Negotiable Instruments
Q: What is the Meaning of a Negotiable Instrument?
Ans: An ‘Instrument’ means a written document, whereby rights are created in favour of one and obligations are created on the part of another. The word ‘Negotiable ‘means transferable from one person to another either by mere delivery or by endorsement and delivery, to enable the transferee to get in title in the instrument. An “Instrument’ may possess the characteristics of negotiability either by statute or by usage. Provisory note, bill of exchange and cheques are negotiable instrument by statute. Bank notes, bank drafts, share warrants, bearer debentures, dividend warrants, scripts and treasury bills are negotiable by usage.
Q: What are the essential elements of a Negotiable Instrument?
Ans: The essential elements of a negotiable instruments are:-
1. It must be in writing, which includes, typing, computer print out or engraving.
2. The instrument must be signed by the person who is the maker (in case of a promissory note) or a drawer (in case of a bill of exchange or cheques).
3. There must be an unconditional promise (as in case of a promissory note) or order (as in case of a bill of exchange or cheques) to pay.
4. The instrument must involve payment of a certain sum of money only and nothing else.
5. The instrument must be payable at a time which is certain to arrive. If it is payable ‘when convenient’ the instrument is not a negotiable one. However, if the time of payment is linked with the death of a person, it is nevertheless negotiable instrument as death is certain, though the time thereof is not.
6. In case of a bill or cheques, the drawee must be named or described with reasonable certainty.
7. The instrument must be such or in such a state that it can be transferred like cash by mere delivery maker (in case of a promissory note) or a drawer or by delivery and endorsement (in case of a bill of exchange or cheques).
Q: What are presumptions as to Negotiable Instruments?
Ans: The presumptions as to negotiable instruments are as follows:-
1. As to consideration: Every negotiable instrument is deemed to have been made, drawn, accepted, endorsed, negotiated or transferred for consideration.
2. As to acceptance: Every bill of exchange is to be accepted within a reasonable time after the date mentioned therein and before the date of maturity.
3. As to date: Every negotiable instrument bears the date on which it is made or drawn.
4. As to transfer: Every transfer of negotiable instrument was made before the date of its maturity in case of an instrument payable otherwise than on demand.
5. As to the order of endorsement: The endorsements appearing on it were made in the order in which they appear thereon.
6. As to lost instruments: Where an instrument has been lost or destroyed, that it was duly stamped and the stamp was duly cancelled.
7. As to holder-in-due-course: The holder of the instrument is a holder in due course.
8. As to dishonor: If a suit is filled upon an instrument which has been dishonored, the court shall, on proof of the protest, presume the fact of dishonor unless it is disproved.
Q: What do you mean by negotiation of a Negotiable Instrument?
Ans: The transfer of an instrument by one party to another so as to constitute the transferee a holder thereof is called ‘negotiation’. A bearer instrument payable to order can be transferred by endorsement and delivery. A bill or a cheques payable to bearer can however be negotiated by mere delivery of the instrument.
Q: Is negotiation different from assignment?
Ans: When a person transfers his right to receive the payment of a debt that is called”assignment of the debt”. For example, the holder of a life insurance policy takes a loan from a bank; he transfers the right to receive the payment under the policy to the bank. Thus, both assignment and negotiation involves the transfer of the right to receive the payment of debt. However the rights which the transferee of an instrument by negotiation acquires are substantially superior to those of an assignee.
When an instrument is negotiated, its transferee gets good title irrespective of the defective title, if any of the transferor. On the other hand, when transfer is made by assignment, the assignee has only those rights, which the assignor possessed.
