Chapter 1 – Introduction
– Negotiable Instrument: signed writing (usually a promissory note or an ordinary check) and constitutes an undertaking by the person signing it to pay a sum of money. It is a payment system that is designed to allow person to transfer value to someone else without inconvenience, cost and risk associate with cash
o NOT MONEY but is a substitute for money
– Negotiable instrument gives a person a greater right that that person would receive with a contract. Holder in due course will still be subject to some defenses but not subject to all the defenses under general contract law. Person entitled to enforce instrument does not have to be holder in due course.
– NI most commonly arise in transactions where you are purchasing something, i.e. there is an underlying obligation (sales contract)
– UCC is to be liberally construed and the various provisions may be varied by agreement so long as the obligations of good faith, diligence, reasonableness and care prescribed by the UCC are not disclaimed.
– Louisiana has adopted art 3 and 4 of the UCC; most recent change in UCC is in general art – art 1. Louisiana’s amendments are non-uniform.
CHAPTER 2 – NEGOTIABILITY
– Negotiable instruments law applies only to notes and drafts.
Notes and Drafts
– Note: includes an express promise to pay money either to the order of a particular person or to anyone who has physical possession of the note. (i.e. promissory note)
o The person who makes the promise is called the “maker”
o When payment is promised to the order of a particular person, that person is called a named “payee” and the note is payable “to order”
o When payment is promised to anyone who has physical possession of the note, the note is payable to “bearer”
– Note that “person” may be individual or legal entity.
o “person” is defined as individual, corporation, business trust, estate, trust, partnership, LLC, association, joint venture, gov’t, governmental subdivision, agency, or instrumentality, public corp., or any other legal or commercial entity
o Ex: “I promise to pay to the order of Paul $1,200.00 on May 5, 2004. /s/ Mary”
– Draft: writing in which one person orders another person to make a payment
o Draft does not contain any specific promise to pay
o A check is a draft
o Drawer: person giving the order
o Drawee: person to whom the order is given (i.e. bank)
o A draft is said to be “drawn on” the drawee. This is because the drawer is asking the bank to draw on the credit or money they have in an account with the bank. (i.e. check)
o When a draft calls for the drawee to make payment to the order of a particular person, that person is called a named “payee” and the draft is said to be payable “to order”
o When payment is to be made to anyone who has physical possession of the draft, the draft is payable to bearer.
o Ex:
Criteria of Negotiability
– UCC § 3-104(a): To be negotiable, a writing must:
o (1) Contain an unconditional promise or order to pay
o (2) A fixed amount of money, with or without interest or other charges described in the promise or order, that is
o (3) Payable to order or to bearer at the time it is issued or first comes into the possession of the holder and
o (4) Be payable on demand or at a definite time and,
o (5) With specified exceptions, state no other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money,
§ But the promise or order may contain:
· (1) An undertaking or power to give, maintain, or protect collateral to secure payment;
· (2) An authorization or power to holder to confess judgment or realize on or dispose of collateral; or
· (3) Waiver of the benefit of any law intended for the advantage or protection of an obligor.
– Each one of the requirements for negotiability must be met for Art. 3 to apply.
– Negotiable instrument is limited to a signed writing that orders or promises payment of money.
o A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument under Article 3.
o Instrument is a “note” if it is a promise and is a “draft” if it is an order. If an instrument falls within the definition of both “note” and “draft,” a person entitled to enforce the instrument may treat it as either.
o “Check” means
§ (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or
§ (ii) cashier’s check or teller’s check. An instrument may be a check even though it is described on its face by another term, such as “money order.”
§ Check exception (§ 3-104(f)) (where req’ts don’t have to be met) – an order that otherwise falls within the definition of a check in § 3-104(f), and meets all of req’ts to negotiability except that it is not payable to order or bearer is defined as a an instrument.
§ Do not have to have payable to order or bearer b/c checks are universally accepted
– Negotiability of an instrument is always determined by what appears on the face of the instrument alone. If the instrument is negotiable according to its stated terms, that negotiability is unaffected by any separate writing that purports to affect the terms of the instrument.
o General idea is that if you have writing that purports to be negotiable instrument, you should be able to look
hn Doe, promise to pay to the order of Mary Smith $50.”
a. Is this a signed writing?
o Answer: writing is signed when written in person’s own handwriting and his name is cited within the body of the writing. When person’s signature appears at the end of the writing, it has been subscribed. When the person’s signature has not been subscribed, it may appear in the body of the instrument without any other signature.
b. Would your answer be any different if these words had been type written?
o Writing may be typed, as long as name appears in body of instrument. A signature may be made by a device or machine as long as the person has the intention to authenticate the writing.
c. What if these words were typed on a page that had a signature line typed at the bottom that was left blank?
o If there was a signature line at the bottom of writing left blank, instrument is not signed because if the person had the intention to sign, would have affixed signature to the line.
d. What if John instead took a piece of personal stationery that at the top had imprinted, “From the desk of John Doe,” and wrote “I promise to pay to the order of Mary Smith, $100” but did not sign his name after these words? (think about your own checks which have your name pre-printed in upper left hand corner) See § 3-401 and comments.
o Written on stationary “from desk of John Doe” and not signed with person’s name: Similar to situation with pre-printed personal checks. If person does not sign check on signature line, then can argue that there was no present intention to sign. There must be something else on the paper to indicate intention to be bound or that there could be a signature.
o Is the printed name on the stationary by itself sufficient to be signature if not signed at the bottom? Comment to § 1-201(37) states that signature may be found on billhead or letterhead but the questions remains whether it was adopted by parties with present intention to adopt or sign writing (goes back to the intention test)
May 5, 2004
Pay to order of Paul $1,200.00
Twelve hundred and 00 Dollars
First Insatiable Bank
/s/ Mary
