UNIT-2

THE NEGOTIABLE INSTRUMENTS ACT, 1881

INTRODUCTION
The law on negotiable instruments plays a crucial role in the business world. It was created to make
trade and commerce easier by giving legal value to credit instruments that can be easily transferred
and converted into cash.

Before these instruments existed, carrying large amounts of cash for business transactions was
difficult and risky. The Indian law on negotiable instruments is based on English Common Law and
aims to make these financial documents work like tradable goods.

In India, the Negotiable Instruments Act, 1881, governs this area of law. This Act defines and
regulates Promissory Notes, Bills of Exchange, and Cheques, ensuring smooth financial
transactions across the country. Money can very easily and safely be transferred from one place to
another with the help of negotiable instruments.

DEFINITION
According to Section 13 of the Act, "Negotiable instrument means a promissory note, bill of
exchange or cheque payable either to order or to bearer, whether the word "order" or " bearer"
appear on the instrument or not."
Thus, the term, negotiable instrument means a written document which creates a right in favour of
some person and which is freely transferable. Although the Act mentions only these three
instruments (such as a promissory note, a bill of exchange and cheque), it does not exclude the
possibility of adding any other instrument which satisfies the following two conditions of
negotiability:
(1) the instrument should be freely transferable (by delivery or by endorsement. and delivery) by
the custom of the trade; and
(2) the person who obtains it in good faith and for value should get it free from all defects, and be
entitled to recover the money of the instrument in his own name.

As such, documents like share warrants payable to bearer, debentures payable to bearer and
dividend warrants are negotiable instruments. But the money orders and postal orders, deposit
receipts, share certificates, bill of lading, dock warrant, etc. are not negotiable instruments.
Although they are transferable by delivery and endorsements, yet they are not able to give better
title to the Bonafide transferee for value than what the transferor has.

CHARACTERISTICS OF A NEGOTIABLE INSTRUMENTS

1. Easy transferability:
A negotiable instrument may be freely transferred as many times as necessary until it reaches
maturity. As mentioned earlier as well, an instrument is considered as negotiable when it is
transferable upon delivery. When an instrument is “payable to the bearer”, it can be negotiated
only by delivery but when an instrument is “payable to order”, it is accepted upon delivery and
endorsement.
2. Transferee’s title free from all defects
 It is an unsaid fact that a party cannot transfer a better title to the other party than what he
possesses. However, such a rule becomes inapplicable when it comes to negotiable instruments.
When a party receives a negotiable instrument for a value in good faith, the defect in the title of
the transferor becomes immaterial. It ensures that the transferee can possess an independent title
despite the transferor having a defective title over the instrument.
3. Transferee:
The transferee of the negotiable instrument can sue in his own name, in case of dishonour. A
negotiable instrument can be transferred any number of times till it is at maturity. The holder of
the instrument need not give notice of transfer to the party liable on the instrument to pay.
4. Prompt payment
A negotiable instrument enables the holder to expect prompt payment because a dishonour
means the ruin of the credit of all persons who are parties to the instrument.
5. Presumptions
 Sections 118 and 119 of the Negotiable Instrument Act lay down certain presumptions which the
court presumes in regard to negotiable instruments. Until the contrary is proved the following
presumptions shall be made in case of all negotiable instruments:

1. Consideration: It is presumed that every negotiable instrument was made drawn, accepted or
endorsed for consideration. However may be rebutted by proof that the instrument had been
obtained from, its lawful owner by means of fraud or undue influence.
2. Date: Every negotiable instrument is presumed to have been made or drawn on the date which it
bears.
3. Time of acceptance: It is presumed that every accepted bill was accepted within a reasonable
time after its issue and before its maturity. This presumption only applies when the acceptance is
not dated; if the acceptance bears a date, it will prima facie be taken as evidence of the date on
which it was made.
4. Time of transfer: It is presumed that every transfer was made before its maturity.
5. Order of endorsement: The endorsements are presumed to have been made in the order in
which they appear thereon.
6. Stamp: In case an instrument is lost, it is presumed that it was duly stamped.
7. Every holder is a holder in due course: Every holder is presumed to be a holder in due course.
Every holder of a negotiable instrument is presumed to have paid consideration for it and to have
taken it in good faith
8. Proof of protest: In case a suit is filed for dishonor of instrument, the court shall on proof of the
protest, presume the fact of dishonour, unless and until such fact is disproved.

