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Negotiation, in the context of a negotiable instrument, specifically refers to the transfer of ownership rights from one party to another. When a negotiable instrument, such as a check or a promissory note, is negotiated, it means that the holder is transferring their rights to receive payment to another individual or entity. This process ensures that the new holder can enforce the instrument’s terms, such as cashing the check or collecting the debt.

This concept is central to negotiable instruments because the law recognizes that such instruments can be easily transferred and circulated in commerce, providing liquidity and facilitating transactions. The legitimacy of the transfer is often supported by endorsements, which are signatures or instructions on the instrument that indicate the transfer of ownership. However, the key component of negotiation is indeed the transfer of ownership rights, empowering the new holder with the ability to act on the instrument.