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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.
Types of negotiable instruments
We can broadly classify negotiable instruments into two categories.
- Instruments negotiable by law.
- Instruments negotiable by custom or usage of trade.
Instruments negotiable by law :- As per Negotiable instrument Act there are three types of negotiable instruments such as promissory note, bills of exchange and cheque. Therefore these are termed as negotiable instruments by statute-> Written Law.
Negotiable instruments by custom or usage :- Section 17 of the Transfer of Property Act states that instruments may be negotiated by custom and their negotiability will be recognized by courts. It consists of Hundies, Bank draft, Dividend warrant, share warrant, Postal order and railway receipt.
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