Characteristics of Negotiable Instrument
Property
Characteristics of Negotiable Instrument: The owner of the property included in the negotiable document is believed to be the person who holds it. A negotiable instrument not only transfers ownership of the instrument, but also the right to property. A negotiable instrument’s property may be transferred without any formalities. The property passes to the transferee by simple delivery in the event of a bearer instrument. The transfer of property requires endorsement and delivery in the event of an order document.
Title
Holder in due course refers to the person who receives a negotiable instrument after it has been transferred.’ Any defect of title on the part of the transferor or any of the prior holders of the instrument has no bearing on a legitimate transferee for value. The key difference between a negotiable instrument and other regular transfer topics is this. Negotiable instruments are exempt from the general rule of nemo dat quod non habet.
Rights
In the event of dishonour, the transferee of the negotiable instrument has the right to sue in his own name. A negotiable instrument may be transferred as many times as needed until it matures. The holder of the instrument is not required to notify the person obliged to pay the instrument.
Presumptions
All negotiable instruments are subject to certain presumptions, such as the presumption that consideration has been paid under them.
Prompt Payment
A negotiable instrument enables the holder to expect prompt payment because a dishonor means the ruin of the credit of all persons who are parties to the instrument.
Examples of Characteristics of Negotiable Instrument
(a) Negotiable instruments recognized by statute
- (i) Bills of exchange
- (ii) Promissory notes.
- (iii) Cheques
(b) Negotiable instruments recognized by usage or custom :
- (i) Hundis
- (ii) Share warrants.
- (iii) Dividend warrants
- (iv) Banker’s drafts.
- (v) Circular notes.
- (vi) Bearer debentures.
- (vii) Debentures of Bombay port trust.
- (viii) Railway receipts.
- (ix) Delivery orders.
The list of negotiable instruments is not a closed chapter. With the growth of commerce, new kinds of securities may claim recognition as negotiable instruments.
Example of Non-negotiable instruments
- (i) Money orders.
- (ii) Deposit receipts.
- (iii) Share certificates
- (iv) Dock warrants.
- (v) Postal orders.