What is the definition of an instrument in secured transactions?

In the context of secured transactions, the definition of an instrument specifically refers to a negotiable instrument. A negotiable instrument is a specialized financial document that promises payment to a specific person or the bearer of the document. This includes items like checks, promissory notes, and drafts that can be transferred or negotiated to others, making them an essential part of commercial transactions.

Understanding this is crucial because negotiable instruments have particular legal characteristics that distinguish them from standard contracts or documents. They can be transferred easily, often without the need for extensive documentation, and they typically provide the holder with straightforward rights to payment. This characteristic makes them an important form of collateral in secured transactions, where a lender may take an interest in these instruments to secure the repayment of a loan.

The other options do not accurately capture the specific legal definition of "instrument" as used in secured transactions. Physical goods are typically referred to as tangible collateral, a type of collateral is a broader category that includes various forms of assets, and loan documents generally denote agreements rather than financial instruments used for negotiation.