The ownership of a negotiable instrument can be transferred in two ways:
1) by negotiation, and 2) by assignment.
Although negotiation and assignment result in the transfer of a right or ownership, these two terms are different.
Negotiation means transfer of an instrument from one person to another so as to constitute that person the holder of the instrument (section 14).
Assignment means transfer of ownership of a negotiable instrument by means of a written and registered document under the provisions of the Transfer of Property Act.
In order to be negotiable, an instrument should satisfy two conditions:
1) it must be in a form which is recognised by law for being sued upon by the holder, and
2) it must be transferable by custom of trade.
As stated above, negotiation is not the only means by which an instrument can be transferred. A bill of exchange or a promissory note may be transferred by assignment. The Act recognises the transfer of negotiable instruments for consideration other than by negotiation, e.g., by a registered sale deed. The transfer of a promissory note by a separate registered instrument is valid. An assignment of a negotiable instrument under the Transfer of Property Act, 1882 must always be in writing and the assignee must take the instrument subject to all equities which arise between the party liable and the assignor.
The difference between negotiation and assignment are as follows:
1) Negotiation for the purpose of transfer is relevant in the case of negotiable instruments only whereas assignment is done mainly in the case of other documents and may be done in respect of a negotiable instrument also.
2) Consideration is normally presumed in the case of negotiation whereas it has to be evidenced/proved in the case of assignment.
3) In a transfer by indorsement, if the maker/debtor/payee of the instrument is not given any notice, he will be still liable on maturity. An assignment does not bind the debtor unless notice of assignment has been given by the assignee to the debtor and the debtor in turn, expressly or impliedly, has assented.
3) Assignment is done always by writing, usually by a separate document (e.g., a sale deed) or also on the same instrument. But negotiation of a negotiable instrument can be affected by simple delivery or indorsement followed by delivery.
