ChapterSixInstrumentsofPayment6.1NegotiableInstruments6.2BillsofExchange6.3Checks6.4PromissoryNotes

6.1NegotiableInstruments

6.1.1WhatAreNegotiableInstruments?“Negotiable”means“transferablefromonepersontoanotherinreturnforconsideration”and“instrument”means“writtendocumentbywhicharightiscreatedinfavorofsomeperson”.Thus,anegotiableinstrumentisadocumentwhichcanbeusedtosecurethepaymentofmoneyandtherightswhichcanbetransferredeasilyfromonepersontoanother.

Inabroadsense,anegotiableinstrumentreferstoanycommercialtitleofownershipandmaytaketheformsofvaluablesecuritiesandevidences,suchasbillsofexchange,promissorynotes,checks,dividendwarrants,bearerbonds,billofladings,treasurybillsandcertificatesofdeposits.Allofthemsharetwocharacteristics:(1)representingaunilateralpromisetopayafixedamountofmoneytothelegitimateholderoftheinstrumentand(2)beingtransferableornegotiable.

Inanarrowsense,however,anegotiableinstrumentisawrittendocumentthatcontainsanunconditionalpromisebythedrawertopaythepayeeoranunconditionalorderbythedrawertothedraweetopaythepayeeafixedamountofmoneyatadefinitetime.Wewillstudythenegotiableinstrumentintermsofitsnarrowsense,andwewillmainlytalkaboutbillsofexchange,promissorynotesandchecks.

6.1.2CharacteristicsofNegotiableInstruments

1.Negotiability

Thetitletoanegotiableinstrumentcanbetransferredbydeliveryorbyendorsementfollowedbydelivery.Theword“title”herereferstotherightsembodiedinanegotiableinstrument.Ifpayabletothebearer,anegotiableinstrumentmaybetransferredbymeredelivery;ifpayabletoanamedpersonororder[Theword“order”hasdifferentmeaningswhenusedinthecontextofinternationalbusiness.],anegotiableinstrumentmaybetransferredbyendorsementanddelivery.

2.