Question

Characteristics of Negotiable Instruments
Which of the following can NOT be considered as characteristic/s of negotiable instruments?

• A. A holder does not get the instrument free from all defects of title of any previous holder.
• B. The instrument is transferable till maturity.
• C. They are freely transferable.
• D. All of the above

Answer 1

Answer: (A)

A holder does not get the instrument free from all defects of title of any previous holder.

Important characteristics of Negotiable Instruments are:

• Negotiable instrument does not simply give ownership of the instrument but right to property as well. The property in negotiable instrument can be moved without any formality. In the case of bearer instrument, the possessions pass by meager delivery to the transferee. In case of order instrument, endorsement & delivery are necessary for transfer of property.
• The transferee of negotiable instrument is called ‘holder in due course.’ A genuine transferee for value is not affected by any flaw of title on the part of transferor or of any of the previous holders of instrument.
• The transferee of negotiable instrument can take legal action in his own name, in case of dishonour. A negotiable instrument can be reassigned any number of times till it is attains maturity. The holder of instrument need not give notice of transfer to the party legally responsible on the instrument to pay.
• Certain presumptions are applicable to all negotiable instruments. It is not essential to write in promissory note the words ‘for value received’ or alike expressions for the reason that the payment of consideration is acknowledged. The words are typically included to generate additional substantiation of consideration.
• A negotiable instrument facilitates the holder to anticipate prompt payment because dishonour refers to the ruin of credit of all persons who are parties to the instrument.