5 characteristics of a negotiable instrument with examples

A negotiable instrument has the following characteristics.

1. Property

The possessor of the negotiable instrument is presumed to be the owner of the property contained therein. A negotiable instrument does not merely give possession of the instrument but right to property also. The property in a negotiable instrument can be transferred without any formality. In the case of a bearer instrument, the property passed by mere delivery to the transferee. In the case of an order instrument, endorsement and delivery are required for the transfer of property.

2. Title

The transferee of a negotiable instrument is known as holder in due course.’ A bonafide transferee for value is not affected by any defect of title on the part of the transferor or of any of the previous holders of the instrument. This is the main distinction between a negotiable instrument and other subjects of ordinary transfer. The general rule of nemo dat quod non habet does not apply to negotiable instruments.

3. Rights

The transferee of the negotiable instrument can sue in his own name, in case of dishonor.

A negotiable instrument can be transferred any number of times till it is at maturity. The holder of the instrument need not give notice of transfer to the party liable on the instrument to pay.

4. Presumptions

Certain presumptions apply to all negotiable instruments e.g. a presumption that consideration has been paid under it.

5. 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 negotiable instruments

(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.