NEGOTIABLE INSTRUMENTS. A nego tiable instrument is a document which, by indorsement and delivery, or by mere delivery, passes the full title to the benefit of the instrument to the transferee, who takes it bona. fide and for value, irrespective of any defects that there may be in the transferor's title, and on which the holder is able to sue in his own name.
A cheque, bill, and promissory note are negotiable instruments, and the Bills of Exchange Act, 1882, provides that where a person is a holder in due course he holds the bill free from any defect of title of prior parties and may enforce payment against all parties liable on the bill. A holder in due course is a holder who takes a bill com plete and regular on the face, before it is overdue, in good faith and for value and without notice of any defect in the title of the person who negotiated it. The negoti ability, however, may be destroyed by a restrictive indorsement such as " Pay John Brown only." A cheque crossed " not nego tiable " warns the holder that he obtains no better title than the person had from whom he obtained it. (See " NOT NEGOTIABLE " CHEQUE.) In addition to cheques, bills, and promis sory notes, the following are examples of negotiable instruments : bank notes, coin of the realm, treasury bills, foreign bonds, share warrants and share certificates to bearer. Debentures, payable to bearer, of an English company have in recent years been held by the Courts to be negotiable instruments. It does not follow that because an instrument is a negotiable instrument in the country where it has been created, that it will be regarded as such in this country. To make it a negotiable instrument in this country there must be evidence that it is the custom of merchants to treat it as negotiable. Bigham, J., said (in Edelstein v. Schuler, 1902, 2 K.B. 144) : " The time has now passed when the negoti ability of bearer bonds, whether Government or trading bonds, foreign or English, can be called in question in the English Courts." The difference between a document which is a negotiable instrument and one which is not may be illustrated by, say, a bearer bond of the Japanese Government and a bill of lading. The person to whom the bearer
bond is delivered, if he takes it in good faith, and for value and without notice of any defect in the transferor's title, obtains an absolute right to the bond even if it should subsequently appear that the transferor had stolen it and had therefore no title to it. In the case of a bill of lading, which is a symbol of goods, the person to whom an indorsed bill of lading is delivered obtains a right to obtain possession of the goods, but if the transferor had no title, or an imperfect title, to the bill, the transferee cannot obtain anybetter title than the transferor had. If the trans feror had no title, the transferee cannot obtain a title.
Certain American railroad certificates which pass by delivery when the transfer on the back has been signed are not negotiable instruments. (See AMERICAN RAILROAD CERTIFICATES.) Where a negotiable instrument is given as security, a banker usually takes a memoran dum or agreement stating the purpose for which it is pledged, though a memorandum is not absolutely necessary. A deed of transfer is not required for bearer bonds, as they pass by mere delivery and the banker obtains a valid security, even if the person from whom lie received the bonds had stolen them or the bonds formed part of a trust. But it is essential to his security that when he took the bonds he had no notice of the defective title of the transferor. It would appear that mere negligence in taking a negotiable instrument does not fix a transferee with notice of a defective title ; but the transferee must be able to show that he took the security in good faith and for value. The law is very clearly laid down in the case of London Joint Stock Bank v. Simmons (1892, A.C. 2111), and in the course of his elaborate judgment Lord Ilerschell made use of the following expressions : " It is surely of the very essence of a negotiable instrument that you may treat the person in possession of it as having authority to deal with it, be he agent or otherwise, unless you know to the contrary, and are not compelled, in order to secure a good title to yourself, to inquire into the nature of his title, or the extent of his authority.