Article 3 — Negotiable Instruments · Section 3-205
An overview of UCC § 3-205, which addresses the issue of negotiation of instruments.
Source: U.C.C. § 3-205
A person to whom an instrument is made payable or who is otherwise a holder of the instrument may transfer the instrument to another person. The transferee obtains the instrument by negotiation or assignment, but the transferee's rights may differ depending on whether the transfer was by negotiation or assignment.
UCC § 3-205 explains how a negotiable instrument, like a check or a promissory note, can be transferred from one party to another. The section differentiates between transferring ownership through negotiation, which provides greater rights to the transferee, and assignment, which may not confer the same rights.
The process by which a holder transfers an instrument to another party, thereby conveying rights to that party.
The transfer of rights to an instrument that does not qualify as negotiation under the UCC.
Example 1
A holder of a promissory note endorses it over to another party, making that party the new holder with full rights.
Example 2
An individual simply assigns their right to receive payment from a negotiable instrument to someone else without negotiating the instrument itself.