A negotiable instrument can be defined as a document that is sufficient for the existence and use of the right it contains, and that can be transferred and endorsed. The classification of negotiable instruments can be done according to different criteria, such as the nature of the right it contains, the legal transaction that causes its issuance, its issuance, its transfer, and whether it exists before the right it contains or not.
A. According to the Right It Contains
Negotiable instruments can be divided into four groups according to the nature of the right they contain:
1. Share Certificates
Share certificates are negotiable instruments that represent the capital shares of joint stock companies or limited partnerships. Share certificates provide rights such as participating in the management of the partnership, receiving dividends, receiving a share from the liquidation balance, receiving new shares, and obtaining information. Share certificates can be registered or bearer.
2. Commodity Certificates
Commodity certificates are negotiable instruments that represent the ownership or pledge right of a commodity. The transfer of commodity certificates represents the transfer of possession of the goods they represent. Commodity certificates include warehouse receipts, bills of lading, passenger tickets, cargo receipts, policies, checks, and other documents.
3. Debt Certificates
Debt certificates are negotiable instruments that show the existence and amount of a debt. Bills of exchange are the most typical example of debt certificates. Debt certificates can be registered, to order, or bearer.
4. Property Law Certificates
Property law certificates are negotiable instruments that indicate the existence and scope of a property right. Mortgage, mortgage bond, income certificate can be given as examples of property law certificates.
B. According to the Relation with the Legal Transaction that Causes Its Issuance
Negotiable instruments can be divided into two groups according to the relation with the legal transaction that causes its issuance:
1. Abstract Negotiable Instruments
Abstract negotiable instruments are those that are not affected by the defect in the main debt relationship that causes the issuance of the negotiable instrument. Abstract negotiable instruments are documents that the right is established directly on the negotiable instrument and the negotiable instrument itself is a legal transaction. Bills of exchange can be given as an example of abstract negotiable instruments.
2. Causal Negotiable Instruments
Causal negotiable instruments are those that determine the existence and scope of the right they contain depending on the legal transaction that causes their issuance. Causal negotiable instruments are those that are affected and invalidated by the defects in the main debt relationship. Bills of lading and share certificates are examples of causal negotiable instruments.
C. According to Its Issuance
Negotiable instruments can be divided into two groups according to their issuance:
1. Negotiable Instruments Issued in Series
Negotiable instruments that are issued with the same texts and in large numbers, only with different serial numbers. Negotiable instruments issued in series are documents such as bonds, share certificates, securities.
2. Negotiable Instruments Issued Individually
Negotiable instruments issued individually are negotiable instruments that are not issued as a series consisting of more than one negotiable instrument of the same quality and representing the same right, but are issued as a single negotiable instrument. Bills of exchange are usually negotiable instruments issued individually.
D. Classification of Negotiable Instruments According to Their Transferability
1. Bearer Instruments
These are negotiable instruments that are written in the name of a person who does not have an order clause and are not legally considered as order instruments. The legislator must have allowed the instrument to be issued in bearer form as a prerequisite.
The transfer of bearer instruments is valid by the assignment of the claim and the delivery of the instrument. However, the transfer of bearer instruments issued by joint-stock companies is by endorsement and delivery, which is an exception to the transfer of bearer instruments.
Bills of exchange are legally order instruments. For these instruments to be issued in bearer form, a “Negative Order Clause” must be placed before they are put into circulation. This clause can be “Not to order.”, “Not transferable by endorsement.”, “Bearer instrument.” etc. If this clause is placed after they are put into circulation, the provisions regarding the change of type apply.
In bearer instruments, the debtor of the instrument must pay the instrument amount to the payee who is written as the first holder of the instrument or to the creditor who is his legal successor in case of the transfer of the instrument. If the instrument has not been transferred, the holder of the instrument is obliged to prove that he is the authorized holder as the payee and the debtor of the instrument is obliged to investigate whether the creditor is the authorized holder or not. If the instrument has been transferred, the debtor is obliged to examine and determine the authorized holder of the instrument, the validity of all transfer transactions and the signature chain when paying the instrument. The debtor who pays without examining these issues continues his debt to the holder who proves that he is the authorized holder. The debtor must issue an “Incomplete Bearer Instrument” to get rid of this burden. This is possible with a clause like “or to the bearer” on the instrument. However, it should be noted that the phrases placed on the checks, except the type of the check to the bearer instrument. In incomplete bearer instruments, the debtor has no obligation to examine and determine.
