Classification of Negotiable Instruments

Classification of Negotiable Instruments

1)   Inland Instrument-

A promissory note, bill of exchange or cheque which is 1) both drawn or made in India and made payable in India, or 2) drawn upon any person resident in India, is deemed to be an inland instrument. A bill of exchange drawn upon a resident in India is an inland bill irrespective of the place where it was drawn.

2)   Foreign Instrument-

An instrument, which is not an inland instrument, is deemed to be a foreign instrument. Foreign bills must be protested for dishonor if such protest is required by the law of the place where they are drawn. But protest in case of inland bills is optional.

3)   Insruments payable on demand-

A cheque is always payable on demand and it cannot be expressed to be payable otherwise than on demand. A promissory note or bill of exchange is payable on demand-

  1. when no time for payment is specified in it.
  2. when it is expressed to be payable ‘on demand’, or ‘at sight’ or ‘on presentment’. The words ‘on demand’ is usually in a promissory note, the words ‘at sight’ are in a bill of exchange.

4)   Ambiguous Instrument-

When an instrument owing to its faulty drafting may be interpreted either as a promissory note or a bill of exchange, it is called an ambiguous instrument. Its holder has to elect once for all whether he wants to treat it a as a promissory note or a bill of exchange. Once he does so he must abide by his election.

5)  Forged Instrument-

An instrument is a forged when it is drawn, made or alternated in writing to prejudice another man’s rights. The most common form of forgery is signing another person’s signature, signing the name of fictitious or none existing person. Fraudulently writing the name of an existing person is also forgery.  Forgery is a nullity and, therefore, it passes no title. No holder of a forged instruments acquires any right on the instruments. Even a holder in due course gets no title if he comes into the possession of a forged instrument. A person has to pay money on a forged instruments by mistake, can recover it from the person to whom he has paid it.

6)  Bearer And Order Instruments-

An instrument is a bearer instrument when the amount payable thereon is payable to the bearer and he as a holder and in lawful possession thereof is entitled to enforce payment due on it.