Types of Negotiable Instruments – Meaning and Features

Types of Negotiable Instruments – In this modern commercial world, negotiable instruments play a significant role as it is freely and easily transferable. Negotiable Instruments are transferable instruments and time-saving with no formalities. Negotiable instruments are must be in writing.

Types of Negotiable Instruments

1)Promissory notes

2)Bill of exchange


1) Promissory notes-

According to section 4 of the Negotiable Instruments Act, A promissory note is an instrument in writing ( not being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or the bearer of the instruments.

Essential features of Promissory Note 

1)Unconditional promise to pay

2)There should be a certainty of the amount due.

3) Promissory notes must be in writing 

4) It must not be conditional

5)The maker of Promissory notes should sign it

6)Payment must be made to a certain person and Properly stamped

Parties to the Promissory notes

1)Maker – The person who makes a promissory note and pays the amount.

2)Payee – The person to whom the promissory note is payable.

In course of transfer of promissory note-

Types of Promissory Notes

  • Personal Promissory Notes
  • Commercial
  • Real Estate
  • Investments

2) Bill of exchange

According to section 5 of Negotiable Instruments Act, A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or the bearer of the instrument.

Features of Bill of exchange

1)Bill of exchange is An instrument in writing and duly signed

2)Contain an order to pay

3)Order must be unconditional

4)Order must be pay to money alone

5)Parties and payment must be certain

6)Acceptor should accept it

Parties to a Bill of Exchange

1)Drawer – The person who issues a bill of exchange.

2)Drawee – The person to whom the order is to be made.

3)Payee – The person to whom payment is to be made.

Types of Negotiable Instruments

3) Cheque

According to section 6 of the Negotiable Instruments Act,

A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Features of Cheques

1) cheques must be in writing and duly signed by the drawer

2)Unconditional order

3)cheques are issued on a specified banker only and it must bear the date

4)The specified amount must be certain

5)The payee should be certain

6) cheques are always payable on demand

Types of cheques

  • There are four types of cheques
  • open cheque,
  • crossed cheque,
  • bearer cheque and
  • order cheque.

1)Open cheque-

To get cash from the counter at the bank then this cheque called an open cheque. In other words to get cash from the counter and deposit the cheque in his account and pass to someone by signing on the back.

2)Crossed cheque –

In open cheques, there is a risk of theft, and it can be avoided by issuing other types of cheques is known as a crossed cheques. It only transfers to the account of the payee.

3)Bearer cheque –

The cheque which is payable to anyone who presents if for payment at the bank counter these types of the cheque are known as a bearer cheque.

4) Order cheque –

A cheque that is payable to a particular person this types of the cheque is known as an order cheque

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