There are various Types of Negotiable Instruments. Such As,
(a) Bearer and Order instruments: An instrument may be made payable: (1) to bearer; (2) to a specified person or to his order.
An instrument is payable to bearer which is expressed to be so payable on which is expressed thus “Pay to X or bearer”. It is also payable to bearer when the only or last endorsement on it is an endorsement in blank.
An instrument is payable to order (i) when it is payable to the order of a specified person or (2) when it is payable to a specified person or his order or, (3) when it is payable to a specified person without the addition of the words “or his order” and does not contain words prohibiting transfer or indicating an intention that it should not be transferable. When an instrument, either originally or by endorsement, is made payable to the order of a specified person and not to him or his order, it is payable to him or his order, at his option.
When an instrument is not payable to bearer, the payee must be indicated with reasonable certainty.
(b) Inland and Foreign Instrument (Sections 11 & 12): A promissory note, bill of exchange or cheque drawn or made in India and made payable in or drawn upon any person resident in India shall be deemed to be an inland instrument. Any such instrument, not so drawn, made or payable shall be deemed to be a foreign instrument.
Thus, the foreign bills are: (a) bills drawn outside India and made payable in or drawn upon any person resident in any country outside India; (b) bills drawn outside India and made payable in India, or drawn upon any person resident in India; (c) bills drawn in India upon persons resident outside India and made payable outside India.
The distinction between inland and foreign bills is of importance in connection with Sections 104 and 134 of the Act. Inland bills need not be protested for dishonour; protest in this case is optional. But foreign bills must be protested when law of the place of making or drawing them requires such protest. The question by what law are the contracts on negotiable instruments governed is also important.
Foreign bills must be protested for dishonour if the law of the place where these are drawn prescribes for such a protest. In the case of inland bills, protest is optional (Section 104).
c) Ambiguous and inchoate bills: An ambiguous bill means an instrument which can be constructed either as a promissory note or as bill of exchange (Section 17). E.g., a bill drawn by a person on himself in favour of a third person or where the drawee is a fictitious person. The law on the point is that the holder of such a bill is at liberty to treat the instrument as bill or a promissory note. The nature of the instrument will be as determined by the holder.
An incomplete instrument called an inchoate instrument. Section 20 of the Negotiable Instruments Act provides that when one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby give prima facie authority to the holder thereof to maker or complete, as the case may be, upon it a negotiable instrument for an amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument in the capacity in which he signed the same, to any holder in due course for such amount. Provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended to be paid by them there under. The principle of this rule is one of estoppel. By such signature he binds himself as drawer, maker, acceptor or endorser. His signature on the blank paper purports to be an authority to the holder to fill up the blank, and complete the paper as a negotiable instrument.
An instrument is payable to bearer which is expressed to be so payable on which is expressed thus “Pay to X or bearer”. It is also payable to bearer when the only or last endorsement on it is an endorsement in blank.
An instrument is payable to order (i) when it is payable to the order of a specified person or (2) when it is payable to a specified person or his order or, (3) when it is payable to a specified person without the addition of the words “or his order” and does not contain words prohibiting transfer or indicating an intention that it should not be transferable. When an instrument, either originally or by endorsement, is made payable to the order of a specified person and not to him or his order, it is payable to him or his order, at his option.
When an instrument is not payable to bearer, the payee must be indicated with reasonable certainty.
(b) Inland and Foreign Instrument (Sections 11 & 12): A promissory note, bill of exchange or cheque drawn or made in India and made payable in or drawn upon any person resident in India shall be deemed to be an inland instrument. Any such instrument, not so drawn, made or payable shall be deemed to be a foreign instrument.
Thus, the foreign bills are: (a) bills drawn outside India and made payable in or drawn upon any person resident in any country outside India; (b) bills drawn outside India and made payable in India, or drawn upon any person resident in India; (c) bills drawn in India upon persons resident outside India and made payable outside India.
The distinction between inland and foreign bills is of importance in connection with Sections 104 and 134 of the Act. Inland bills need not be protested for dishonour; protest in this case is optional. But foreign bills must be protested when law of the place of making or drawing them requires such protest. The question by what law are the contracts on negotiable instruments governed is also important.
Foreign bills must be protested for dishonour if the law of the place where these are drawn prescribes for such a protest. In the case of inland bills, protest is optional (Section 104).
c) Ambiguous and inchoate bills: An ambiguous bill means an instrument which can be constructed either as a promissory note or as bill of exchange (Section 17). E.g., a bill drawn by a person on himself in favour of a third person or where the drawee is a fictitious person. The law on the point is that the holder of such a bill is at liberty to treat the instrument as bill or a promissory note. The nature of the instrument will be as determined by the holder.
An incomplete instrument called an inchoate instrument. Section 20 of the Negotiable Instruments Act provides that when one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in India and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby give prima facie authority to the holder thereof to maker or complete, as the case may be, upon it a negotiable instrument for an amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument in the capacity in which he signed the same, to any holder in due course for such amount. Provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended to be paid by them there under. The principle of this rule is one of estoppel. By such signature he binds himself as drawer, maker, acceptor or endorser. His signature on the blank paper purports to be an authority to the holder to fill up the blank, and complete the paper as a negotiable instrument.
Types of Negotiable Instruments
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