Negotiation of Negotiable Instruments

- S. S. Khanka

Content Structure
What Is Negotiation? Who Can Negotiate? How Is Negotiation Different From Assignment? What Are The Modes of Negotiation? What Is Endorsement? What Are the Kinds of Endorsements?
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What is Negotiation?
Negotiable Instruments are characterized by their transferability of the title. They are frequently transferred from one person to another for making payments and discharging business obligations. In the Law lexicon, such process of transferring of the title or ownership of negotiable instruments is called Negotiation. Section 4 of the Negotiable Instruments Act 1881: When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated. Alternatively speaking, negotiation implies a transfer of negotiable instrument so as to constitute the transferee a holder thereof, who should be entitled in his own name to sue on the instrument and recover the amount due thereon. Example: Handing over a bearer instrument to ones servant for safe keeping is not negotiation. Why? Because, transfer must be with intention to pass title or ownership of the instrument.
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Who Can Negotiate?

Every maker, drawer, payee or endorsee , and if there are several makers, drawers, payees or endorsees, all of them jointly can negotiate an instrument, provided the negotiability of such instrument has not been restricted or excluded by any express words used in the instrument. The maker, drawer, payee or endorsee cannot endorse instrument unless he is in lawful possession or is holder thereof (Section 51). Negotiable instrument can be negotiated till the party ultimately liable pays it at or after maturity.

How Is Negotiation Different From Assignment?

The equitable title of the instrument may also be transferred by assignment by a separate deed in writing in accordance with the Transfer of Property Act. However, negotiation and assignment differ from each other on certain points. These are tabulated in the next slide.

Points of Difference

Negotiation

Assignment

1. Formalities