Negotiable instruments are transferable documents that represent a promise to pay a specific sum of money on demand or at a future date.
1. Promissory Note (Section 4)
An instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. It involves two parties: Maker and Payee.
2. Bill of Exchange (Section 5)
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 to the bearer of the instrument. It involves three parties: Drawer, Drawee, and Payee.
3. Cheque (Section 6)
A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. (All cheques are bills of exchange, but not all bills of exchange are cheques).
4. Holder in Due Course (Section 9)
A Holder in Due Course (HDC) is a person who, for consideration, became the possessor of the instrument before it became payable, and without notice of any defect in the title of the transferor.
Privileges of an HDC:
- An HDC acquires a clean title, free from prior defects (e.g. if the instrument was stolen earlier, the HDC still gets a valid title).
- Estoppel against denying original validity or signature of the maker.