Characteristics of Negotiable Instruments

Negotiable Instrument

A negotiable instrument is a document that guarantees payment of a specified amount of money, either on sight or at a specified time, the payer of which usually appears on the document. More precisely, it is a document consisting of or contemplated by a contract promising the payment of money without condition, which can be paid at sight or at a later date. The term has different meanings depending on how it is used in the application of different laws and the country and context in which it is used. 

Negotiable instruments are transferable below the subsequent circumstances: they’re transferable with the aid of using shipping in which they’re made payable to the bearer; they’re transferable with the aid of using shipping and endorsement in which they’re made payable to order.

Easy Transferability

Negotiable instruments are transferable and allow the holder to take the funds as cash or to use them in a manner appropriate to the transaction or as they wish. The fund amount on the document contains a note on the specific deposit amount and is to be paid in full on request or by a specific date. Security can be transferred easily from one person to another person. Once the instrument is transferred, the holder obtains full legal ownership of the instrument.

These documents contain no further commitments on the part of the issuer of the security. Further, no other instruction or condition can be set for the holder to receive the amount of money appearing in the negotiable instrument. For an instrument to be transferable, it must be marked or signed by the maker of the instrument, whoever issues the money order. This entity or person is called a cash drawer.

Characteristics of Negotiable Instruments

All three instruments, the promissory note, the bill of exchange and the check, are considered tradable instruments. The characteristic of the negotiable instrument is that a negotiable document is freely passed from one person to another person. The above three instruments are legally tradable instruments. Apart from these instruments, there are also certain instruments that are negotiable under commercial practice. For example, in India, government bonds, dogies, railroad receipts, and delivery notes were considered negotiable by use, custom, or trade.

Following are the Characteristics:

1. The holder of the title is considered the owner of the goods contained therein. 
2. They are freely transferable. 
3. A timely holder preserves the property free from all legal defects of all previous holders. 
4. The respective owner is entitled to sue the title in his own name. 
5. Ownership is transferable until maturity, for checks until maturity (for maturity 6 months from date of issue).
6. Certain common presumptions apply to all tradable securities unless proven otherwise.

Functions of a Negotiable Instrument

Negotiable instruments are unconditional promises or instructions for a predetermined sum of money that include interest or other costs, if: 

(1) is payable to the holder or to the order at the time of initial issue or entry into the holder’s possession 

(2) is payable on demand or at a specified time

(3) does not create any other obligation or direction on the part of the person promising the payment or directing it to do any activity other than the payment of money, but the promise or order may 

(i) contain an obligation or power to give security hold or protect to secure payment, 

(ii) an authorization or power for the holder to confess judgment or make or dispose of the security, or 

(iii) a waiver of the use of any law that is intended for the benefit or protection of a debtor. “Instrument” means a tradable Instrument. An order that meets all of the requirements of the subsection except paragraph and otherwise falls within the definition of “cheque” in the subsection is a negotiable instrument and a cheque.

A promise or order other than a check is not an instrument if, at the time it is made or first comes into the possession of a bearer, it contains a prominent statement, however, worded, that the promise or engagement is non-transferable or an instrument governed by this Article.

Conclusion

Although bearer instruments are seldom created as such, a holder of commercial paper, where the holder is designated as the beneficial owner, may convert the instrument into a bearer instrument by endorsement. Alternatively, a person or entity may write a check payable to “cash” or “bearer” and create a bearer instrument. Much attention must be paid to the safety of the instrument as, legally, it is almost as good as cash.