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ndom article about wikipedia contact us contribute help learn to edit community portal recent changes upload file special pages search search appearance donate create account log in personal tools donate create account log in contents move to sidebar hide top 1 concept of negotiability 2 jurisdictions 3 history 4 distinguished from other types of contracts toggle distinguished from other types of contracts subsection 4 1 the holder in due course 5 classes toggle classes subsection 5 1 promissory note 5 2 bill of exchange 6 in the united states toggle in the united states subsection 6 1 negotiation and endorsement 6 2 usage 6 3 exceptions 7 modern relevance 8 see also 9 references 10 external links toggle the table of contents negotiable instrument 25 languages العربية অসমীয়া dansk esperanto español euskara فارسی français frysk עברית हिन्दी հայերեն íslenska italiano 日本語 ಕನ್ನಡ 한국어 norsk nynorsk norsk bokmål português русский svenska тоҷикӣ türkçe 中文 edit links article talk english read edit view history tools tools move to sidebar hide actions read edit view history general what links here related changes upload file permanent link page information cite this page get shortened url switch to legacy parser print export download as pdf printable version in other projects wikidata item appearance move to sidebar hide from wikipedia the free encyclopedia redirected from bill of exchange contract document exchangeable for money a 1939 promissory note rangoon burma a negotiable instrument is a document guaranteeing the payment of a specific amount of money either on demand or at a set time whose payer is usually named on the document more specifically it is a document contemplated by or consisting of a contract which promises the payment of money without condition which may be paid either on demand or at a future date the term has different meanings depending on its use in the application of different laws and depending on countries and contexts the word negotiable refers to transferability and instrument refers to a document giving legal effect by the virtue of the law concept of negotiability edit william searle holdsworth defines the concept of negotiability as follows 1 negotiable instruments are transferable under the following circumstances they are transferable by delivery where they are made payable to the bearer they are transferable by delivery and endorsement where they are made payable to order consideration is presumed the transferee acquires a good title even though the transferor had a defective or no title jurisdictions edit in the commonwealth of nations almost all jurisdictions have codified the law relating to negotiable instruments in a bills of exchange act e g bills of exchange act 1882 in the uk bills of exchange act 1890 in canada bills of exchange act 1908 in new zealand bills of exchange act 1909 in australia 2 the negotiable instruments act 1881 in india and the bills of exchange act 1914 in mauritius additionally most commonwealth jurisdictions have separate cheques acts providing for additional protections for bankers collecting unendorsed or irregularly endorsed cheques providing that cheques that are crossed and marked not negotiable or similar are not transferable and providing for electronic presentation of cheques in inter bank cheque clearing systems history edit in india during the mauryan period in the 3rd century bc an instrument called adesha was in use which was an order on a banker desiring him to pay the money of the note to a third person which corresponds to the definition of a bill of exchange as we understand it today the ancient romans are believed to have used an early form of cheque known as praescriptiones in the 1st century bc 3 and 2 000 year old roman promissory notes have been found 4 common prototypes of bills of exchanges and promissory notes originated in china where special instruments called fey tsien which were used to safely transfer money over long distances during the reign of the tang dynasty in the 8th century 5 self published source in about 1150 the knights templar issued an early form of bank notes to departing pilgrims in exchange for a deposit of valuables at a local templar preceptory in a european country which could be cashed by the pilgrim concerned on arrival in the holy land by presenting the note to a templar preceptory there 6 7 in the mid 13th century the ilkhanid rulers of persia printed the cha or chap which was used as paper money for limited use for transactions between the court and the merchants for about three years before it collapsed the collapse was caused by the court accepting the cha only at progressive discount later such documents were used for money transfer by middle eastern merchants who had used the prototypes of bills of exchange suftadja or softa from the 8th century to present such prototypes came to be used later by the iberian and italian merchants in the 12th century in italy in the 13 15th centuries bills of exchange and promissory notes obtained their main features while further phases of their development have been associated with france 16 18th centuries where the endorsement had appeared and germany 19th century formalization of exchange law the first mention of the use of bills of exchange in english statutes dates from 1381 under richard ii the statute mandates the use of such instruments in england and prohibits the future export of gold and silver specie in any form to settle foreign commercial transactions 8 english exchange law was different than continental european law because of different legal systems the english system was adopted later in the united states 9 in england two of the main reasons why the use of negotiable instruments became so popular was carrying large amounts of coins from one place to the other was deemed unsafe so the usage of negotiable instruments was to prevent merchants from being robbed of their coins either on land or by sea during the 1300s there was an increase in the use of counterfeit english money so the aim of the english crown was to eradicate the exchange of genuine english coins for such forgeries as well as foreign goods as such statutes such as the statute of money of 1335 9 edw 3 stat 2 and 1379 were implemented to prevent the importation of money that was deemed as counterfeit and also to prevent the exportation of valuable items like gold and silver in the absence of any special licenses 10 the modern emphasis on negotiability may also be traced to lord mansfield 11 germanic lombard documents may also have some elements of negotiability 12 distinguished from other types of contracts edit an 1870 bill of exchange payable in london with british foreign bill revenue stamps attached a negotiable instrument can serve to convey value constituting at least part of the performance of a contract albeit perhaps not obvious in contract formation in terms inherent in and arising from the requisite offer and acceptance and conveyance of consideration the underlying contract contemplates the right to hold the instrument as and to negotiate the instrument to a holder in due course the payment on which is at least part of the performance of the contract to which the negotiable instrument is linked the instrument memorializing 1 the power to demand payment and 2 the right to be paid can move for example in the instance of