Negotiable Instrument

A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. Negotiable instruments are often defined in legislation. For example, according to the Section 13 of the Negotiable Instruments Act, 1881 in India, a negotiable instrument is a promissory note, bill of exchange or cheque payable either to order or to bearer. Cheque also includes demand draft .

More precisely, it is a document contemplated by a contract, which (1) warrants the payment of money, the promise of or order for conveyance of which is unconditional; (2) specifies or describes the payee, who is designated on and memorialized by the instrument; and (3) is capable of change through transfer by valid negotiation of the instrument.

Since a negotiable instrument is a promise of a payment of money, the instrument itself can be used by the holder in due course as a store of value; although instruments can be transferred for amounts in contractual exchange that are less than the instrument’s face value (known as “discounting”). Under United States law, Article 3 of the Uniform Commercial Code as enacted in applicable state law governs the use of negotiable instruments, except banknotes (“Federal Reserve Notes”, a.k.a. "paper dollars").