lecture-21 - MEANING AND TYPES OF NEGOTIABLE INTRUMENTS...

Learning Outcomes
After reading the lesson, you should be able to know:
· The meaning of Negotiable Instruments
· The important types of Negotiable Instruments
Introduction
We are aware that money is most common medium of
exchange itself has the exchange value and is freely transferable.
It was felt although the use of ready cash is desirable due to
acceptability but may cause risk and inconvenience in dealing.
Its substitute leads to development of Negotiable
Instruments.
The Negotiable Instrument Act 1881 came into force on 1
st
March 1881. It extends to the whole of India except the State
of Jammu & Kashmir. The term Negotiable Instrument
consists of two parts viz; Negotiable and Instrument. The
word ‘negotiable’ means transferable by delivery and the word
‘ instrument ‘ mean written documents by which a right is
created in favour of some person. It means an instrument
possessing the quality of Negotiability is entitled to be called
negotiable instrument
According to Will “A negotiable instrument is one the
property in which is acquired by anyone who takes it bonafide
and for value not withstanding any defect of title in the
person from whom he took it”
Thus a negotiable instrument must possess two features.
1.The right of ownership contained in the instrument can be
transferred from one person to another by mere delivery,
if it is payable to bearer or by endorsement and delivery
if payable to order and
2.The transferee taking the instrument in good faith and for
consideration gets a good title to the same even though
the title of the transfer is defective.
(a) Meaning of Negotiable Instrument Payable to
order.
A promissory note, bill of exchange or cheque is payable
to order if, either of the following two conditions is
fulfilled:
a)It must be expressed to be so payable
b)It must be expressed to be payable to a particular
person and it must not contains words which
prohibit transfer or indicate and intention that it
shall not be transferable.
(b) Meaning of Negotiable instrument Payable to
Bearer.
A Promissory note, bill of exchange or cheque is payable
to bearer if either of the following condition is fulfilled
a)It must be expressed to be so payable
b)The only and last endorsement must be endorsement in
blank
Essential Characteristics Feature of a Negotiable
Instrument
The essential characteristics of a negotiable instrument have
been shown as under:
1.Payable to order or bearer
2.Freely transferable
3.Presumption as to holder
4.Title of holder in due course
5.Presumption as to consideration
Let us discuss these one by one
1.Payable to order or bearer: - It must be payable either to
order or bearer
2.Freely Transferable:- A instrument payable to order is
negotiable by endorsement and delivery and an
instrument payable to bearer is negotiable by mere
delivery
3.Presumption as to Holder:- Every holder of negotiable
instrument is presumed to be holder in due course
(Section 118)
4.Title of holder in due course:- A holder in due course ( i.e.