Article 3 — Negotiable Instruments · Section 3-116
An overview of UCC § 3-116, focusing on the transfer of instruments and the rights of parties involved in negotiable instruments.
Source: U.C.C. § 3-116
UCC § 3-116 addresses the effect of transfer of a negotiable instrument in terms of rights and claims associated with the instrument. It establishes that a transfer of an instrument vests in the transferee the rights to receive payment according to the terms of the instrument, subject to the rights of any prior holders.
UCC § 3-116 explains that when a negotiable instrument is transferred from one person to another, the new holder has the right to collect payment based on the terms of the instrument. However, this right is subject to any limitations or claims from previous holders.
A written document that promises or orders the payment of a specific amount of money, which can be transferred between parties, typically including checks and promissory notes.
The party who receives a negotiable instrument from another party, acquiring the rights to the instrument.
Example 1
A person gives a check to a friend. The friend now holds the check as a negotiable instrument and has the right to cash it.
Example 2
If a promissory note is assigned to a bank, the bank becomes the transferee and has the right to collect the owed amount from the original borrower.