Transfer of a Negotiable Instrument
Transferring Commercial Paper between Holders
Written by Jason Gordon
Updated at December 1st, 2020
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What is the transfer of commercial paper?
An instrument is transferred when it is delivered by a person (other than its issuer) with the purpose of bestowing the right to enforce the instrument pursuant to its terms. Transfer vests in the transferee the rights of the transferor to enforce the instrument. While the transferee receives the rights of the transferor, it means the transferee may also be subject to any defenses the payor may have to payment of the instrument. That is, the transferee stands in the same position as the transferor with regard to the payors defenses against payment.
Note: As previously discussed, once transferred, the recipient of the bearer paper is a holder of the note. Even if the transfer is involuntary (inheritance or judicial order) or wrongful (theft of bearer paper), the individual in possession of the paper is a holder of the paper.
Next Article: Indorsement of a Negotiable Instrument Back to: COMMERCIAL PAPER
Discussion: What do you think about the mental intent necessary for transfer of an instrument? Why do you think the definition requires the intent to transfer the right to present and receive payment of the instrument?
Practice Question: Connie issues a promissory note that is payable to bearer. She gives the note to Todd. Todd then delivers the note to Judy. Do we have valid transfers of the instrument? What issues might Judy face in presenting the instrument for payment?