TYPES OF NEGOTIABLE INSTRUMENT

(a) Negotiable instruments recognised by (b) Negotiable instruments recognised by usage

statute (By the Negotiable Instruments Act): or custom are:
(i) Promissory notes (i) Hundis
(ii) Share warrants
(ii) Bills of exchange (iii) Dividend warrants
(iv) Bankers draft
(iii) Cheques (v) Circular notes
(vi) Bearer debentures
(vii) Debentures of Bombay Port Trust
(viii) Railway receipts
(ix) Delivery orders.

PROMISSORY NOTE
Section 4 of the Act defines, "A promissory note is an instrument in writing (not being a bank-note
or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain
sum of money to or to the order of a certain person, or to the bearer of the instruments."

Parties to a Promissory Note:

1. Maker – The person who makes the note and promises to pay.
2. Payee- The person to whom the amount is payable.
Essential elements:
An instrument to be a promissory note must possess the following elements:
(1) It must be in writing: A mere verbal promise to pay is not a promissory note. It must be in any
form that cannot be altered easily.
(2) It must contain an express promise to pay: There must be an express undertaking to pay. A
mere acknowledgment of debt is not enough.
“I am liable to pay you Rs. 500”-Not a promise. I promise/acknowledge to pay B or order Rs. 500”-
a Promise.
(3) Promise to pay must be unconditional: A conditional undertaking destroys the negotiable
character of an otherwise negotiable instrument. Therefore, the promise to pay must not depend
upon the happening of some outside contingency or event. It must be payable absolutely.
(4) It should be signed by the maker: The person who promise to pay must sign the instrument
even though it might have been written by the promisor himself. The pronote can be signed by the
authorised agent of the maker, but the agent must expressly state as to on whose behalf he is
signing, otherwise he himself may be held liable as a maker. The only legal requirement is that it
should indicate with certainty the identity of the person and his intention to be bound by the terms
of the agreement.
(5) The maker must be certain: The note itself must show clearly who is the person agreeing to
undertake the liability to pay the amount. In case two or more persons promise to pay, they may
bind themselves jointly or jointly and severally, but their liability cannot be in the alternative.
(6) The payee must be certain: The instrument must point out with certainty the person to whom
the promise has been made. The payee may be ascertained by name or by designation. In case, there
is a mistake in the name of the payee or his designation; the note is valid, if the payee can be
ascertained by evidence. Even where the name of a dead person is entered as payee in ignorance of
his death, his legal representative can enforce payment.
(7) The promise should be to pay money and money only: Money means legal tender money and
not old and rare coins.
(8) The amount should be certain: the amount payable must be certain.
(9) Other formalities: The other formalities regarding number, place, date, consideration etc.
though usually found given in the promissory notes but are not essential in law.

Specimen of Promissory Notes

BILLS OF EXCHANGE
Section 5 of the Act defines, "A bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to pay a certain sum of money
only to, or to the order of a certain person or to the bearer of the instrument".
Parties to Bill of Exchange
1. Drawer : The maker of a bill of exchange
2. Drawee : The person directed to pay the money by the drawer
*Acceptor: After a drawee of a bill has signed his assent upon the bill, he is called the acceptor.
3. Payee : The person to whom the money is to be paid.
Essential conditions of a bill of exchange
(1) It must be in writing.
(2) It must be signed by the drawer.
(3) The drawer, drawee and payee must be certain.
(4) The sum payable must also be certain.
(5) It should be properly stamped.
(6) It must contain an express order to pay money and money alone.
(7) The order must be unconditional.
For example, in the following cases, there is no order to pay, but only a request to pay. Therefore, none
can be considered as a bill of exchange:
(a) "Mr. Ramesh, please let the bearer have one thousand rupees, and place it to my account and
oblige."

