What are the Negotiable Instruments and Types? Business Environment & Business Law

What is a Negotiable Instrument and Types?

NEGOTIABLE INSTRUMENTS is a very interesting topic in Economic, Business, and Commercial Law, which is also part of our CS Online Coaching Class. The following is explained:

What is Negotiate Instrument?

A "negotiable instrument" means a promissory note, a bill of exchange or a check payable either to the ordering party or to the holder.

TYPES OF NEGOTIABLE INSTRUMENTS

Negotiable instruments recognized by statutes: the Negotiable Instruments Act mentions only three types of negotiable instruments (Section 13).

These are the following:

i. Promissory Notes

ii. Bills of Exchange, and

iii. Cheques

Negotiable instruments recognized by the use or customs of trade: certain other instruments have acquired the characteristic of negotiability through the use or customs of trade.

For example, Exchequer bills, banknotes, Share warrants, Circular notes, Bearer debits, Dividend warrants, Share certificates with blank transfer deeds, etc.

PROMISSORY NOTE (Promote)

Definition: Pursuant to Section 4 of the Negotiable Instruments Act, "a promissory note is an instrument in writing (not a banknote or a currency note) containing an unconditional undertaking, signed by the manufacturer, to pay a certain amount of money only to, or on the order of, a certain person or to the holder of the instrument."

Parties to a Promissory Note

There are primarily two parties involved in a promissory note. They are:

i. The Maker or Drawer: The person who makes the note and promise to pay the amount stated therein.

ii. The Payee – The person to whom the amount is payable i.e. to whom the payment is to be made is called a payee.

In course of transfer of a promissory note by payee and others, the parties involved may be –

iii. The Endorser – the person who endorses the note in favor of another person.

iv. The Endorsee – the person in whose favor the note is negotiated by endorsement.

Characteristics of Promissory Note

1. It must be in writing

2. It must contain a promise or undertaking to pay

3. The promise to pay must be unconditional

4. It must be signed by the make

5. The maker must be a certain person

6. The payee must be certain

7. The undertaking must be to pay a certain and definite sum of money only

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