Book Opener

TransferringInstrumentsl How to distinguishbetween anassignment and anegotiation of aninstrumentl How to explain howbearer paper isnegotiatedl How to explain howorder paper isnegotiatedKnowing how to properlynegotiate financialinstruments is essentialwhen you open achecking account andbegin to spend yourmoney.InstrumentsWhen an instrument is signed by the maker or drawer and given toanother person, it is issued. When the person to whom it is issued givesit to a third party, the instrument is transferred. Instruments can be transferredby assignment or negotiation.AssignmentAn assignment is the transfer of your rights under a contract tosomeone else. Negotiable instruments are assigned when a person whoseindorsement is required on an instrument transfers the instrument withoutindorsing it. An assignment also occurs when an instrument istransferred to another person and does not meet the requirements ofnegotiability. In such transfers, the transferee has only the rights of anassignee and is subject to all defenses existing against the assignor (seeChapter 12). An assignment of a negotiable instrument may also occurby operation of law, as well as when the holder of the instrument diesor becomes bankrupt.NegotiationNegotiation is the transfer of an agreement in such a way that thetransferee becomes a holder. When an instrument is properly negotiated,the one who receives it can legally collect payment on it. A holderl assignmentl negotiationl holderl order paperl indorsementl bearer paperBANK DEPOSITIt is usually a negotiationwhen you deposit in thebank a check that you havereceived from someoneelse. Why is a negotiationbetter than an assignment?542 Unit 5: Using Your Purchasing Power