a bearer instrument wherein the possession of the document itself attributes and ascribes the right to payment certain exceptions exist such as instances of loss or theft of the instrument wherein the possessor of the note may be a holder but not necessarily a holder in due course negotiation requires a valid endorsement of the negotiable instrument the consideration constituted by a negotiable instrument is cognizable as the value given up to acquire it benefit and the consequent loss of value detriment to the prior holder thus no separate consideration is required to support an accompanying contract assignment the instrument itself is understood as memorializing the right for and power to demand payment and an obligation for payment evidenced by the instrument itself with possession as a holder in due course being the touchstone for the right to and power to demand payment in some instances the negotiable instrument can serve as the writing memorializing a contract thus satisfying any applicable statute of frauds as to that contract the holder in due course edit the rights of a holder in due course of a negotiable instrument are qualitatively as matters of law superior to those provided by ordinary species of contracts the rights to payment are not subject to set off and do not rely on the validity of the underlying contract giving rise to the debt for example if a cheque was drawn for payment for goods delivered but defective the drawer is still liable on the cheque no notice need be given to any party liable on the instrument for transfer of the rights under the instrument by negotiation however payment by the party liable to the person previously entitled to enforce the instrument counts as payment on the note until adequate notice has been received by the liable party that a different party is to receive payments from then on u c c 3 602 b transfer free of equities the holder in due course can hold better title than the party he obtains it from as in the instance of negotiation of the instrument from a mere holder to a holder in due course negotiation often enables the transferee to become the party to the contract through a contract assignment provided for explicitly or by operation of law and to enforce the contract in the transferee assignee s own name negotiation can be effected by endorsement and delivery order instruments or by delivery alone bearer instruments classes edit promissory notes and bills of exchange are two primary types of negotiable instruments the following chart shows the main differences 13 bill of exchange promissory note name the name of the bill or note in the text of the document in the language in which the document has been issued subject unconditional order for the payment of the specified sum unconditional assumption of obligation for the payment of the specified sum drawee the name of the person obliged to pay drawee n a date the specification of the maturity place of payment specification of the place of payment payee the name of the person to whose behalf the payment must be effected issue date the specification of the date and place of the issuance of the bill or note signature the signature of the drawer the signature of the issuer promissory note edit although possibly non negotiable a promissory note may be a negotiable instrument if it is an unconditional promise in writing made by one person to another signed by the maker engaging to pay on demand to the payee or at fixed or determinable future time a sum certain in money to order or to bearer clarification needed the law applicable to the specific instrument will determine whether it is a negotiable instrument or a non negotiable instrument bank notes are frequently referred to as promissory notes a promissory note made by a bank and payable to bearer on demand according to section 4 of india s negotiable instruments act 1881 a promissory note is a writing not being a bank note or currency note 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 the bearer of the instrument 14 bill of exchange edit a bill of exchange or draft is a written order by the drawer to the drawee to pay money to the payee a common type of bill of exchange is the cheque check in american english defined as a bill of exchange drawn on a banker and payable on demand bills of exchange are used primarily in international trade and are written orders by one person to his bank to pay the bearer a specific sum on a specific date prior to the advent of paper currency bills of exchange were a common means of exchange they are not used as often today belgian bill of exchange 1933 a bill of exchange is essentially an order made by one person to another to pay money to a third person a bill of exchange requires in its inception three parties the drawer the drawee and the payee the person who draws the bill is called the drawer he gives the order to pay money to the third party the party upon whom the bill is drawn is called the drawee he is the person to whom the bill is addressed and who is ordered to pay he becomes an acceptor when he indicates his willingness to pay the bill the party in whose favor the bill is drawn or is payable is called the payee the parties need not all be distinct persons thus the drawer may draw on himself payable to his own order a bill of exchange may be endorsed by the payee in favour of a third party who may in turn endorse it to a fourth and so on indefinitely the holder in due course may claim the amount of the bill against the drawee and all previous endorsers regardless of any counterclaims that may have disabled the previous payee or endorser from doing so this is what is meant by saying that a bill is negotiable in some cases a bill is marked not negotiable see crossing of cheques in that case it can still be transferred to a third party but the third party can have no better right than the transferor in the united states edit in the united states articles 3 and 4 of the uniform commercial code ucc govern the issuance and transfer of negotiable instruments unless the instruments are governed by article 8 of the ucc the various state law enactments of ucc 3 104 a through d set forth the legal definition of what is and what is not a negotiable instrument 3 104 negotiable instrument a except as provided in subsections c and d negotiable instrument means an unconditional promise or order to pay a fixed amount of money with or without interest or other charges described in the promise or order if it 1 is payable to bearer or to order at the time it is issued or first comes into possession of a holder 2 is payable on demand or at a definite time and 3 does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money but the promise or order may contain i an undertaking or power to give maintain or protect collateral to secure payment ii an authorization or power to the holder to confess judgment or realize on or dispose of collateral or iii a waiver of the benefit of any law intended for the advantage or protection of an obligor b instrument means a negotiable instrument c an order that meets all of the requirements of subsection a except paragraph 1 and otherwise falls within the definition of check in subsection f is a negotiable instrument and a check d a promise or order other than a check is not an instrument if at the time it is issued or first comes into possession of a holder it contains a conspicuous s...