Notes on the Law of Negotiable Instruments
Examples of negotiable instruments A commercial paper is an instrument which embodies contractual rights, and the possession of the instrument is required to enforce those rights that are contained in it Although negotiable instruments (eg bills, cheques, promissory notes, certain bearer debentures, bonds and share warrants) are categorised as commercial paper, not all commercial papers are negotiable instruments. Examples of commercial papers which are not negotiable instruments include bills of lading and share certificate Some negotiable instruments can be characterised as instruments of payment (eg bills, cheques and promissory notes) whereas others can be seen as instruments of investment (eg
debentures, bonds and share warrants
CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS . simplicity of transfer . the possibility of transfer free from equities Simplicity of transfer ⁃ The instruments can be transferred from one person to another with out the need to comply with difficult and cumbersome formalities ⁃ transferred either by delivering them to the recipient or by sighing them first before delivering them to the recipient ⁃ This will depend on whether it is an order or a bearer instrument Transfer free from equities Basic principle One cannot transfer a better title to another person than the
title one has oneself Exception to the rule The reaon for the exception is based on commercial reality Negotiable instruments will only be used as a method of payment if the person who takes the instrument as payment for a debt obtains ownership and full tittle for the instrument in the same way he would have if payment was made with cash Commercial reality therefore dictates that under certain circumstances negotiable instruments should be treated in the similar manner to cash it means that the person who takes the negotiable instrument in good faith acquires ownership of the instrument, even though the person from whom he received the instrument has no title or a defective
debentures, bonds and share warrants
CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS . simplicity of transfer . the possibility of transfer free from equities Simplicity of transfer ⁃ The instruments can be transferred from one person to another with out the need to comply with difficult and cumbersome formalities ⁃ transferred either by delivering them to the recipient or by sighing them first before delivering them to the recipient ⁃ This will depend on whether it is an order or a bearer instrument Transfer free from equities Basic principle One cannot transfer a better title to another person than the
title one has oneself Exception to the rule The reaon for the exception is based on commercial reality Negotiable instruments will only be used as a method of payment if the person who takes the instrument as payment for a debt obtains ownership and full tittle for the instrument in the same way he would have if payment was made with cash Commercial reality therefore dictates that under certain circumstances negotiable instruments should be treated in the similar manner to cash it means that the person who takes the negotiable instrument in good faith acquires ownership of the instrument, even though the person from whom he received the instrument has no title or a defective