Legal Definitions - negotiability

Definition: Negotiability refers to the ability of commercial paper to be transferred by endorsement and delivery or by delivery alone, allowing the transferee to have a rightful claim on it. This means that the transferee can become the legal owner of the commercial paper and can enforce its terms against the issuer.

For example, a check is a type of commercial paper that is negotiable. If someone endorses and delivers a check to another person, that person becomes the legal owner of the check and can deposit it into their own bank account. The bank will then credit the funds to the new owner's account, and the original issuer of the check will be obligated to pay the new owner.

Another example of negotiable commercial paper is a promissory note. If someone endorses and delivers a promissory note to another person, that person becomes the legal owner of the note and can enforce its terms against the issuer. This means that the new owner can demand payment from the issuer according to the terms of the note.

Overall, negotiability is an important feature of commercial paper because it allows for easy transfer of ownership and provides a level of security for the new owner.