What Is Negotiability And Assignability?


Negotiability refers to a document`s (checks, drafts or bill of exchange) characteristics or attribute that allows the property in it to be freely transferrable to a third party, who acquires such document void of equities; if the document was taken in good faith, without knowledge of any defect in title and for value. It allows for the passing of ownership from the transferor to the transferee by endorsement or delivery.

Negotiability as a concept developed as a result of the growing need for a substitute for money that was suitable for trade transactions. Negotiability demands that the transferee accepting an instrument for payment is assured of its payment and is protected from the defects of the transferor. Hence, the mere fact that an instrument is negotiable shields the accepting party from the original promisor`s attempt to assert any legal defense against the transferee.[1]

This endowment or capacity of an instrument to effect a transfer free of any legal defense, provided the transferee takes bonafide, for value and without any notice of such defect, is the very essence of negotiability. Little wonder Kennedy, J. quipped, in Webb, Hale & Co. V Alexandra Wate & Co. Ltd.that if a document is to be treated in its fullest sense as negotiable,the holder is entitled to say; [2]

I have my right to this document. Although someone in the chain of deliveries before the document reached my hands, there was some larceny or other fraud affecting the obtaining … (it)…I, being an honest bonafide holder, am entitled to treat this as in the fullest sense a negotiable instrument, and therefore one which gives me a perfect right as if those through whom I derived title had also held a perfect and unassailable right in the transaction which enabled me to get (it).

Assignability, on the other hand, is a quality that allows the owner or transferee to pass on his right in the property to a third party, but the latter takes it subject to any defects such rights owned at the time of the assignment. In other words, it is a circumstance by which property rights emanating from a contract in choses in action (intangible property rights evidenced in a document, cognizable under law) may be transferred to a third party.[3]

It is pertinent to note that an assignee cannot sue the original promisor in his own name but must impel the assignor to ‘lend’ his name to the action. This is in direct contrast to a transferee in a negotiation who acquires the right to sue in his own name. An assignee may also need to give notice of assignment to the person liable to ensure his priority over a subsequent assignment.


According to Section 31(2) of the Bill of Exchange Act [4], a negotiable instrument (particularly bill of exchange) may be payable to bearer, thus, transferred by mere delivery. Section 31(3) of the Act further states that it may also be payable to order, thus, transferred by endorsement coupled with delivery.  The foregoing means of transfer can be said to constitute forms of negotiability in Banking Law and shall be explained as thus:


 As already mentioned, an instrument may be payable to bearer or payable to order. An order instrument must be endorsed and then completed by delivery for a valid transfer to the transferee. Endorsement consists of a signature on the back of the instrument and it may include: Endorsement in blank, Special endorsement, Restrictive endorsement, Conditional endorsement, and qualified endorsement.

In accordance with section 55(2), the endorser becomes liable to pay a subsequent holder in due course on the instrument if it is dishonored by the maker, drawer, or drawee who presented for payment. The endorser then has the right to turn to the drawer for compensation since he would have been compelled to pay. This is because as stated in Metalimpex v. A.G. Leventis [5], the endorser by endorsing the instrument undertakes that on due presentment, it will be paid.

In addition, for an endorsement to be valid, some requirements provided by section 32 of the Bill of Exchange Act must be fulfilled. First, it must be written on the bill with the signature of the endorser. Second, it must be of the entire bill and not a partial one. Third, for two or more endorsees who are not partners, all must endorse, unless the one endorsing has authority to endorse for the others. Fourth, if the payee or endorsee is wrongly designated, he may endorse the bill adding his proper signature. Fifth, where there are two or more endorsements on a bill, each endorsement is deemed to have been made in the order in which it appears on the bill until the contrary is proved.