The defenses that the debtor of the instrument can assert to the first holder, i.e. the payee, can also be asserted to the other holders in case of the transfer of the instrument.
Bills, checks, bonds, shares, debentures, bills of lading are examples of negotiable instruments that can be issued in bearer form.
2. Order Instruments
These are negotiable instruments that are written to the order of a person or are legally considered as such. For an instrument to be considered as an order instrument, it must be issued in the name of a natural or legal person and have an order or a similar clause. Also, the law must have allowed the instrument to be issued as an order instrument. Bills of exchange are legally order instruments. Therefore, there is no need to put an order clause on these instruments.
The transfer of order instruments is done by endorsement and delivery. Endorsement is a legal transaction that gives double authority. It gives the endorser the authority to collect the instrument amount and the debtor of the instrument the authority to pay the endorsee. The endorsement must be written on the instrument and if there is no space left on the instrument, on an additional paper called allonge.
In order instruments, the debtor of the instrument is not obliged to investigate whether the holder is the authorized holder or not. The debtor will be relieved of his debt unless he has fraud or gross negligence. However, the debtor must check the identity of the holder when making the payment. Also, in presentations made before the due date, the debtor is obliged to investigate whether the holder is authorized or not.
The debtor of the instrument can assert defenses related to the invalidity of the instrument against the holder, but cannot assert defenses arising from the original debt relationship.
Bills, checks, bills of exchange, bills of lading, debentures are examples of order instruments. Mortgage bonds, income bonds, shares cannot be issued as order instruments.
3. Bearer Instruments
Every negotiable instrument that is understood from its text or form that whoever is the holder of the instrument is the owner of the right is considered as a bearer instrument. For an instrument to be considered as a bearer instrument, the instrument must not be written in the name of any natural or legal person and the legislator must have allowed the instrument to be issued as a bearer instrument. If the instrument text contains a clause such as “This instrument will be paid to the presenter” or a similar clause, that instrument is considered as a bearer instrument. Bearer instruments are the easiest and fastest instruments to transfer. The transfer of bearer instruments is done by delivery.
In bearer instruments, the debtor has no obligation to investigate the authority of the holder. The debtor pays the presenter and is relieved of his debt. However, the payment made by the debtor of the instrument in cases where he is prevented from paying is not valid.
Only absolute defenses related to the invalidity of the instrument or understood from the instrument text can be asserted against bearer instruments. However, if the acquirer of the instrument has acted in bad faith to the detriment of the debtor, subjective defenses based on the original debt relationship can also be asserted.
Mortgage bonds, income bonds, shares, debentures and checks are examples of bearer instruments. Bills of exchange, bills, receipt instruments, warrants cannot be issued as bearer instruments.
E. Classification According to Whether the Right Contained Exists Before or Not
1. Constitutive Instruments
Constitutive instruments are negotiable instruments that create the right contained with the issuance of the negotiable instrument. Constitutive instruments are documents that indicate that the right originates from the negotiable instrument itself and that the right disappears in the absence of the negotiable instrument. Constitutive instruments are documents such as shares, debentures, coupons, warrants.
2. Explanatory (Declarative) Instruments
Explanatory instruments are negotiable instruments that indicate that the right contained existed before the issuance of the negotiable instrument and that the negotiable instrument only explains this right. Explanatory instruments are documents that indicate that the right is not the source of the negotiable instrument and that the right continues in the absence of the negotiable instrument. Explanatory instruments are documents such as bills of exchange, checks, bills, instruments, bills of lading, passenger tickets, cargo instruments, warehouse instruments.
Negotiable instrument is a type of document that has an important place in our law and is one of the indispensable elements of commercial life. Negotiable instrument can be defined as a document that is sufficient for the existence and use of the right it contains, and that can be transferred and endorsed. The classification of negotiable instruments can be done according to different criteria such as the nature of the right it contains, the legal transaction that causes its issuance, its issuance, its transfer and whether the right it contains exists before or not. In this article, basic information about the classification of negotiable instruments is given and different groups and examples related to the classification of negotiable instruments are presented. The classification of negotiable instruments is important in terms of determining the legal nature of the negotiable instrument, the rights it contains, the conditions of transfer and endorsement, the situation of being abstract or dependent on the cause, and the provisions to be applied in case of loss or destruction of the negotiable instrument. Therefore, having knowledge about the classification of negotiable instruments is important to prevent or solve legal disputes related to negotiable instruments.
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