Negotiable Instrument Definition in Legal Terms

Where a debenture or draft is negotiated in favour of a person who acquires the instrument In addition, the direct parties to an order or undertaking other than an instrument may, in accordance with the principle set out in paragraph 1-102(2)(b), mutually provide that one or more provisions of section 3 determine their rights and obligations under the document. Maintaining the choice of the parties is not contrary to Article 3. Such an agreement may bind a buyer in writing if the buyer has knowledge of it or if the agreement results from commercial usage and the agreement does not violate other laws or public order. An example of such an agreement is a provision whereby the purchaser of the document has, in due time, the rights of a holder referred to in article 3 if the acquirer has acquired rights under the letter in good faith, for remuneration and without notice of a claim or defence. Controls are negotiable instruments, but they are mainly covered by Article 4 of the UCC. See also banking law. Secured transactions may contain negotiable instruments, but they are mainly covered by Article 9 of the UCC. See also Secured transactions. In the event of a conflict between the UDC Statutes, Articles 4 and 9 shall apply to both Article 3. (c) An arrangement that meets all the requirements of subparagraph (a) of this article, except paragraph (1), and that otherwise falls within the definition of “control” in subparagraph (f) of this article is a negotiable instrument and control. The acquirer may, in due course, perform the instrument without being exposed to the defences that the manufacturer of the instrument might have against the original beneficiary, with the exception of certain factual defences. These real defences include (1) counterfeiting of the instrument; 2. fraud as to the nature of the document to be signed; (3) modification of the instrument; (4) incapacity of the signatory; (5) the signatory`s childhood; (6) coercion; (7) discharge in bankruptcy proceedings; and (8) the limitation period for the validity of the act.

The formal holder`s rule is a rebuttable presumption that allows for the free transfer of negotiable instruments in the modern economy. A natural or legal person who acquires a device in the ordinary course of business can reasonably expect that it will be paid when it is presented to the manufacturer and is not refused by him, without being involved in a dispute between the manufacturer and the person to whom the device was first issued (this can be compared to the lesser rights and obligations of ordinary holders). Article 3 of the Uniform Commercial Code, as enacted by the laws of a given State, provides for effective defences available to alleged owners in good time. The above is the theory and application that presupposes compliance with the relevant law. In practice, the debtor and the payer of an instrument who considers himself deceived or treated unfairly by the beneficiary may nevertheless refuse to make the payment to a holder in a timely manner, so that the holder must initiate legal proceedings to recover the instrument. The derivative property rule, which is applicable in most areas of law, does not allow an owner to transfer rights in a property greater than his own. If an instrument is negotiable, this rule is suspended. A bona fide purchaser who has no knowledge of any defect of ownership or claims against him assumes ownership of the instrument free from defects or claims. With regard to the suspension of the ownership of derivatives rule, Article 3 provides safeguards to protect parties to transactions in negotiable securities. 4. Instruments are divided into two general categories: drafts and notes.

A drawing is an instrument that is an order. A note is an instrument that is a promise. Section 3-104(e). The term “bill of exchange” is not used in Article 3. It is generally understood as a synonym for the term “project”. Subparagraphs (f) to (j) define certain acts falling under the categories of draft and declaration. The term “design” as defined in paragraph (e) includes the term “control” as defined in paragraph (f). The term “cheque” includes a draft of shares drawn on a credit union payable through a bank, as the definition of bank (section 4-105) includes credit unions. However, a draft drawn on insurance payable through a bank is not a cheque because it is not drawn at a bank. “Money orders” are sold by both banks and non-banks.

They differ in form, and their form determines how they are dealt with in Article 3. The most common form of money order sold by banks is a regular cheque drawn by the buyer, except that the amount is printed by machine.