Introduction:-

The negotiable instruments guarantee the payment of an amount done on demand or on a set time
with the name of the paper usually on the document. In banking, the banknotes are termed as the
promissory notes. Thus, this note is made by the bank and is payable to the bearer of this
demand.

Defination:-

 A negotiable instrument is a written order promising to pay a sum of money. • A

document becomes negotiable when it contains an unconditional promise to pay money and
is payable

Features of Negotiable Instrument

Some of the common features of these negotiable instruments are as
follows:

 It is always a written document.

 It is payable to bearer than it is transferred just by delivery. And it is payable to the

orderer than it is transferred by delivery and endorsement.

 The person who holds the negotiable document can sue based on this document.

 There is no consideration mentioned in the instrument. It is presumed already that it has

been drawn for a valuable consideration.
 It works just like money and can be transferred from one person or the other.

 For debt, it is considered one of the simplest mode

Types of Negotiable Instrument

Promissory notes
Bill of exchange
Check

Promissory Notes:-
The promissory note is a signed document of written promise to pay a stated sum to a specified
person or the bearer at a specified date or on demand.

The promissory note is an instrument in writing containing an unconditional rule signed by one

party to pay a certain sum of money only to, or to the order of a certain person or to the bearer of
the instrument.

Thus a promissory note contains a promise by the debtor to the creditor to pay a certain sum of
money after a certain date. The debtor is the maker of the instrument.

Bill of Exchange:-

The Bill of Exchange contains an order from the creditor to the debtor to pay a certain person
after a certain period.

The person who draws it is called drawer (creditor) and the person on whom it is drawn is called
drawee (debtor) or acceptor.

The person to whom the amount is payable is called payee.

Check:-
A Check (cheque in royal Britain) is a bill of exchange drawer a specified banker not expressed
to be payable otherwise than on demand.

It is an instrument in writing, containing unconditional order, signed by the maker (depositor),

directing a certain banker to pay a certain sum of money to the bearer of that instrument.

Some other instruments have acquired the character of negotiability by customs or usage of
trade.

Essentials of Negotiable instruments

. Must be in writing

. · The writing can be on anything that is readily transferable and that has a degree of permanence.

Order or promise to pay. ·

A promise must be more than a mere acknowledgement of a debt. · The words “I/We Promise” or “Pay”
meet this criterion.

signed by the maker or drawer. ·

The signature can be anyplace on the instrument. · It can be in any form (such as word, mark or rubber
stamp) that purports to be a signature and authenticates the writing. · It can be signed in a
representative capacity.
unconditional. ·
Payment cannot be expressly conditional upon the occurrence of an event. · Payment cannot be made
subject to or governed by another agreement. · Payment cannot be paid out of a particular fund (except
for a government issued instrument).

Promise to pay a sum Amount.

· An instrument may state a sum certain even if payable in installments, with interest, at a stated
discount or at an exchange rate. · Inclusion of cost of collection and attorney’s fees does not disqualify
the statement of a sum certain.

Payable to order or bearer

. · An order instrument must name the payee with reasonable certainty. · An instrument whose terms
intend payment to no particular person is payable to bearer.