Negotiable InstrumentA Negotiable Instrument is actually a written document. This document specifiespayment to a specific person or the bearer of the instrument at a specific date.Itis adocument guaranteeing the payment of a specific amount of money, either ondemand, or at a set time. More specifically, it is a document contemplated by orconsisting of acontract, which promises the payment of money without condition,which may be paid either on demand or at a future date.According to contract act it is defined as , "A negotiable instrument means apromissory note, bill of exchange or cheque payable by order or bearer."Examples of negotiable instruments(a) Negotiable instruments recognized by statute:i) Bills of exchangeii) 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.Example of Non-negotiable instrumentsi) Money orders. ii) Deposit receipts. iii) Share certificates iv) Dock warrants.v) Postal orders.Types of Negotiable InstrumentsLet us take a look at some of the most common types of negotiable instruments.Promissory Note: In this case, the debtor is the one who makes theinstrument. And he promises unconditionally to the creditor (or the bearer of thedocument) a certain sum of money on a specific date.Bills of Exchange: This is an order from the creditor to the debtor. Thisinstrument instructs the drawee (debtor) to pay the payee a certain amount ofmoney. The bill will be made by the drawer (creditor)Cheque: This is just another form of a bill of exchange. Here the drawer is abank. And such a cheque is only payable on demand. It is basically thedepositor instructing the bank to pay a certain amount of money to the payee orthe bearer of the cheque.
Others: There are other instruments such as government promissory notes,railway receipts, delivery orders etc. These can be negotiable instruments bycustom or practice of the trade.Characteristics ofa negotiable instrument.1. In writing and signed:It is the basic condition of the negotiable instrument that it is always in writing.A negotiable instrument must bear the signature of its maker. Without thesignature of the drawer or the maker, the instrument shall not be a valid one.2. Unconditional:-It is an unconditional instrument if any condition is attached then it can not becalled negotiable instrument.3. Transferable:-It can easily transferable from one person to another. In these instruments rightofownershippasses either by delivery or by endorsement.4. Payable On Demand and in money:-The amount of the instrument is payable on demand or at any predeterminationfuture time.The amount must be written on the instrument and it is always payablein terms of money.