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Payment Systems
South Texas College of Law Houston
Zinnecker, Timothy R.

I. NEGOTIABLE INSTRUMENTS
a. UCC – INTRODUCTION
i. Always 2 operative articles in a situation.
1. Article 1 ALWAYS applies whenever UCC applies.
a. § 1-102: This article applies to a transaction if it is governed by another article of the UCC.
ii. Article 1
1. § 1-201 – Definitions
a. Always use these unless section provides specialized definitions.
b. Ø conflicts.
2. § 1-103 – Construction of UCC to Promote Purposes & Policies
a. (a) UCC liberally construed and applied to promote purposes and policies:
i. (1) Simplify, clarify, and modernize the law governing commercial transactions;
ii. (2) Permit the continued expansion of commercial practices through custom, usage, and agreement.
iii. (3) Make uniform laws of jurisdictions; .
b. (b) Unless changed by UCC, law of equity, including that applicable to K, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy shall supplement the code.
3. § 1-302(a) – Freedom of contract – Provision of the UCC may be varied by mutual agreement.
a. Exceptions
i. Obligations of good faith, diligence, reasonableness, and care may not be disclaimed.
1. The parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if those standards are not manifestly unreasonable.
b. (b) The presence in certain provisions of [the Uniform Commercial Code] of the phrase “unless otherwise agreed”, or words of similar import, does not imply that the effect of other provisions may not be varied by agreement under this section.
4. § 1-304 – Obligation of Good Faith
a. Every contract or duty within UCC imposes an obligation of good faith in its performance and enforcement.
i. DEF – except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing. §1-201(20).
b. Negotiable Instruments – UCC Article 3
i. UCC Art. 3 – Scope
1. §3-102 – Subject Matter
a. (a) This article applies to NI’s. It does not apply to money, payment orders governed by 4A, or to securities governed by Article 8.
ii

ng. § 1-201 OC 37.
2. Both “promise” and “order” are defined as being signed by their author. § 3-103(8), § 3-103(12)
iii. Promise or Order to Pay
1. “Promise” means a [written undertaking] [to pay money] [signed by the person undertaking to pay.] An acknowledgment of an obligation by the obligor is not a promise unless the obligor also undertakes to pay the obligation. § 3-103(12)
2. “Order” means [a written instruction] [to pay money] [signed by the person giving the instruction.] The instruction may be addressed to any person, including the person giving the instruction, or to one or more persons jointly or in the alternative but not in succession. An authorization to pay is not an order unless the person authorized to pay is also instructed to pay. § 3-103(8)
iv. Unconditional
§ 3-104(a)(3) – May NOT Require action precedent/subsequent.