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Mercantile Laws-I

Notes 3. The holder can sue in his own name. Another feature of a negotiable instrument is that its
holder in due course can sue on the instrument in his own name.
4. A negotiable instrument can be transferred infinitum, i.e., can be transferred any number

of times, till its maturity.
5. A negotiable instrument is subject to certain presumptions. An instrument, which does
not have these characteristics, is not negotiable, but is assignable, i.e., the transferee takes it
subject to all equities and liabilities of the transferor.
14.2 Important Terms and Essential of Negotiable Instrument

14.2.1 Ambiguous Instrument (Sec.17)

An ambiguous instrument is one which may be construed either as a promissory note or as a bill
of exchange. Regarding such instruments, Sec.17 provides that the holder may, at this election
treat it as either and the instrument shall be thenceforward treated accordingly. Thus, a bill of
exchange drawn by a person upon himself may be construed as a promissory note.

14.2.2 Inchoate Stamped Instruments (Sec.20)

An inchoate instrument means an instrument that is incomplete in certain respects. Where one
person signs and delivers to another a paper stamped in accordance with the law relating to
negotiable instruments then in force in India and either wholly blank or having written thereon
an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof
to make or complete, as the case may be, upon it a negotiable instrument, for any amount specifi ed
therein but not exceeding the amount covered by the stamp.
14.2.3 Capacity of Parties to the Negotiable Instrument

The capacity of a party to draw, accept, make or endorse a negotiable instrument is coextensive
with his capacity to enter into contract. Thus, Sec.11 of the Indian Contract Act, 1872, if negatively
interpreted prohibits minors, persons of unsound mind and persons forbidden under any other
Act like insolvency to make a valid contract.

14.2.4 Essential Elements of a Negotiable Instrument

After discussing the characteristics of different negotiable instruments, it is with profit that we

can sum up the essential elements of a negotiable instrument. These are as follows:
1. It must be in writing, which includes, typing, computer print out or engraving.
2. The instrument must be signed by the person who is the maker (in the case of a promissory
note) or a drawer (as in the case of a bill of exchange or a cheque).
3. There must be an unconditional promise (as in the case of a promissory note) or order (as
in the case of a bill of exchange or cheque) to pay.
4. The instrument must involve payment of a certain sum of money only and nothing else.
5. The instrument must be payable at a time which is certain to arrive. If it is payable ‘when
convenient’ the instrument is not a negotiable one. However, if the time of payment is
linked to the death of a person, it is nevertheless a negotiable instrument as death is certain,
though the time thereof is not.
6. In case of a bill or cheque, the Drawee must be named or described with reasonable
certainty.

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