CLASSIFICATION OF NEGOTIABLE INSTRUMENTS
These classifications depend on various features like transferability, negotiability, rights of holders, etc.
BEARER INSTRUMENTS : There are two important conditions for negotiable instruments to become payable to bearers. Firstly, parties to the transactions must express it to be so payable. Secondly, the only endorsement for it should be an endorsement in blank. These two requirements imply that any holder of such instruments can obtain payment for them. For example, a bill of exchange is payable to any person who holds it. These bearer instruments include cheques, bills of exchange and promissory notes.
Negotiable instruments can often be payable to order in certain cases. They are payable when the instruments expressly state them to be so. Furthermore, they may be payable to order only to a specific person. The only requirement is that there should be no prohibition on their transferability.
Section 11 of the NI Act deals with inland instruments. This provision regulates instruments that are drawn and made payable in India. Alternatively, they may be payable outside India but only if they are drawn upon by an Indian resident.
Every instrument that is not inland automatically becomes a foreign instrument. These instruments are drawn in a foreign country but may be payable within or outside India. They may even originate in India but only for payment to a person who resides abroad.
Sometimes, an instrument may not specify a time during which it remains payable. Such instruments are payable whenever the bearer demands. Examples of such instruments include promissory notes and bills of exchange.
Unlike demand instruments, time instruments carry a fixed future date for payment. For example, a promissory note may carry a maturity date arising after 24 months (about 2 years) of its issue. Such instruments may even become payable upon the happening of a specific future event.
An ambiguous instrument is 0ne that may be either a bill or a note for its holder. Such situations arise in peculiar circumstances only. For example, sometimes the drawee may be a fictitious person, or he may be incompetent to contract. Under such circumstances, the holder of such instruments may treat them either as bills of exchange or as promissory notes. Section 17 of the Negotiable Instruments Act deals with such situations.
Incomplete instruments lack certain essential requirements of typical negotiable instruments. In such cases, the holder of the instrument has the authority to complete it up to the amount mentioned therein. This, in turn, results in the creation of legally binding negotiable instrument payable by law. Not only the first holder but also any subsequent holder who procures such instruments can complete them.