Information > Financial Terms > This page

Negotiable Instruments Law
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

The law relating to negotiable instruments, which has undergone two major codifications in an attempt to achieve greater uniformity among the various states.  Beginning in 1897, the original Uniform Negotiable Instruments Law (UNIL), was legislated by all the various states, with variations and departures from the "uniform" model for specific states.  The Uniform Commercial Code (UCC) constitutes a more comprehensive attempt to achieve greater uniformity in the fields of sales, commercial paper, bank deposits and collections, letters of credit, bulk transfers, warehouse receipts, bills of lading, other documents of title, investment securities, and secured transactions, including sales of accounts, chattel paper, and contract rights.  The UCC, first offered to the states for adoption in 1952 and first enacted by Pennsylvania in 1953, had by 1971 been adopted by the District of Columbia , the Virgin Islands , and every state except Louisiana (which, however has adopted Articles 1, 3, 4, 5 and 7).

The term "Commercial paper" of the UCC comprehends "negotiable instruments," the subject of the UNIL.

Prior to the codification and enactment of the UNIL, cases growing out of litigation concerning bills, notes and checks, were governed by case law, the so-called law merchant - a body of rules, customs and principles that had been practiced for centuries in England and recognized legally by the law courts beginning in the eighteenth century, particularly by the famous English jurist, Lord Mansfield, sitting on the Court of King's Bench.  The case law, based on the law merchant and involving litigation in modern times as well, is still resorted to in those rare cases not covered "on all fours" or on moot points arising under the codes.  The first statement of the principles of the law merchant was the British Bills of Exchange Act, enacted in 1882.  The U.S. UNIL was to a larger extent influenced by the English law.

The UCC is composed of ten articles, as follows:

Article 1, General Provisions.  Part 1, Short Title, Construction, Application and Subject Matter of the Act; Part 2, General Definitions and Principles of Interpretation.

Article 2, Sales.  Part 1, Short Title, General Construction and Subject Matter; Part 2, Form, Formation, and Readjustment of Contract; Part 3, General Obligation and Construction of Contract; Part 4, Title, Creditors, and Good Faith Purchasers; Part 5, Performance; Part 6, Breach, Repudiation, and Excuse; Part 7, Remedies.

Article 3, Commercial Paper. 

Article 4, Bank Deposits and Collections.  (Also reproduced below, in view of the provision that Article 3 is subject to the provisions of Article 4.)

Article 5, Letters of Credit.

Article 6, Bulk Transfers.

Article 7, Warehouse Receipts, Bills of Lading and Other Documents of Title.  Part 1, General; Part 2, Warehouse Receipts:  Special Provisions; Part 3, Bills of Lading:  Special Provisions; Part 4, Warehouse Receipts and Bills of Lading:  General Obligations; Part 5, Warehouse Receipts and Bills of Lading; Negotiation and Transfer; Part 6, Warehouse Receipts and Bills of Lading:  Miscellaneous Provisions.

Article 8, Investment Securities.  Part 1, Short Title and General Matters; Part 2, Issue - Issuer; Part 3, Purchase; Part 4, Registration.

Article 9, Secured Transactions:  Sales of Accounts, Contract Right and Chattel Paper.  (In views of the provision that Article 3 is subject to the provisions also of Article 9.)

Article 10, Effective Date and Repealer

Because of persisting although reduced variation in the specific provisions of enacted state versions of the UCC, reference should be made to the particular state law in each jurisdiction, along with the interpretive case law of the jurisdiction, which sometimes has construed particular statutory provisions with variation as compared with other jurisdictions.

Text of Articles 3, 4 and 9 of the UCC is appended herewith, for general information and as a basis for noting the variations or departures there-from by the particular state's statutes.  

Back to Information