FORMAL REQUIREMENTS OF NEGOTIABLE INSTRUMENTS

Every negotiable instrument to qualify as such must meet special requirements relating to form and content. These are mandatory requirements for the validity of the instrument. The absence of any one of such requirements renders the instrument non-negotiable. On the other hand, if it fulfills, it becomes negotiable i.e. transferable from one person to another person by delivery. The term ‘negotiability’ here refers to the capacity of the instrument being transferred by delivery or endorsement and simultaneously entitling the transferee rights and entitlements emanating from the instrument. When there is a valid negotiation the right and the document together, pass on to the transferee. As you can see from article 715(1), this very essence i.e. inseparability of the document from the the right, is used as a key element in defining negotiable instruments by the commercial code.

The general part of the commercial code (articles 715-731) does not provide any common standard by which the negotiability of negotiable instruments can be measured. Rather it only provides specific requirements applicable to bills of exchange, promissory notes and cheques. Since all these instruments are commercial papers, we will in general examine the basic requirements applicable to all, at the same time comparing and contrasting them with the specific requirements of each instrument. The negotiability requirements of bills of exchange, promissory notes and cheques are indicated in article 735, 823 and 827 respectively. Continue reading FORMAL REQUIREMENTS OF NEGOTIABLE INSTRUMENTS