bills of exchange or cheques payable either to order or bearer.”

CHARACTERISTICS OF A NEGOTIABLE INSTRUMENT

The essential characteristics of negotiable instruments are as follows:-

1) EASY TRANSFERABILITY:-
They are transferable form one person to another. The right of ownership in these instruments can be transferred from
one person to another easily. If the instrument is payable to bearer, the property transfers to the transferee by mere
delivery. But, in case the instrument is payable to order, the property can be transferred to the other person by
endorsement and delivery.

2) BETTER TITLE TO TRANSFEREE:-

Transferee is the person to whom the negotiable instrument is transferred. A transferee if is bonafied gets the
instrument free from all defects, because the transferee is not affected by any defect in the title of transferor of the
negotiable instrument.

3. TRANSFEREE CAN SUE IN HIS OWN NAME

The transferee of negotiable instrument, in case of dishonour of the instrument, can sue the debtor in his own name
without giving a notice to the debtor of the fact that he become the holder thereof.

4) BETTER TITLE TO A HOLDER IN DUE COURSE:-

A holder in due course is a person who becomes the holder of the instrument.
i) For Consideration
ii) Before the maturity of instrument.
iii) In good faith.
A holder in due course gets the instrument free from all defects of title and is not affected by any defect of the title of
the transferor or any prior party.
5) PRESUMPTION:-
According to section 118 and 119 of the act, certain presumptions apply to all negotiable instrument unless contrary is
proved. These presumption are regarding consideration, date, time of acceptance, stamp, holder in due course etc.
6) IN WRITING-
Negotiable instruments must be in writing and dully sign by the concern parties. If it is presented verbally, it will not
be considered as a valid negotiable instrument.
7) UNCONDITIONAL-
Negotiable instruments must be unconditional order or promise in writing. If condition is attached with the
presentment of negotiable instrument, it becomes void.
8) PAYABLE ON DEMAND OR AT FIXED DATE-
Negotiable instruments is payable on demand or at a fixed time agreed by the mutual consent of the parties.