UCC Negotiable Instruments Law and Legal Definition

Almost all states have adopted, in some form, Article 3 of the Uniform Commercial Code, which is now entitled "Negotiable Instruments," dealing with transactions involving negotiable instruments. Prior to revisions in 1990, Article 3 applied to both negotiable instruments and nonnegotiable paper, however, now Article 3 is now restricted to negotiable instruments.

A negotiable instrument is a check, promissory note, bill of exchange, security or any document representing money payable which can be transferred to another by handing it over (delivery) and/or endorsing it (signing one's name on the back either with no instructions or directing it to another). A negotiable instrument is a contract and subject to the rules governing contract law. However, a negotiable instrument may be distinguished from an ordinary contract by the fact that a negotiable instrument may be written in a way that makes it transferable. This quality of negotiation generally allows the instrument to be used as a substitute for money by holders in due course, despite the defensive claims between the original parties who drafted the negotiable instrument.