25 July, 2015

Ins and Outs of Negotiable Instrument

Negotiable Instruments are essentially credit instruments with features of negotiability. Credit is the privilege to buy now and pay later. It also includes borrowing of money now with a view to pay later. Instruments, which evidence or acknowledge such credits are called, credit instruments. There are some credit instruments, which are not negotiable. That is why they are called credit instruments but they do not have the features of negotiability, e.g. IOU (I owe you), Postal Order etc. Among the negotiable instruments, some are negotiable under law (N.I. Act, 1881) e.g. Cheque, Bill of Exchange, Promissory Notes and other are negotiable because of mercantile usage and custom. Treasury Bonds, Dividend warrants etc. are example of Negotiable Instruments according to usage and customs.
A negotiable instruments is transferable document, which satisfies certain conditions. These instruments pass on freely from hand to hand and thus form an integral part on the modern business. Definition of Negotiable Instruments:
  1. As per sec. 13 of N.I. Act “A negotiable instrument means a Promissory Note, Bill of Exchange or cheque payable either to order or bearer.”
  2. Justice K.C. Wills defines a negotiable instruments as “The property in which is acquired by anyone who takes it benefice and for value not withstanding any defect of title in the person from whom he book it.”
  3. Thomas defines as “An instrument is negotiable when it is, by a legally recognized custom of trade or by law, transferable by delivery or by endorsement and delivery, without notice to the party liable, in such a way that (a) the holder of it for the time being may sue upon it in his own name, and (b) the property in it passes to a benefice transferee for value free from equities and free from any defect in the title of the person from whom be obtained it.”
Essential features of negotiable instruments are below:
a)      The Negotiable Instruments are easily transferable from one person to another and the ownership of the property in the instrument through delivery in case of bearer and endorsement and delivery in case of order instruments. Transferability is an essential feature of a negotiable instrument but all transferable instruments are not negotiable instruments.
b)      A Negotiable instrument confers absolute and good title on the transferee, who takes it in good faith, for value and without notice of the fact that the transferor had defective title thereto. This is the most important characteristic of a negotiable instrument. A person who takes a negotiable instrument from another person, who had started it from somebody else, will have absolute and undisputable title to the instrument, provided he receives for value and in good faith without knowing that the transferor was not the true owner of the instrument.
c)      The holder of a negotiable instrument, who is legally called the 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 thereon.
d)     There are certain presumptions applicable to all Negotiable Instruments. One such is that the instrument has been obtained for consideration.
e)      Decree can be obtained in the case of suit or promissory notes and bill of exchange much more quickly than in the case of other suits. This is because of special procedures prescribed for other suits.

1 comment:

  1. Thank you website owner for this article! This is amazing and informative for the students of Banking and Finance. It helped me a lot. I want to recommend some other

    articles relating to Negotiable Instruments specially 1. Essential Features Of

    Negotiable Instruments
    and 2. Two Main Types Of Negotiable Instruments and 3. Difference Between Transferability And Negotiability"

    I hope these will help students of Banking and Finance. Thanks once again for this article..