NEGOTIABLE INSTRUMENT Definition

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NEGOTIABLE INSTRUMENT can be a check, promissory note, bill of exchange, security or any document representing money payable which can be transferred to another by handing it over (delivery) and/or endorsing it (signing ones name on the back either with no instructions or directing it to another). A negotiable instrument is a contract and subject to the rules governing contract law. However, a negotiable instrument may be distinguished from an ordinary contract by the fact that a negotiable instrument may be written in a way that makes it transferable. This quality of negotiation can generally allow the instrument to be used as a substitute for money by holders in due course, despite the defensive claims between the original parties who drafted the negotiable instrument. In order to be negotiable, the bill or note must be payable to order, or to bearer. Some promissory notes contain a clause(s) making them non-negotiable.

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