Negotiation: Meaning, Definition and Modes of negotiation

Meaning and Definition of Negotiation - 

        According to Section 14 of Negotiable Instrument Act 188 "When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute the person the holder thereof, the instrument is said to be negotiated.

Modes of Negotiations 

Negotiation may take place (i) by delivery (ii) by endorsement and delivery.

(i) Negotiation by Delivery - 

    According to Section 47 Subject to the provisions of Section 58 of the Negotiable Instrument Act, 1881 a promissory note, bill of exchange or cheque payable to bearer is negotiable by delivery thereof.

Exception: A promissory note, bill of exchange or cheque delivered on condition that it is not to take effect except in a certain event is not negotiable (except in the hands of a holder for value without notice of the condition) unless such event happens.

Illustration - 

         (a) A, the holder of a negotiable instrument payable to bearer, delivers it to B’s agent to keep for B. The instrument has been negotiated.

        (b) A, the holder of a negotiable instrument payable to bearer, which is in the hands of A’s banker, who is at the time the banker of B, directs the banker to transfer the instrument to B’s credit in the banker’s account with B. The banker does so, and accordingly now possesses the instrument as B’s agent. The instrument has been negotiated, and B has become the holder of it.

(ii) Negotiation by Endorsement and Delivery - 

         
According to Section 48 of the said Act Negotiation by endorsement, Subject to the provisions of Section 58, a Promissory Note, bill of exchange or cheque payable to order, is negotiable by the holder by endorsement and delivery thereof.


See also...

Mortgage: Liabilities of the Mortgagee | Property Law

What is Usufructuary Mortgage | Property Law