Negotiable Instruments: Key Concepts and Definitions

State the Difference Between a Negotiable Instrument and a Contract of Assignment

Negotiation

Negotiation implies the transfer of a negotiable instrument that takes place to make the transferee the holder of the instrument. It has effect by mere delivery in the case of a bearer instrument and endorsement and delivery in the case of an order instrument. The transferee has the right to sue the third party in his/her own name.

Assignment

Assignment alludes to the transfer of ownership of the negotiable instrument, in which the assignee gets the rights to receive the amount due on the instrument from the prior parties. It has effect by a written document duly signed by the transferor. The assignee does not have the right to sue third parties in his own name.

Is It Necessary to State the Time of Payment in a Negotiable Instrument?

The time of payment in a negotiable instrument can be stated in several ways:

• On demand: whenever the payee presents the instrument for payment
• After sight: within a stated period after the payee presents the instrument for payment
• On or before a stated date
• At the end of a fixed period after a stated date
• At a definite time subject to optional acceleration or extension

If the time of payment is made contingent on the occurrence of some event that may never happen or that may happen at some time not yet known, the instrument is not negotiable.

What Are "The Words of Negotiability"? Explain Briefly and Translate.

Words making a promise or order payable “to bearer” or “to order” are the most distinguishing feature of a negotiable instrument, and such words are frequently referred to as “words of negotiability”. These terms and phrases make a document a negotiable instrument.

What Is an Indorsement?

An indorsement is the placing of a signature, sometimes with additional notation, on the back of a negotiable instrument to transfer or to guarantee the instrument or to acknowledge payment.

Types of Indorsements

• Qualified Indorsement: An indorsement that passes title to the instrument but limits the endorser's liabilities to later holders if the instrument is later dishonored.
• Special Indorsement: An indorsement that specifies the person to receive the payment or to whom the goods named by the document must be delivered.
• Blank Indorsement: An indorsement that names no specific payee, thus making the instrument payable to the bearer and negotiable by delivery only.
• Restrictive Indorsement: An indorsement that includes a condition or any other language restricting further negotiation.