Section 7 Payable to Bearer or to Order (Words of Negotiability)

• Library: Commercial Law 2007

For an instrument to be negotiable under Article 3, the promise or order must be “payable to bearer or to order at the time it is issued or first comes into possession” of the holder, unless § 400.3-104(c), RSMo Supp. 2006, applies regarding certain types of checks. Section 400.3-104(a)(1); see Gibson v. Harl, 857 S.W.2d 260 (Mo. App. W.D. 1993) (a promissory note was not payable to order or bearer and thus not a negotiable instrument within Article 3 of the UCC when the maker agreed “to pay to TERRY D. GIBSON and MARY SUE GIBSON” a sum certain). This represents a significant change from former § 400.3-805 (repealed in 1992), which provided that a note or draft not payable to order or to bearer, such as a draft “payable to John Doe,” was included under Article 3 but there could not be a holder in due course of it. Section 400.3-805, RSMo 1986. Under the revised Article 3, unless § 400.3-104(c) applies as to certain checks, the effect of § 400.3-104(a)(1) and § 400.3-102, RSMo 2000, is to exclude from Article 3 any promise or order that is not payable to bearer or order, and this exclusion serves to provide a simple device to clearly exclude writings that do not fit the pattern of typical negotiable instruments. Mo. Ann. Stat. § 400.3-104 cmt. 2 (Westlaw through 2006 legislation). Words making a promise or order payable to bearer or order are considered the most distinguishing feature of a negotiable instrument and are frequently referred to as “words of negotiability.” Id. To make a note or other obligation negotiable, it is not essential that it should in narrow terms be stated payable to bearer or order because “[a]ny other equivalent expressions demonstrating the intention to make it negotiable will be of equal force and validity.” Wilson County v. Nat’l Bank, 103 U.S. 770, 776 (1880).

This expansive approach is adopted in the UCC, which provides that a promise or order is payable to bearer if it:

(1) states that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment;

(2) does not state a payee; or

(3) states that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person.

Section 400.3-109(a), RSMo 2000. Under this section, if a drawer of a check writes in the word “bearer” or “cash” on the line of a form check after the preprinted words “to the order of,” the instrument is payable to bearer. Mo. Ann...