 Section 2 of the act defines delivery as the transfer of possession, actual or constructive from one person to another. A physical transfer is an actual delivery; and for constructive delivery, it is done through a prior action indicating the intention of the transfer. The importance of delivery cannot be overstated as even if the instrument has been drawn up, it does not qualify as a negotiable instrument until it has been physically transferred to the payee. Thus, in accordance with section 21(1), every contract on a bill is incomplete without delivery. Delivery is a requirement for both the bearer instrument and order instrument. The first transfer to the payee is called the issue of the instrument, and all subsequent transfers are called deliveries. If delivery has been induced by fraud or if the instrument was stolen before it was issued, the debtor is not obligated to honor it. However, if the instrument gets into the hands of an innocent third party who qualifies as a holder in due course, such delivery will be conclusively presumed.

It is also material to note that in furtherance to the case of Smith v. Mundy [6] partial delivery is ineffectual and can cause a transaction to be incomplete and revocable. Further, in order for delivery to be effectual in the case of immediate parties and with regards to a remote party other than a holder in due course, it must be made either by or under the authority of the party drawing, accepting or endorsing. Conclusively, it must be stated that a valid delivery of the negotiable instrument by the holder in due course, is presumed.


The most important feature of the negotiable instrument is that it can be freely transferred; either by negotiation and assignment. Negotiation implies the transfer of a negotiable instrument, which takes place in order to make the transferee, the holder of the instrument. On the other hand, assignment alludes to the transfer of ownership of the negotiable instrument, in which the assignee gets the right to receive the amount due on the instrument from the prior parties. In assignability, the one who assigns is the assignor, while the one to whom the assignment is made is called the assignee.

First, while the notice is important in an ordinary assignment, notice is not important in negotiation and does not affect the transfer of the negotiable instrument. As well, while an assignor may be unable to sue a promisor; the promisor may be sued by a subsequent holder of the negotiable instrument who has given consideration for the instrument to the promisor. This is can be done even if the promisor himself could not have enforced the instrument.

Some of the key features of an assignment, in contrast to negotiability, include the fact that where negotiability refers to the transfer of the negotiable instrument, by a person to another to make that person the holder of it, assignability implies the transfer of rights, by a person to another, for the purpose of receiving the debt payment.

Negotiation is effected by mere delivery in case of bearer instrument and, endorsement and delivery in case of order instrument while the assignment is effected by a written document duly signed by the transferor. In negotiation, consideration is presumed; however, it must be proven in the case of an assignment.

Unlike in negotiation where the transferee gets the right of the holder in due course, the assignee’s title is subject to the title of Assignor. A transfer notice is not required in a negotiation, but in the case of an assignment, it must be served by the assignee on his debtor.

In an assignment, the right to sue is not conferred upon the assignee as he has no right to sue the third party in his/her own name. This is not the case in a negotiation where the transferee has the right to sue the third party, in his/her own name. At this point, it is important to emphasize that in negotiation, the transfer of a negotiable instrument entitles the transferor, the right of a holder in due course. On the other extreme, in the assignment, the title of the assignee is a bit defective one, as it is subject to the title of the assignor of the right.


In conclusion, it is important to reiterate that a negotiable instrument is capable of being transferred. It can be transferred by negotiation, or it could be assigned. Negotiability is the characteristics or attribute that allows the property or instrument to be freely transferrable to a third party. A bill of exchange could be negotiated by delivery when payable to bearer or by endorsement completed by delivery when payable to order.[7]

However, assignability is the quality that allows the owner or transferee to pass on his right in the property to a third party. In an assignment, the third party takes the instrument subject to any defects such rights owned at the time of the assignment.

[1] Merriam Webster’s Dictionary

[2] (1905) 93 L.T. 339

[3] Kerridge, E. (1988). Trade and banking in early modern England. Manchester: Manchester Univ. Press.

[4] The Bill of Exchange Act, Cap. B8, Laws of the Federation of Nigeria 2004.

[5] [1976] 1 All N.L.R 84

[6] 588 F.2d 832 (7th Cir. 1978)

[7] S, S. (2017, June 20). Difference Between Negotiation and Assignment (with Comparison Chart). Retrieved October 27, 2019, from https://keydifferences.com/difference-between-negotiation-and-assignment.html