Which is the ucc requirements for an instrument to be negotiable




















However, a thumb mark by a physical person unable to sign should be verified by an authentic declaration to bind that person. Although this rule seems applicable to a physical person unable to sign, it has to be similarly applicable to any physical person even literate and able to sign, as far as he chooses a thumb mark as his signature.

The rules in Art are limited to the manner of making signature. They do not indicate as to what a mark, word or symbol could be validly called a signature. Hence, as far as it unequivocally manifests the intention of the maker or drawer, a very broad interpretation should be given as to what mark, symbol or may be properly called as signature. According to the American uniform commercial code hereinafter to be cited as UCC any name, including a trade or assumed name, word, mark, or symbol executed or adopted by a person with present intention to authenticate a writing is regarded as a signature.

Thus, initials, an x mark, a trade name or assumed name is sufficient. The location of the signature on the document is unimportant, though the usual place is the lower right hand corner. Although, there is no clear indication as to the right location of the signature in the commercial code, any mark or symbol on the body of the instrument should be regarded as a valid signature. The intention of the person putting his signature on the instrument and avoiding any uncertainty should be taken as key factor in determining the validity of signature.

For an instrument to be negotiable, it must contain an express order or promise to pay. A promise is simply a pledge to transfer money. For the purpose of negotiable instruments, a promise must be express and unconditional.

A mere acknowledgement of debt, which might logically imply a promise, is not sufficient to constitute valid promise. The promise must be an affirmative, not acknowledgment.

Here I. There is no promise to pay and therefore the instrument is not a promissory note. Order, which is associated with three party instruments i. An order instrument orders, or directs, a third party to pay the instrument as drawn. It must be more than an authorization or request. The bottom line is the language used by the drawer must be a precise and express one.

It would be expensive and time consuming to investigate conditional promises or orders and therefore the transferability of the negotiable instrument would be greatly restricted. Substantial administrative costs also would be required to process conditional promises. Furthermore, the payee or the holder of the instrument would risk the possibility that the condition will not occur. All the above instruments are not negotiable because the promise and order is coupled with a condition.

No one could safely purchase the instrument without investigating whether the conditions have materialized. Even then, the facts disclosed by the investigation might be incorrect.

To avoid such problems Arts. However, when it comes to what constitutes an unconditional instrument the code is silent. According to Indian law promise to pay at a specified time or at a specified place or after the occurrence of an event which is certain to occur, or payment after calculating interest at a certain rate is regarded as negotiable.

State your reason s. A reference to another writing does not of itself make the promise or order conditional. One such condition is statements of consideration. The instrument may state the terms of the underlying agreement or refer to the condition paid for. When it is unclear whether the instrument is a note or draft, the holder may treat it as either.

Handwritten terms control typewritten and printed terms, and typewritten terms control printed terms. Words control figures, unless the words themselves are ambiguous, in which case the figures control.

If an instrument is not negotiable, it generally will not be acceptable as payment in commercial transactions. The UCC requires that the value of a negotiable instrument be ascertainable on its face, without reference to other documents. Thus the negotiable instrument must be in writing, signed by the maker or drawer, an unconditional promise or order to pay, for a fixed amount in money, payable on demand or at a definite time, and payable to order or bearer, unless it is a check.

If the instrument is incomplete or ambiguous, the UCC provides rules to determine what the instrument means. Previous Section. Table of Contents. Next Section. Overview Whether or not a paper is negotiable is the first of our four major questions, and it is one that nonlawyers must confront.

Thus the paper meets the following criteria: It must be in writing. It must be signed by the maker or drawer. It must be an unconditional promise or order to pay. It must be for a fixed amount in money. It must be payable on demand or at a definite time. It must be payable to order or bearer, unless it is a check. Fixed Amount in Money The value of the paper must be fixed specific so it can be ascertained, and it must be payable in money.

Fixed Amount The instrument must recite an exact amount of money that is to be paid, although the exact amount need not be expressed in a single figure. Payable on Demand or at a Definite Time An instrument that says it is payable on sight is payable on demand, as is one that states no time for payment. Payable to Order or Bearer An instrument payable to order is one that will be paid to a particular person or organization identifiable in advance. Missing and Ambiguous Terms The rules just stated make up the conditions for negotiability.

Incompleteness An incomplete instrument—one that is missing an essential element, like the due date or amount—can be signed before being completed if the contents at the time of signing show that the maker or drawer intends it to become a negotiable instrument.

Ambiguity When it is unclear whether the instrument is a note or draft, the holder may treat it as either. Key Takeaway If an instrument is not negotiable, it generally will not be acceptable as payment in commercial transactions. Exercises Why does the UCC require that the value of a negotiable instrument be ascertainable from its face, without extrinsic reference?

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.



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