Banking

Essential Features Of Negotiable Instruments

Features of Negotiable Instruments:

A negotiable instrument is a transferable document either by the application of the law or by the custom of the trade concerned. The special feature of such an instrument is the privilege it confers on the person who receives it bona fide and for value, to possess good title thereto, even if the transferor had no title or had defective title to the negotiable instruments.

Essential Features of Negotiable Instruments:

The following are the essential features of negotiable instruments:

(i) Transferability is an essential feature of a negotiable instrument but all transferable instruments are not negotiable instruments. The negotiable instruments are simply transferable from person to person and the ownership of the property in the instrument may be passed on

  • by mere delivery in case of a bearer instrument,
  • by endorsement and delivery, in case of an order instrument

(ii) A negotiable instrument confers absolute and good title on the transferee, who takes it in good faith, for value and without notice of the fact that the transferor had defective title thereto. This is the most important characteristic of a negotiable instrument.

A person who receives a negotiable instrument from another person, who had stolen it from somebody else, will have absolute and indisputable title to the instrument. Provided that he receives the same for value (i.e. after paying its full value) and in good faith without knowing that the transferor was not the true owner of the instrument. Such a person is called the holder in due course and his interest in the instrument is well protected by the law.

(iii) Such holder of a negotiable instrument, who is legally called the holder in due course, possesses the right to sue upon the instrument in his own name. Thus, he can recover the amount of the instrument from the party liable to pay thereon. This is one of Essential Features of Negotiable Instruments.

Where a debtor has drawn a negotiable instrument in favor of his creditor and has also executed a mortgage to provide further security, the creditor has a right to sue on the basis of negotiable instrument even without exhausting security in the shape of mortgage.

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