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
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
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.