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Unit 8: Negotiable Instruments

destroyed, the note could not be enforced. The federal court certified a question to the Notes
Alabama high court to clarify Alabama common law on that issue.

It was concluded that an assignee has all of the same rights, benefits, and remedies that the
assignor has to enforce contracts to the extent the assignor was able to do so, hence the
plaintiff assignee was entitled to enforce the note whether it was lost, destroyed, or stolen.
Ultimately the evidence was clear that the note was genuine, the fact of the destruction of
the original did not make it unenforceable either by the maker of the note, Wachovia, or
by the assignee, Atlantic .

Source: http://pklawyers.wordpress.com/2008/11/23/enforceability-of-lost-or-destroyed-negotiable-
instrumentscommercial-paper/

8.7 Summary

A negotiable instrument is a document guaranteeing the payment of a specific amount of money,
either on demand, or at a set time. Negotiable instruments are often defined in legislation. For
example, according to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable
instrument means a promissory note, bill of exchange or cheque payable either to order or to
bearer. So, in India, there are just three types of negotiable instruments such as promissory note,
bill of exchange and cheque as explained below. Cheque also includes Demand Draft
[Section 85A].

Negotiable instruments are particular type of documents used for making payment in
business transactions, the ownership of which can be freely transferred from one person
to another.
Types of Negotiable Instruments - Promissory note - Bill of exchange - Cheque - Hundi.
Promissory note - An instrument in writing containing an unconditional undertaking,
signed by the maker, to pay a certain sum of money only to or to the order of a certain
person or to the bearer of the instrument.

Bill of exchange - An instrument in writing containing an unconditional order, signed by
the maker, directing a certian person to pay a certain sum of money only to or to the order
of a certain person or to the bearer of the instrument.

Cheque - It is an order by the account holder of the bank directing his banker to pay on
demand the specified amount, to or to the order of the person named therein or to the
bearer.
Hundi - It is a form of bill of exchange drawn in any local language in accordance with the
custom of the place.

Features of negotiable instruments are-free transferability, good title, always in written
form, unconditional order or promise, certainty of payment, payee, time, etc.
As a negotiable instrument is a promise of a payment of money, the instrument itself can be
used by the holder in due course as a store of value; although, instruments can be transferred for
amounts in contractual exchange that are less than the instrument's face value (known as
"discounting").

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