Negotiable Instruments Types PDF: In this article, we will overview negotiable instrument types with some small definitions or meanings of negotiable instruments and why they are used in the banking sector. With the small details about its law to regulate it from 1881. After these, we are going to talk about the main types of negotiable instruments in India. This paper I am writing will be more useful for the aspirants who are all preparing for the government exams and also this information can be useful for any students who are pursuing courses relating to the accounting and commerce department. Exploring the world of negotiable instrument types unveils financial tools with diverse functions. From checks to promissory notes, each type plays a unique role. Let's delve into the various negotiable instrument types in this blog post.

Negotiable instruments Types PDF Download

What is a Negotiable Instrument?

Negotiable instruments are signed documents that act like contracts and promise to pay a specific person or assignee. They are transferable, which means the recipient can take the funds as cash or use them as they wish. Negotiable instruments are still important in banking due to their security, convenience, and role in financial transactions.

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Characteristics of Negotiable Instruments

The important characteristics of negotiable instruments are ;

• The instrument holder is presumed to be the owner of the property contained in it.
• They are freely transferable.
• A holder in due course gets the instrument free from all defects of the title of any previous holder.
• The holder in due course is entitled to sue on the instrument.              

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Negotiable Instruments Act 1881 PDF Notes

According to Section 13 of the Act, “Negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer, whether the word “order” or “bearer” appears on the instrument or not”. A negotiable instrument is a property acquired by anyone who takes it bonafide and for value notwithstanding any defects of the title in the person from whom he took it.

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Characteristics of the Negotiable Instruments Types

The Characteristics of the negotiable instruments act are as follows they are,

• Easy Transferrable - The property in a negotiable instrument is transferred by mere delivery, if the instrument is payable to the bearer, by delivery indorsement if payable to the order.

• The transferee’s title is free from all defects - The transferee who takes it bona fide for value and before maturity gets a good even if the transferor's title was defective. 

• Transferee can sue his name - A transferee of the negotiable instrument can sue in his name, in case of dishonor.

• Prompt payment - A negotiable instrument enables the holder to expect prompt payment because a dishonor means the ruin of the credit of all persons who are parties to the instrument.

• Notice of transfer not necessary - The transferee is not required to give notice of transfer to the person liable to pay the instrument.

 

Examples Of Negotiable Instruments Types pdf

According to section 13, the examples of negotiable instrument types are given below;

• Bank Checks
• Promissory notes
• Certificates of Deposits
• Bills of exchange
• Money Order
• Traveler’s Check

 

Negotiable instruments types

There are many types of negotiable instruments, the most common negotiable instruments are;

• Personal checks
• Travelers Checks
• Money Order
• Promissory Notes 
• Certificate of Deposit (CD)

 

Negotiable instruments types: Personal Checks

• A personal check is a means that promises to pay a specific amount of money to a person or entity.
• Personal checks are signed and authorized by someone who deposited money with the bank and specifies the amount required to be paid.
• While technology has led to an increase in the popularity of online banking, checks are still used to pay a variety of bills.
• Personal checks are generally handwritten but printed checks are being used more for personal use as well.

 

Negotiable instruments types: Traveler’s Checks

• Traveler’s checks are another type of negotiable instrument intended to be used as a form of payment by people on vacation in foreign countries as an alternative to foreign currency.
• Financial institutions issue traveler’s checks with serial numbers and in prepaid fixed amounts.
• With traveler’s checks, purchasers do not have to worry about carrying large amounts of foreign currency while on vacation.
• Courts have variously described traveler's checks as certificates of deposit, negotiable instruments, securities, cash, and cashier’s checks.

 

Negotiable Instruments types: Money Order

• Money orders are like cheques in that they promise to pay an amount to the holder of the order.
• It is issued by financial institutions and governments, money orders are widely available but differ.

• Money orders contain relatively little personal information compared to checks with just the names and addresses of the sender and recipients and not any personal account information.

• International money orders are also a popular way of sending money abroad nowadays since money orders do not need to be cashed in the country of issuance.

 

Negotiable Instruments types: Promissory Notes

• A promissory note is a financial instrument that contains a written and signed promise between two parties to repay a sum of money in exchange for a loan or other financing.
• A promissory note typically contains all the terms about the indebtedness, such as the principal amount, interest rate, maturity date, date and place of issuance, and issuer's signature.
• In terms of their legal enforceability, promissory notes lie somewhere between the informality of an IOU and the rigidity of a loan contract.
• There is no limit on the borrowing amount for a promissory note.

 

Negotiable instruments types: Certificate Of Deposit

• A certificate of deposit is a short-term negotiable debt instrument that promises to pay the bearer or registered owner an amount or number of amounts in the future.
• Certificates of deposits are negotiable money market instruments issued in demat form or as Usance Promissory Notes.
• The government initiated the market of CDs to widen the range of money market instruments and to provide higher flexibility to investors for investing their surplus money in the short term.
• A certificate of deposit is a savings account that holds a fixed amount of money for a fixed period, such as six months, one year, or five years.

 

Negotiable Instruments Act Amendment  2018 pdf

• In 2018, the central government added two sections namely 143a and 148 to the Negotiable Instrument Act of 1881.
• The insertion of such new provisions in the NI Act is a welcome step aimed at addressing the issue of undue delay.

• This amendment has been constructive for cheque bouncing and has reduced those types of cases.
• It also introduces substantial changes to the Negotiable Instruments Act of 1881.

 

Essential Factors of Negotiable Instruments Types

The essential factors of negotiable instruments are some unique features that are;

• Transferability - It emphasizes the free transferability of the instrument from one party to another.
• Rights to the holder - The Act provides rights and protections to the holder of the instrument.
• Legal Redress - It provides a legal mechanism to seek redressal in case of dishonor of the instrument.
• Presumptions - The Act assumes certain presumptions regarding negotiable instruments.

 

Relevance of negotiable instrument types

 The contents under the topic of negotiable instruments types deal with all the provisions of the instruments that are a crucial part of modern-day commercial transactions due to development in the banking, trading, and other commercial transactions development in the banking, trading, and other commercial sectors.

 

Negotiable Instruments Types - FAQ's

Q. What are the commonly used negotiable instruments?

The commonly used negotiable instruments are 

Personal Checks, Cashier’s Checks, Money Orders, Certificates of deposit (CDs), Promissory notes, Traveler’s notes

Q. What is a negotiable instrument?

A negotiable instrument is a written document that creates a right in favor of a person and is freely transferable. Which is considered an unconditional promise or order to pay a fixed amount of money. 

Q. Which section of the Negotiable Instruments Act defines promissory notes?

The promissory notes are defined as an instrument according to section 4 of the Negotiable Instruments Act.

Q. What is a non-negotiable instrument?

A non-negotiable instrument, also known as a non-marketable instrument, is something that cannot be transferred from one party to another. Non-negotiable instruments are set in stone and cannot be changed in any way. 

Q. What are the elements of negotiable instruments?

There are 4 elements of negotiable instruments, they are.,

Unconditional promise or order to pay, Fixed amount of money, Payable on demand or at a specific time, Payable to the particular person or their order, or the bearer.