Four differences between negotiation and assignment

The Negotiable Instruments Act does not prohibit transfer of negotiable instruments otherwise than by negotiation.

The equitable title to the instrument may also be transferred by ‘assignment’ by a separate deed in writing in accor­dance with the Transfer of Property Act. The various points of distinction be­tween negotiation and assignment are stated below:

1. Formalities:

Negotiation requires mere ‘delivery’ of a ‘bearer’ instrument and ‘endorsement and delivery’ of an ‘order’ instrument to effectuate a transfer. Assignment requires a written document signed by the transferor irrespective of whether the instrument is a ‘bearer’ or ‘order’ one.

2. Notice of transfer:

In the case of assignment a notice of transfer of debt is required to be given by the assignee to the debtor in order to complete his title. No such notice is required to be given in the case of negotiation.

3. Title:

In the case of negotiation if the transferee takes the negotiable instrument for value and in good faith, i.e., as holder in due course, he takes it free from all defects in the title of the previous transferors.

But in the case of assignment the assignee takes the instrument subject to the defects in the title of his assignor, even though he took the assignment for value and in good faith.

4. Consideration:

Consideration is always presumed in the case of transfer by negotiation, whereas there is no such presumption in the case of transfer by assignment, where the burden of proof of consideration lies upon the assignee.

From the foregoing differences it will be seen that the rights which the transferee of a negotiable instrument by negotiation acquires are substantially superior to those of an assignee under assignment, and it is for this reason that the method of transfer by assignment is very rarely used while transferring negotiable instruments.