However, there is an order to pay, though it is politely made, in the following examples:
(a) "Please pay Rs. 500 to the order of ‘A’."
(b) "Mr. A will oblige Mr. C by paying to the order of ‘P’."
CHEQUE
Section 6 of the Act defines "A cheque is a bill of exchange drawn on a specified banker, and not
expressed to be payable otherwise than on demand".
A cheque is bill of exchange with two more qualifications, namely,
(i) it is always drawn on a specified banker, and
(ii) it is always payable on demand.
Consequently, all cheque are bill of exchange, but all bills are not cheque.
A cheque must satisfy all the requirements of a bill of exchange; that is, it must be signed by the
drawer, and must contain an unconditional order on a specified banker to pay a certain sum of
money to or to the order of a certain person or to the bearer of the cheque. It does not require
acceptance.
Parties to a Cheque
1. Drawer. the person who draws the cheque.
2. Drawee. It is the drawer's banker on whom the cheque has been drawn.
3. Payee. He is the person who is entitled to receive the payment of the cheque.
Types of Cheques

(a) Open Cheque – When the cheque is payable at the counter of the bank on whom it is drawn,
it is called an open cheque. It may be of two types .

o Bearer Cheque - When a cheque is payable to the bearer i.e. to the person who presents
the cheque to the bank for encashment, is called bearer cheque. It can be transferred by
mere delivery. Hence there is a great risk. Eg. Pay ‘A’ or bearer.
o Order Cheque - When a cheque is payable to person named in the cheque or to his order,
is called Order Cheque. It can be transferred only by endorsement and delivery. Eg. Pay
‘A’ or order.

(b) Crossed Cheque – To reduce the risk involved in open cheque, a cheque may be crossed. It
is the cheque on which two parallel transverse lines are drawn across the top left , with or
without the word :
(i) ' & Co.'
(ii) Not Negotiable
(iii) A/c Payee
It can not be encashed at the counter of the bank , can be received through a collecting banker.
Comparison between Cheque and Bill of Exchange

S.N. BASIS CHEQUE BILL OF EXCHANGE

1. Meaning A document used to make easy A written document that shows the
payments on demand and can be indebtness of the debtor towards
transferred through hand the creditor
delivery
2. Defined in Section 6 of Negotiable Section 5 of Negotiable
Instrument Instrument
Act, 1881. Act, 1881.
3. Drawee Always a specific bank May be any person or bank
4. Payable to bearer Always Cannot be made payable to bearer
on demand on demand.
5. Acceptance Does not require acceptance A bill needs to be accepted.
6. Validity period 3 months Not applicable
7. Days of grace No grace period is allowed 3 days of grace allowed
8. Can it be crossed Yes No
9. Stamping No such requirement Must be stamped

Comparison between Bill of Exchange and Promissory Note

S.N. BASIS BILL OF EXCHANGE PROMISSORY NOTE

1. Meaning Bill of Exchange is an It is an instrument in writing
instrument in writing showing containing an unconditional
the indebtedness of a buyer undertaking signed by maker to
towards the seller of goods. pay a certain sum of money to
a certain
person or to the bearer.
2. Defined in Section 5 of Negotiable Section 4 of Negotiable
Instrument Instrument
Act, 1881. Act, 1881.
3. Nature of Payment There is an unconditional order There is an unconditional promise
to to
pay pay
4. Number of Parties Three parties, i.e. drawer, Two parties, i.e. drawer and payee.
drawee
and payee.
5. Drawn by Creditor Debtor
6. Liability of Maker Secondary and conditional Primary and absolute
7. Notice of dishonour Notice must be given to all Notice of dishonor to maker is
persons not
liable to pay necessary
8. Noting and Required in case of dishonor of Not required in case of dishonor of
protesting a a
bill. note.
9. Payable to maker The drawer and payee may be Maker cannot pay to himself
one
person
10. Copies Bill can be drawn in copies. Promissory Note cannot be drawn
in
copies.
 NEGOTIATION
Negotiation may be defined as the process by which a third party is constituted the holder of the
instrument so as to entitle him to the possession of the same and to receive the amount due
thereon in his own name. According to section 14 of the Act, ‘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.’

Negotiation thus requires two conditions to be fulfilled, namely:

1. There must be a transfer of the instrument to another person; and
2. The transfer must be made in such a manner as to constitute the transferee the holder of the
instrument.

Modes of Negotiation
Negotiation may be effected in the following two ways :

1. Negotiation by delivery (Sec. 47) : Where a promissory note or a bill of exchange or a

cheque is payable to a bearer, it may be negotiated by delivery thereof.
Example : A, the holder of a negotiable instrument payable to bearer, delivers it to B’s
agent to keep it for B. The instrument has been negotiated.

