Legal Definitions - words of negotiability

Definition: Words of negotiability refer to specific language used in a negotiable instrument that indicates the transferability of the instrument from one person to another. These words make the instrument a negotiable instrument, which means it can be transferred to another person by delivery or endorsement.

Examples: Some common words of negotiability include "pay to the order of," "bearer," and "or bearer." For instance, a check that says "pay to the order of John Doe" is a negotiable instrument because it can be transferred to someone else by endorsement. Similarly, a promissory note that says "payable to bearer" can be transferred by delivery.

Explanation: The examples illustrate how words of negotiability make an instrument transferable. In the case of the check, the words "pay to the order of" indicate that the check can be transferred to someone else by endorsement. In the case of the promissory note, the words "payable to bearer" indicate that the note can be transferred by delivery. These words are important because they allow negotiable instruments to be used as a form of payment or credit, making them more flexible and useful in commercial transactions.