Essential Characteristics of a Negotiable Instrument in the partnership of a firm are given below:
1. Easy negotiability:
They are transferable from one person to another without any formality. In other words, the property (right of ownership) in these instruments passes by either endorsement or delivery (in case it is payable to order) or by delivery merely (in case it is payable to bearer), and no further evidence of transfer is needed.
ADVERTISEMENTS:
2. Transferee can sue in his own name without giving notice to the debtor:
A bill, note or a cheque represents a debt, i.e., an “actionable claim” and implies the right of the creditor to recover something from his debtor. The creditor can either recover this amount himself or can transfer his right to another person.
In case he transfers his right, the transferee of a negotiable instrument is entitled to sue on the instrument in his own name in case of dishonour, without giving notice to the debtor of the fact that he has become holder.
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ADVERTISEMENTS:
In case of transfer or assignment of an ordinary “actionable claim” (i.e., a book debt evidenced by an entry by the creditor in his account book or bahi), under the Transfer of Property Act, notice to the debtor is necessary in order to make the transferee entitled to sue in his own name, otherwise he has always to join his transferor, i.e., the original creditor before he can recover his claim from the debtor.
3. Better title to a bona fide transferee for value:
A bonafide transferee of a negotiable instrument for value (technically called as a holder in due course) gets the instrument ‘free from all defects.’ He is not affected by any defect of title of the transferor or any prior party.
Thus, the general rule of the law of transfer of title applicable in the case of ordinary chattels that ‘nobody can transfer a better title than that of his own’ does not apply to negotiable instruments.
ADVERTISEMENTS:
A man may sell to another a stolen T. V. set but the true owner may claim back the T.V. set from the buyer even though he may have got it in good faith for consideration.
The result would have been different if instead of the T.V. set a negotiable instrument, say, a bill of exchange made payable to bearer, had thus been transferred, in which case the transferee would have obtained a good title.
4. Presumptions:
Certain presumptions apply to all negotiable instruments. Sections 118 and 119 lay down the following presumptions, in respect of negotiable instruments, unless the contrary is proved:
(a) That every negotiable instrument was made, drawn, accepted, endorsed or transferred for consideration’,
(b) That every negotiable instrument bearing a date was made or drawn on such date;
(c) That every bill of exchange was accepted within a reasonable time after its date and before its maturity;
(d) That every transfer of a negotiable instrument was made before its maturity;
(e) That the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon;
(f) That a lost negotiable instrument was duly stamped; that the holder of a negotiable instrument is a holder in due course-, but this presumption would not arise where it is proved that the holder has obtained the instrument from its lawful owner, or from any person in lawful custody thereof, by means of an offence, fraud or for unlawful consideration and in such a case the holder has to prove that he is a holder in due course; that the instrument was dishonoured, in case a suit upon a dishonoured instrument is filed with the court and the fact of ‘protest’ is proved.