2. Negotiation by endorsement and delivery (Sec. 48) : A promissory note, a cheque or a bill
of exchange payable to order can be negotiated only be endorsement and delivery. Unless the
holder signs his endorsement on the instrument and delivers it, the transferee does not become a
holder. If there are more payees than one, all must endorse it.

ENDORSEMENT
As per the Negotiable Instruments Act endorsement means, the writing of one’s name
on the back of the instrument or any paper attached to it with the intention of transferring
the rights therein. Thus, endorsement is signing a negotiable instrument for the purpose of
negotiation. The person who effects an endorsement is called an ‘endorser’, and the person to
whom negotiable instrument is transferred by endorsement is called the ‘endorsee’.

Essentials of a Valid Endorsement

1. On the Instrument – The endorsement must be on the instrument, either on the back or face. If
no space is left, it can be made on an attached paper (allonage), preferably in ink.
2. By Maker or Holder – Only the maker or holder can endorse; a stranger cannot. The payee of
an instrument is the rightful person to make the first endorsement. The maker or the drawer
cannot endorse the instrument but if any of them has become the holder thereof he may endorse
the instrument.
3. Signed by Endorser – The endorser must sign, but full name is not essential; initials may
suffice. Thumb impressions require attestation. Signatures can be anywhere on the instrument,
but rubber stamps are not valid except for designations.
4. Blank or Full Endorsement – A blank endorsement includes only the signature, while a full
endorsement specifies a transferee. No specific wording is required, but intent to transfer must be
clear. If the endorsee’s name is misspelled, they must sign as written and provide the correct
spelling in brackets.
5. Delivery Required – The instrument must be delivered by the endorser or someone on their
behalf with intent to transfer. Mere possession without delivery confers no rights.
6. Entire Bill Endorsed – A partial endorsement (transferring only part of the amount) is invalid.
Classes of endorsement: An endorsement may be :
(1) Blank or general.
(2) Special or full.
(3) Partial.
(4) Restrictive.
(5) Conditional.

(1) Blank or general endorsement (Sections 16 and 54).

It is an endorsement when the endorser merely signs on the instrument without mentioning the
name of the person in whose favour the endorsement is made.
Example : A bill is payable to X. X endorses the bill by simply affixing his signature.
This is an endorsement in blank by X. In this case the bill becomes payable to bearer.
.
(2) Special or full endorsement (Section 16)
When the endorsement contains not only the signature of the endorser but also the name of the
person in whose favour the endorsement is made, then it is an endorsement in full. Example :
“Pay to A or A’s order,”

(3) Partial endorsement (Section 56)

A partial endorsement is one which purports to transfer to the endorsee a part only of the amount
payable on the instrument. Such an endorsement does not operate as a negotiation of the
instrument.
Example : A is the holder of a bill for Rs.1000. He endorses it “pay to B or order Rs.500.”

(4) Restrictive endorsement (Section 50)

Restrictive endorsement is one which restricts or prohibits the further negotiatiability.
Example : “Pay C for my use,” “Pay C for the account of B” .

(5) Conditional or qualified endorsement

An endorsement which limits or negatives the liability of the endorser is called a conditional
endorsement. An endorsement which says that the amount will become payable if the endorsee
attains majority embodies a condition precedent. An endorsement may be made conditional or
qualified in any of the following ways :

(i) ‘Sans recourse’ endorsement : An endorser who does not want to take risk on the
instrument may, indorse it sans recourse by adding the words “sans recourse” or “without
recourse”. Example: ‘Pay to A or order sans recourse, ‘pay to A or order without recourse to
me’.

(ii) ‘Sans frais’ endorsement : Where the endorser does not want the endorsee or any
subsequent holder, to incur any expense on his account on the instrument, the endorsement is
‘sans frais’.

(iii) Facultative endorsement : An endorsement where the endorser may curtail or waive his
rights, is called a facultative endorsement.
Example: “Pay A or order. Notice of dishonour waived” .

(iv) Liability dependent upon a contingency : Where an endorser makes his liability
dependent, upon the happening of a contingent event, which may or may not happen.
Example: ‘Pay A or order on his marriage with B’.

