Negotiable Instruments (UCC Article 3)

The definition

Under UCC § 3-104(a), a negotiable instrument is an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it (1) is payable to bearer or to order when it is issued or first comes into possession of a holder; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, with limited exceptions.

Notes and drafts

A note is a promise to pay (the maker promises). A draft is an order to pay (the drawer orders another to pay); a check is a common example.

Why negotiability matters

Negotiability determines whether Article 3’s rules apply — including who is entitled to enforce the instrument, how it is transferred by indorsement and delivery, and whether a later holder can take free of certain defenses as a holder in due course.

State law

Article 3 has force only as enacted in each state’s statutes. See how each state codified the UCC.

Researching negotiable instruments in your state

To research negotiable instruments for a real matter, start with the primary sources. For example, read the statute, the rule and the documents in your own file. Then look for recent appellate decisions from your state, because they control how local courts read the law. After that, compare what you found with the federal rules that may also apply. Our state procedures guide and the Research Center can help you find and check each source.

Sources and further reading

Official sources used on this page:

• law.cornell.edu

Related reading on Lawtopolis:

• Person Entitled to Enforce a Note
• Holder in Due Course
• Indorsement, Negotiation and Transfer of Notes