Home : Legal Encyclopedia : Negotiable instruments

Legal Encyclopedia - Negotiable instruments

Table of contents

1 negotiable instruments law: an overview

2 menu of sources

2.1 Federal Material

2.1.1 Federal Statutes
2.1.2 Federal Regulations

2.2 State Material

2.2.1 Uniform Laws
2.2.2 State Statutes
2.2.3 State Judicial Decisions

2.3 International Material

2.3.1 Conventions and Treaties

2.4 Other References

2.4.1 Key Internet Sources
2.4.2 Useful Offnet (or Subscription - $) Sources

3 other topics

negotiable instruments law: an overview

Negotiable instruments are mainly governed by state statutory law. Every state has adopted Article 3 of the Uniform Commercial Code (UCC) (http://www.law.cornell.edu/ucc/3/overview.html), with some modifications, as the law governing negotiable instruments. The UCC defines a negotiable instrument as an unconditioned writing that promises or orders the payment of a fixed amount of money. Drafts and notes are the two categories of instruments. A draft is an instrument that orders a payment to be made. An example is a check. A note is an instrument that promises that a payment will be made. Certificates of deposit (CD's) are notes. Drafts and notes are commonly used in business transactions to finance the movement of goods and to secure and distribute loans. To be considered negotiable an instrument must meet the requirements stated in Article 3. Negotiable instruments do not include money, payment orders governed by article 4A (fund transfers) or to securities governed by Article 8 (investment securities).

The rule of derivative title, which is applicable in most areas of the law, does not allow a property owner to transfer rights in a piece of property greater than his own. If an instrument is negotiable this rule is suspended. A good faith purchaser, who does not have any knowledge of a defect in the title or claims against it, takes title to the instrument free of any defects or claims. In relation to the suspension of the rule of derivative title, Article 3 provides for warranties to protect the parties in transactions involving negotiable instruments.

Checks are negotiable instruments but are mainly covered by Article 4 of the UCC. See also Banking Law (http://www.law.cornell.edu/topics/banking.html). Secured transactions may contain negotiable instruments but are predominantly covered by Article 9 of the UCC. See also Secured Transactions (http://www.law.cornell.edu/topics/secured_transactions.html). If there is a conflict between the Articles of the UCC both Article 4 and 9 govern over Article 3.

The United Nations Convention on International Bills of Exchange and International Promissory Notes (http://www.jus.uio.no/lm/un.bills.of.exchange.and.promissory.notes.convention.1988/doc.html) would preempt Article 3 in the case of international transactions if the United States were to join. (As of late 1994 it had not ratified the treaty.)

menu of sources

Federal Material

Federal Statutes

U.S.Code: 12 U.S.C. - Banks and Banking

Federal Regulations

Title 12 C.F.R. (http://www.law.cornell.edu/cfr/12cfr.htm) - Banks and Banking

State Material

Uniform Laws

U.C.C. - Article 3 (http://www.law.cornell.edu/ucc/3/overview.html)

State Statutes

U.C.C. Article 3 as Adopted in the States (http://www.law.cornell.edu/uniform/ucc.html#a3)

State Judicial Decisions

N.Y. Court of Appeals:
- Recent Decisions on Negotiable Instruments (http://www.law.cornell.edu/nyctap/search/index.html?query=(check+or+(negotiable+and+instruments))+not+liibulletin)
- Commentary from liibulletin-ny (http://www.law.cornell.edu/nyctap/search/index.html?query=liibulletin+and+(check+or+(negotiable+and+instruments)))
Appellate Decisions from Other States (http://www.law.cornell.edu/states/)

International Material

Conventions and Treaties

United Nations Convention on International Bills of Exchange and International Promissory Notes (http://www.jus.uio.no/lm/un.bills.of.exchange.and.promissory.notes.convention.1988/doc.html)

Other References

Key Internet Sources

Federal Agency:
- U.S. Department of the Treasury (http://www.ustreas.gov/)
United Nations Commission on International Trade Law (UNCITRAL) (http://www.uncitral.org/)

Useful Offnet (or Subscription - $) Sources

Good Starting Point in Print: James White & Robert S. Summers, Hornbook on the Uniform Commercial Code (http://west.thomson.com/product/14551958/product.asp), West Group (2000)
LII Disk Materials (http://www.law.cornell.edu/disks96.html)

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