HOLDER
 According to Section 8 of the Act ‘holder’ of a promissory note, bill of exchange or a
cheque means any person entitled in his own name to the possession thereof and to
receive or recover the amount thereon from the parties thereto.
 A holder in case of an instrument payable to order is payee or endorsee. In case the
instrument is payable to bearer, holder means the possessor of the instrument.
 His rights and title are dependent on the transferor. He has a right to demand and receive
but does not have a right to sue.
 It is not every person in possession of the instrument who is called a holder.
 A person who has obtained possession of an instrument by theft, or under a forged
endorsement, is not a holder, as he is not entitled to recover the instrument
 An agent holding an instrument for his principal is not a holder although he may receive
its payment.
 The holder implies de jure (holder in law) holder and not de facto (holder in fact) holder.
HOLDER IN DUE COURSE
Section 9 of the Act defines 'holder in due course' as “any person who acquires a promissory
note, bill or cheque bona fide, for value and before maturity”.
A holder in due course must satisfy the following conditions:
 He must be a holder for valuable consideration. Consideration must not be void or illegal, e.g.
a debt due on a wagering agreement. It may, however, be inadequate. A donee, who acquired
title to the instrument by way of gift, is not a holder in due course, since there is no
consideration to the contract.
 He must have become a holder (possessor) before the date of maturity of the
negotiable instrument. Therefore, a person who takes a bill or promissory note on the day
on which it becomes payable cannot claim rights of a holder in due course because he takes
it after it becomes payable, as the bill or note can be discharged at any time on that day.
 He must have become holder bona fide. Good faith implies that he should not have
accepted the negotiable instrument after knowing about any defect in the title to the
instrument. But, notice of defect in the title received subsequent to the acquisition of the
title will not affect the rights of a holder in due course. He should take the instrument
without any negligence on his part. Reasonable care and due caution will be the proper test
of his bona fides. He should not have notice of defects whether actual or constructive.
 A holder in due course must take the negotiable instrument complete and regular on the
face of it.
 His rights and title are independent on the transferor.
 He has a right to demand and receive and also have a right to sue.

Example
(i) A bill made out by pasting together pieces of a tom bill taken without enquiry will not make
the holder, a holder in due course. It was sufficient to show the intention to cancel the bill.

Privileges of a Holder In Due Course:

1. Instrument purged of all defects: A holder in due course who gets the instrument in good
faith in the course of its currency is not only himself protected against all defects of title of the
person from whom he has received it, but also serves, as a channel to protect all subsequent
holders.
Example: A obtains Bs acceptance to a bill by fraud. A indorses it to C who takes it as a holder
in due course. The instrument is purged of its defects and C gets a good title to it. In case C
indorses it to some other person he will also get a good title to it except when he is also a party to
the fraud played by A.

2. Rights not affected in case of an inchoate instrument : Right of a holder in due course to
recover money is not at all affected even though the instrument was originally an inchoate
stamped instrument and the transferor completed the instrument for a sum greater than what was
intended by the maker. (Sec. 20)

3. All prior parties liable: All prior parties to the instrument (the maker or drawer, acceptor and
intervening indorers) continue to remain liable to the holder in due course until the instrument is
duty satisfied. The holder in due course can file a suit against the parties liable to pay, in his own
name (Sec. 36)

4. Can enforce payment of a fictitious bill : Where both drawer and payee of a bill are
fictitious persons, the acceptor is liable on the bill to a holder in due course. If the latter can show
that the signature of the supposed drawer and the first indorser are in the same hand, for the bill
being payable to the drawer's order the fictitious drawer must indorse the bill before he can
negotiate it. (Sec. 42).
5. No effect of conditional delivery: Where negotiable instrument is delivered conditionally or
for a special purpose and is negotiated to a holder in due course, a valid delivery of it is
conclusively presumed and he acquired good title to it. (Sec.46).
Example: A, the holder of a bill indorses it "B or order" for the express purpose that B may get
it discounted. B does not do so and negotiates it to C, a holder in due course. D acquires a good
title to the bill and can sue all the parties on it.
6. No effect of absence of consideration or presence of an unlawful consideration: The plea
of absence of or unlawful consideration is not available against the holder in due course. The
party responsible will have to make payment (Sec. 58).

7. Estoppel against denying original validity of instrument: The plea of original invalidity of
the instrument cannot be put forth, against the holder in due course by the drawer of a bill of
exchange or cheque or by an acceptor for the honour of the drawer. But where the instrument is
void on the face of it e.g. promissory note made payable to "bearer", even the holder in due
course cannot recover the money. Similarly, a minor cannot be prevented from taking the
defence of minority. Also, there is no liability if the signatures are forged. (Sec. 120).

