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Sujai Adithya
Human Resource and Banking & Finance Expert
Asked a question last year

Difference between negotiable and non-negotiable instruments?

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Sujai Adithya
Human Resource and Banking & Finance Expert

A negotiable instrument is a signed document that promises a sum of payment to a specified person or the assignee. A transferable, signed document that promises to pay the bearer a sum of money at a future date or on-demand. The payee, who is the person receiving the payment, must be named or otherwise indicated on the instrument.

Negotiable instruments are transferable in nature, allowing the holder to take the funds as cash or use them in a manner appropriate for the transaction or according to their preference. The fund amount listed on the document includes a notation as to the specific amount promised and must be paid in full either on-demand or at a specified time. A negotiable instrument can be transferred from one person to another. Once the instrument is transferred, the holder obtains a full legal title to the instrument.

Non-negotiable securities and products are those that cannot be transferred from one party to the next. An example of a non-negotiable instrument, also referred to as a non-marketable instrument, would be a government savings bond. They can only be redeemed by the owner of the bond and are not allowed to be sold to other parties.

The difference between negotiable and nonnegotiable instruments are as follows: -

A.) The negotiable instrument could be transferred by an authorized holder of the instrument to another party whereas the nonnegotiable instrument could not be transferred to another party.

B.) On the transfer of a negotiable instrument, the transferor is not primarily liable for the amount.

In the following way, negotiable and nonnegotiable instruments could be used in the sale of goods: -

A.) A debtor may issue negotiable or nonnegotiable instrument to discharge their debt on a stated date in the negotiable and nonnegotiable instruments.