Banking

Difference Between Transferability And Negotiability

As per Negotiable Instruments Act, 1881, where a debtor has drawn a negotiable instrument in favor of his creditor and has also executed a mortgage to provide further security, the creditor has a right to sue on the basis of negotiable instrument even without exhausting security in the shape of mortgage.

The negotiable instruments are simply transferable from person to person and the ownership of the property in the instrument may be passed on-

  • by mere delivery in case of a bearer instrument,
  • by endorsement and delivery, in case of an order instrument

Transferability is an essential feature of a negotiable instrument but all transferable instruments are not negotiable instruments.

Difference Between Transferability And Negotiability:

In case of any goods or commodity, which is transferable from person to person, the general rule of law is that the transferor cannot transfer title better than what he himself possesses.

For an example, P purchases an article or a commodity, say a book, from Q against payment of its full value. But Q had stolen the book from the house of R. If the thief, i.e. Q , is caught for this theft or if the stolen article is found in the possession of P (holder in due course) the latter shall have to return the same to the true owner of the article because the title of P to the property is not deemed to be better than the title possessed by Q.

In fact, Q had no title thereto and hence, P will also stand on the same footing. A negotiable instrument is an exception to this general rule of law. Suppose in the above illustration P takes a cheque, he will have good title thereto and will not be responsible to the true owner R. The latter will have right against the thief of the instrument.

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