8. Estoppel against denying capacity of the payee to indorsee: No maker of promissory note
and no acceptor of a bill of exchange payable to order shall, in a suit therein by a holder in due
course, be permitted to resist the claim of the holder in due course on the plea that the payee had
not the capacity to indorse the instrument on the date of the note as he was a minor or insane or
that he had no legal existence (Sec 121)

9. Estoppel against indorser to deny capacity of parties: An indorser of the bill by his
endorsement guarantees that all previous endorsements are genuine and that all prior parties had
capacity to enter into valid contracts. Therefore, he on a suit thereon by the subsequent holder,
cannot deny the signature or capacity to contract of any prior party to the instrument.

DISHONOUR OF NEGOTIABLE INSTRUMENTS

A negotiable instrument is dishohoured by non-payment. While a bill of exchange can be
dishohoured, in addition, by non-acceptance also. When a negotiable instrument is dishonoured,
the holder must give a notice of dishonour to all the previous parties in order to make them
liable.
(a) Dishonour by non-acceptance (Section 91)
A bill of exchange can be dishonoured by non-acceptance in the following ways :
1. When the bill is duly presented and the drawee does not accept the bill within 48 hours of
presentment.
2. When there are several drawees who are not partners, and any of them doesnot accept the
bill within 48 hours of presentment.
3. When the drawee is a fictitious person.
4. When the drawee after reasonable search, cannot be found.
5. When the drawee is incompetent to contract.
6. When the acceptance is qualified.
7. When presentment for acceptance is excused and the bill is not accepted.
(b) Dishonour by non-payment (Section 92)
A promissory note, bill of exchange or cheque is said to be dishonoured by non-payment when
the maker of the note, acceptor of the bill, drawee of the cheque or drawee in case of need, if
there is any, does not pay the amount upon being duly required to pay the same. An instrument is
also dishonoured by non-payment when presentment for payment
is excused and the instrument after maturity remains unpaid (Sec 76).

DISCHARGE OF NEGOTIABLE INSTRUMENTS

The term 'discharge' in relation to negotiable instruments has two meanings:
(1) the discharge of the instrument, and
(2) discharge of one or more parties from liability on the instrument.

(a) Discharge of the instrument

An instrument is said to be discharged when all rights under it are extinguished so that
instrument ceases to be negotiable. This happens when the party who is primarily and ultimately
liable on the instrument is discharged from liability. A negotiable instrument may be discharged
by any of the following ways :
1. By payment in due course.
2. By cancellation.
3. Where the principal debtor becomes the holder.
4. Where it discharges as simple contract

(b) Discharge of one or more parties from liability on the instrument

When any particular party or parties are discharged, the instrument continues to be negotiable
and the undischarged parties remain liable on it. For example, the non presentation of a bill on
the due date discharges the indorsers from their liability, but the acceptor remains liable on it.
A party or parties may be discharged from liability in the following ways:
1. By cancellation
2. By release of the person liable
3. By Payment
4. By allowing drawee more than 48 hours to accept the bill.
5. By delay in presenting cheque.
6. By qualified acceptance
7. By material alternation
8. Discharge by debtor becoming its holder
9. By operation of law

ASSIGNMENT:
Bills, notes, and cheques represent debts and are assignable without endorsement. Transfer by
assignment occurs when the holder of a negotiable instrument sells their right to another person without
endorsing it. The assignee is entitled to possession and can recover the amount due from the parties
involved.Of the two methods of transferring negotiable instruments, transfer by negotiation is
recognized by the Negotiable Instruments Act.

The key differences between negotiation and assignment are as follows:

1. Mode of Transfer – Negotiation requires only delivery, whereas assignment requires a written
document signed by the transferor.
2. Consideration – Consideration is presumed in negotiation but must be proved in assignment.
3. Notice Requirement – In negotiation, no notice of transfer is needed, whereas in assignment,
the assignee must notify the debtor.
4. Title and Defects –
 o In assignment, the assignee takes the instrument subject to all defects in the transferor’s
title.
o In negotiation, the transferee takes the instrument free from defects, and a holder in due
course has a better title than the transferor.

5. Right to Sue – A transferee in negotiation can sue a third party in their own name, but an
assignee cannot.