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Negotiable instrument
Practical Law UK Glossary 1-201-7574 (Approx. 3 pages)
Glossary
Negotiable instrument.
A document that contains an order or undertaking to pay money is a negotiable instrument if both:
- It is capable of being transferred from one person to another by delivery (or endorsement and delivery) so that the holder of the instrument may sue on it in his own name. If the instrument is payable to a bearer, it may be transferred by delivery to the transferee. If the instrument is payable to a specified payee or to his order, it must be endorsed (that is, signed on the back by the transferor) and delivered to the transferee.
- It gives the bona fide purchaser for value legal title to the instrument free from any equities or defects of title of the transferor and any other prior holder of the instrument, so long as the purchaser had no notice of any such equity or defect in title before the transfer being made.
Negotiability is conferred under English law either by statute or by rules established by market usage of a recognised market. Giving an instrument a particular name, or stating that it is negotiable, does not confer negotiability.
Negotiable instruments include bills of exchange and promissory notes. The process of transferring the right to be paid (on the document that contains the order or undertaking to pay money) is called negotiation.