Negotiable Instruments - Meaning, Characteristics, Assumptions
In the words of Justice K.C. Wills, a negotiable instrument is one, the property in which is acquired by anyone who takes it bonafide and for value, and withstanding any defect to title in the person from whom he took it.
According to section 13 of the Negotiable instruments Act 1881, a negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.
A negotiable instrument is transferable from one person to another without any formality, such as affixing stamp, registration etc., In other words, the property (the right of ownership) in the instrument can be transferred by mere delivery (in case it is payable to bearer) or by indorsement and delivery (in case it is payable in order).
A person taking the instrument in good faith and for value is known as holder in due course. When the instrument is held by holder in due course in the process of negotiation, it is cured of all defects in the instrument with respect to ownership. In other words, even though the right of the person who transferred the instrument to holder in due course is defective i.e. disentitled to transfer, the title of the holder in due course is superior. He/ she need not return the bill to true owner. eg. A sold certain goods to B. B gives a Bills of Exchange to S for the price. Later B refuses to pay the Bills of Exchange on the ground that the goods supplied are defective. Meantime, A endorsed the bill to C. In this case, B’s defence is of no value. C is a holder in due course. His title is not affected by certain defence like fraud or misrepresentation or any mistake.
Though a bill, a promissory note or a cheque represents a debt, the transferee is entitled to sue on the instrument in his own name in case of dishonour, without giving notice to the debtor that he has become its holder.
Certain presumptions as briefly mentioned below:
i. Every negotiable instrument is presumed to have been drawn, accepted etc. for consideration.
ii. A negotiable instrument is presumed to have been accepted.
iii. Every negotiable instrument bearing, a date is presumed to have been made or drawn on such a date.
iv. It is presumed to have been accepted within a reasonable time after the date and before its maturity.
v. The transfer of a negotiable instrument is presumed to have been made before maturity.
vi. The endorsements appearing upon a negotiable instrument are presumed to have been made in the order to which they appear thereon.
vii. When a negotiable instrument has been lost, it is presumed to have been duly stamped.
viii. The holder of a negotiable instrument is presumed to be a holder in due course.