Characteristics of a Negotiable Instruments
These are the characteristics of a negotiable instrument:
a) Property
As a general rule, the possessor of a negotiable instrument is presumed to be the owner of the property contained therein. The possession of a negotiable instrument is not the same as right to property. Using a negotiable instrument, you can transfer property without any formalities. Upon delivery of a bearer instrument, the property passes to the recipient. The transfer of property via an order instrument requires endorsement and delivery.
b) Title
Transferees of negotiable instruments are known as holders in due course. A bona fide transferee without fault is not affected by any defect in title on the part of the transferor or previous holders of the instrument.
c) Rights
Transferees of negotiable instruments may sue in their own names if they have been dishonored. The maturity of a negotiable instrument can be transferred any number of times. A notice of transfer does not need to be given to the party liable on the instrument.
d) Presumptions
All negotiable instruments are subject to certain presumptions, such as the presumption that consideration was given. There is no need to write the words ‘for value received’ or similar phrases in a promissory note since the payment of consideration is presumed. The phrase is usually included for documentation purposes.
e) Prompt payment
A negotiable instrument allows the holder to expect prompt payment because a dishonour means that all parties to the instrument will have their credit damaged.