LAW5802 Banking and Negotiable Instruments — Unit 7: Negotiable Instruments

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Unit 7: Negotiable Instruments

7.1 Nature and Basic Principles of Negotiable Instruments

A negotiable instrument is a document of title to money, transferable by delivery or endorsement, giving the transferee a better title than the transferor had (if the transferee acts in good faith and for value — the bona fide purchaser for value without notice protection). Core characteristics:

Freely transferable by custom of trade (delivery or endorsement plus delivery).
Title by negotiation — the holder in due course takes free of most defects.
Absolute and unconditional promise or order.
Presumptions: consideration, date, acceptance, and a reasonable time of payment are presumed in the instrument’s favour.

7.2 Types of Negotiable Instruments

7.2.1 Cheques

Bill of exchange drawn on a banker, payable on demand (Unit 5 details the payment mechanics).

7.2.2 Bills of Exchange

Unconditional order: drawer → drawee (acceptor) → payee. Three parties in the instrument’s minimal form; usance or demand.

7.2.3 Draft

In banking usage, a draft is a bill drawn by one bank on another (bank draft) — the bank’s own credit replaces the drawer-customer’s. A demand draft is the common remittance instrument under the Negotiable Instruments Act, 2034.

7.2.4 Promissory Note

Unconditional promise (not order) by the maker to pay a certain sum to, or to the order of, a named payee. Two parties; no acceptance needed.

Point	Promissory note	Bill of exchange	Cheque
Nature	Promise

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