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transferring a negotiable instrument

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Explain processes in transferring a negotiable instrument.

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Explain processes in transferring a negotiable instrument.

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A negotiable instrument is a specialised type of contract for the payment of money which is unconditional and capable of transfer by negotiation. Note that a negotiable instrument is not a per se contract as contract formation requires an offer, acceptance and consideration, none of which are elements of a negotiable instrument (in the US). The rights of the payee (or holder in due course) are better than those provided by ordinary contracts as follows:

The rights to payment are not subject to set-off, and do not rely on the validity of the underlying contract giving rise to the debt (for example if a cheque was drawn for payment for goods delivered but defective, the drawer is still liable on the cheque)
No notice needs to be given to any prior party liable on the instrument for transfer of the rights under the instrument by negotiation
Transfer free of equities -- the holder in due course can hold better title than the party he obtains it from
Negotiation enables the transferee to become the party to the contract, and to enforce the contract in his own name. Negotiation can be effected by indorsement and delivery (order instruments), or by delivery alone (bearer instruments). The two primary classes of negotiable instruments are as follows:

The promissory note, which is a written promise by the maker to pay money to the payee. The most common type of promissory note is a bank note, which is defined as a promissory note made by a bank and payable to bearer ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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