A negotiable instrument is a signed document that promises the payment of a specific amount of money to a specified person. The person receiving the payment is known as the payee and they are named on the instrument. In other words, a negotiable instrument is a promise of payment to the payee.

Commonly used for conducting monetary dealings and commercial transactions, a negotiable instrument is a written document. The term ‘negotiable’ means transferable by delivery while instrument means a written document through which a right is created in favor of someone. Therefore, a negotiable instrument is a written document that is transferable by delivery.

What is a Negotiable Instrument?

Essential Characteristics of a Negotiable Instrument

Here are some of the most significant characteristics of a negotiable instrument that you must know about:


It is transferable in nature. This means that it allows the instrument holder to take the funds as cash and use them in any way, which is considered an appropriate transaction or according to their personal preference.

Presumption as a Consideration

It is presumed to have been drawn, made, accepted, negotiated, endorsed or transferred for consideration.


One can easily sue on it.

Payable to Bearer

It should be payable to order or to bearer.

Free From all Defects

The holder of the instrument is in good faith and is title free from all defects.

The Importance of Negotiable Instruments to the Economy

These instruments are critical as they allow people to do business while being certain that they will soon receive their money for goods and services. Put simply, the economy would not be able to function the way it does if there were no laws to protect both the payee and the payer of a negotiable instrument.

Different Types of Negotiable Instruments

According to the Negotiable Instruments Act, 1881 Section 13(i), a negotiable instrument can be of 3 different types:

  1. Promissory Note
  2. Cheques
  3. Bill of Exchange

Apart from these, there are some other types of instruments that have occupied the negotiability character because of usage and custom of trade. These include:

  • Exchequer bills
  • Circular notes
  • Share warrants
  • Bank notes
  • Dividend warrants
  • Bearer debentures

Promissory Note

A promissory note is a type of a negotiable instrument that is provided in writing. This document contains an unconditional undertaking, which is signed by the instrument maker (the person who creates the promissory note) to pay a specified sum of money to the bearer.

Key Features

The key features of a promissory note are:

  • Must be in writing.
  • Must be signed by the payer or maker.
  • Must be unconditional.
  • The specified amount must be defined.
  • Must be paid on demand or at a pre-determined future date.
  • Must be paid to the payee.
  • Must have a stamp that shows an individual has been given the note at a prescribed rate by the country’s law.

Bill of Exchange

A bill of exchange is also a written document. However, it contains an unconditional order signed by the maker that directs a specified person to pay to the order or a certain person.

Key Features

  • The payable amount must be specified.
  • The amount should be paid in money.
  • The bill payable should be either on demand or after a specified period.
  • The bill is payable to the bearer or payee.


A cheque is also very similar to a bill of exchange but it is drawn on a specified banker. Cheques can be of different types, such as open cheque, crossed cheque, bearer cheque, order cheque, post-dated cheque, traveler’s cheque, banker’s cheque and marked cheque, to name a few.

Key Features

  • Express order to pay.
  • Unconditional and definite payment order.
  • Drawer signed.
  • Payable on demand.

Negotiable Instrument – How to Enforce?

It is important that all parties involved should know how to enforce a negotiable instrument in order to protect their rights. According to the Uniform Commercial Code, anyone with an interest in the negotiable instrument can enforce payment when the payment becomes due. However, in the event a party does not fulfill their responsibilities, it shall be considered a breach of the agreement. Therefore, they shall be held liable for damages incurred by the other party because of their act.

Seek Legal Assistance Today

When it comes to negotiable instruments, there are two reasons to get in touch with an experienced lawyer and seek legal assistance. Firstly, before you sign a negotiable instrument, you must discuss common legal matters involved with your attorney. Your lawyer can provide you with helpful information, explain the relevant laws and address your legal needs. As a result, you will be more confident when signing a negotiable instrument.

Likewise, legal assistance is important when the other party happens to breach their agreement. A qualified lawyer in such a scenario can provide you with proper guidance and thorough assistance, thereby getting you the justice you deserve. Your lawyer will take care of all the complex and stressful legal matters and make sure that your rights are protected.

For more information regarding negotiable instruments or legal help in case of a breach, get in touch with us today.



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