Meaning of Negotiable Instruments
There are certain documents which are freely used in commercial transactions. They are called negotiable instruments Negotiable Instrument literally means a written document which create a right in favour of some person and which is freely transferable. It is not assignable but transferable Negotiable Instruments are money/cash equivalents. These can be converted into liquid cash subject to certain conditions. They play an important role in the economy in settlement of debts and claims. A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. It is a written document which creates a right in favour of some person and which is freely transferable. The term ‘negotiable’ means transferable by delivery. In this case Instrument is a written document which creates a right in favour of any person. Therefore, negotiable instrument is a written document which creates a right in favour of any person and which is transferrable by delivery. In other words it is a written promise or order to pay.money which may be transferred from one person to another. The transactions involving the Negotiable Instruments in our country are regulated by law and the framework of the Statute which governs the transaction of these instruments is known as The Negotiable Instruments Act. This act was framed in our country in the year 1881 when the British ruled our country. Prior to 1881 the transactions governing Negotiable Instruments were regulated under the cover of Indian Contract Act 1872.
Definitions about Negotiable Instruments
In the words of Justice Willis a negotiable instrument is “one the property in which is acquired by anyone who takes | bonafide and for value not withstanding any defect in the title of 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 may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees.
The act recognizes three instruments as negotiable instruments. That is a promissory note, cheque and bill of exchange. But it does not exclude those instruments which satisfy the conditions of negotiability.
The conditions are
1.The instrument should be freely transferable by the custom of trade.
2.The person who obtains it in good faith and for value gets it free from all defects, and thus, is entitled to recover the money of the instrument in his own name.
In such circumstances, bearer bonds, treasury bills. certificates of deposits, dividend warrants and Improvement trust debentures, railway bonds payable to bearer or railway receipts are considered equivalent to negotiable instruments either by mercantile custom or by other enactments.
Money orders. Postal orders. deposit receipts, share certificates, bill of lading, dock warrants etc are not negotiable instruments even though they are transferable by delivery and endorsement because they are not able to give a better title to the bonafide transferee for value than that of the transferor has.
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