What is the difference between negotiability and assignability?

Answer 1

Hi,

Meaning of Negotiation: According to Section 14 of the Negotiable Instrument 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.

A negotiable instrument may be transferred in either of two ways, viz.

1. By negotiation under this Act (Section 14, 46, 47, 48). A negotiable instrument may be negotiated either by delivery, when it is payable to bearer or by endorsement and delivery when it is payable to order; or

2. By assignment of the instrument: When a person transfers his right to receive the payment of a debt, 'assignment of the debt' lakes place. Thus where the holder of an instrument transfers it to another so as to confer a right on the transferee to receive the payment of the instrument, transfer by assignment takes place. (The Negotiable Instruments Act does not deal with transfer of negotiable instruments by assignment).

Differences between negotiability and assignability: The following are the differences between Negotiability and Assignability.

1. In negotiation consideration is presumed. In assignment consideration must be proved.

2. In case of transfer by negotiation, the transferee acquires all the rights of a holder in due course; where tile case of transfer by assignment, the assignee does not acquire the rights of a holder in due course, but has only the right of his assignor.

3. Notice of transfer to the debtor by the transferee is not necessary. The acceptor of a bill and the maker of a note are liable on maturity to the holder in due course of the assignment in case of negotiation. In assignment it does not bind the debtor unless notice of the assignment has been given by the assignee to the debtor, and the debtor has, expressly or implied, assented to it.

In negotiation the instruments payable to bearer are negotiated by mere delivery and instruments payable to order are negotiated by endorsement and delivery. In an assignment it can be made only in writing either on the instrument itself or in a separate document transferring to the assignee the transferor's rights in the instrument.

Rakesh R. Sharma.