View Full Version : Q. Explain what is meant by negotiation. discuss the difference between

08-29-2012, 03:58 AM
Q. Explain what is meant by negotiation. discuss the difference between negotiability and assignability. (1996)(2000)
1. Introduction:
Under negotiable instrument act the instruments are freely transferred from one person to another for making payments or discharging liabilities. generally the holder of instrument but transfers it to his creditors in order to clear his debts.
2. Negotiation:
According to Sec 14.
"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.
3. Conditions:
(i) Instrument must be transferred in accordance with the provision of negotiable instrument act.
(ii) Title of the instrument must be transferred.
4. Methods of transfer of negotiable instrument:
A negotiable instrument may be transferred in any of two ways:
(i) By negotiation.
(ii) By assignment.
I. By negotiation:
A instrument may be transferred from one person to another person by negotiation. the process of transferring the title or ownership of the negotiable instrument is called negotiation.
(i) Modes of negotiations:
There are two ways of negotiation to transfer a negotiable instrument.
(A) Negotiation by delivery:
A negotiable instrument payable to bearer can be transferred by delivery if does not require the signature of the transferor.
(i) Kinds of delivery:
Following are two kinds of delivery.
Actual delivery:
As between the parties standing in immediate relation to each other, delivery shall take effect from the moment its possession is transferred by the party making the instrument.
Constructive delivery:
As between the parties and any holder of the instrument other than holder in due course, instrument may be delivered conditionally or for some special purpose only and not transfer the property absolutely.
B. Negotiation by endorsement and delivery:
A negotiable instrument payable to order can be negotiated only by the holder by the endorsement and delivery. unless the holder sings his endorsement on the instrument and delivers in the transferee does not become a holder.
II. By assignment:
By assignment means transfer of ownership in the negotiable instrument by means of a written and registered document under the provisions of transfer of property act. the assignee of the instrument becomes entitled in his own name to possession and to recover the amount due on the instrument from the parties thereof.
5. Difference between negotiation and assignment:
I. As to formalities:
Negotiation needs delivery of a bearer instrument and endorsement and delivery of an order instrument.
Assignment needs a written document signed by the transferor.
II. As to notice of transfer:
In negotiation notice of transfer by the holder of transfer is not required.
Notice of assignment must be given by the assignee to the debtor to make it binding and effective.
III. As to title:
In negotiation, transferee (if holder in due course) gets better title than transferor.
Assignee's title is subject to the defects in the title of assignor.
IV. As to consideration:
In case of negotiation, consideration is always presumed.
Consideration is not presumed in case of assignment.
V. As to right to sue:
In negotiation transferee can sue the party in his own name
Assignee cannot sue in his own name.
VI. As to effect:
Negotiation can be effected by (i) deliver or (ii) endorsement and delivery.
Assignment can be effected only by a written document signed by the transferor.
6. Conclusion:
To conclude I can say that, the negotiable instrument are transferable. the process of transferring the title is called negotiated at or after maturity. it can be transferred by negotiation or by assignment. so these are two different ways for transferring of negotiable instrument.