3-118. STATUTE OF LIMITATIONS.
(a) Except as provided in subsection (e), an action to enforce
the obligation of a party to pay a note payable at a definite time must be
commenced within six years after the due date or dates stated in the note or,
if a due date is accelerated, within six years after the accelerated due date.
(b) Except as provided in subsection (d) or (e), if demand for
payment is made to the maker of a note payable on demand, an action to enforce
the obligation of a party to pay the note must be commenced within six years
after the demand. If no demand for payment is made to the maker, an action to
enforce the note is barred if neither principal nor interest on the note has
been paid for a continuous period of 10 years.
(c) Except as provided in subsection (d), an action to enforce
the obligation of a party to an unaccepted draft to pay the draft must be
commenced within three years after dishonor of the draft or 10 years after the
date of the draft, whichever period expires first.
(d) An action to enforce the obligation of the acceptor of a
certified check or the issuer of a teller's check, cashier's check, or
traveler's check must be commenced within three years after demand for payment
is made to the acceptor or issuer, as the case may be.
(e) An action to enforce the obligation of a party to a
certificate of deposit to pay the instrument must be commenced within six years
after demand for payment is made to the maker, but if the instrument states a
due date and the maker is not required to pay before that date, the six-year
period begins when a demand for payment is in effect and the due date has
(f) An action to enforce the obligation of a party to pay an
accepted draft, other than a certified check, must be commenced (i) within six
years after the due date or dates stated in the draft or acceptance if the
obligation of the acceptor is payable at a definite time, or (ii) within six
years after the date of the acceptance if the obligation of the acceptor is
payable on demand.
(g) Unless governed by other law regarding claims for indemnity
or contribution, an action
(i) for conversion of an instrument, for money had and
received, or like action based on conversion,
(ii) for breach of warranty, or
(iii) to enforce an obligation, duty, or right arising under
this Article and not governed by this section must be commenced within three
years after the [cause of action] accrues.
Negotiable instruments are mainly governed by state
statutory law. Every state has adopted Article 3 of the Uniform
Commercial Code (UCC), with some modifications, as the law governing negotiable
instruments. The UCC defines a negotiable instrument as an unconditioned
writing that promises or orders the payment of a fixed amount of money. Drafts
and notes are the two categories of instruments.
A draft is an instruments that orders a payment to be made.
An example is a check.
A note is an instrument that promises that a payment will be
made. Certificates of deposit (CD's) are notes.
Drafts and notes are commonly used in business transactions to
finance the movement of goods and to secure and distribute loans. To be
considered negotiable an instrument must meet the requirements stated in
Article 3. Negotiable instruments do not include money, payment orders
governed by article 4A (fund transfers) or to securities governed by Article 8
(investment securities). The rule of derivative title, which is
applicable in most areas of the law, does not allow a property owner to
transfer rights in a piece of property greater than his own. If an instrument
is negotiable this rule is suspended. A good faith purchaser, who does not have
any knowledge of a defect in the title or claims against it, takes title to the
instrument free of any defects or claims. In relation to the suspension of the
rule of derivative title, Article 3 provides for warranties to protect the
parties in transactions involving negotiable instruments.
Checks are negotiable instruments but are mainly covered by
Article 4 of the UCC. See also Banking Law. Secured transactions may contain
negotiable instruments but are predominantly covered by Article 9 of the UCC.
See also Secured Transactions. If there is a conflict between the Articles of
the UCC both Article 4 and 9 govern over Article 3.
U.C.C. - ARTICLE 4 - BANK DEPOSITS AND
PART 1. GENERAL PROVISIONS AND DEFINITIONS
§ 4-404. BANK NOT OBLIGED TO PAY CHECK MORE THAN
SIX MONTHS OLD. A bank is under no obligation to a customer having a
checking account to pay a check, other than a certified check, which is
presented more than six months after its date, but it may charge its
customer's account for a payment made thereafter in good faith.
3-104. NEGOTIABLE INSTRUMENT.
(a) Except as provided in subsections (c) and (d),
"negotiable instrument" means an unconditional promise or order to pay a fixed
amount of money, with or without interest or other charges described in the
promise or order, if it:
(1) is payable to bearer or to order at the time it is
issued or first comes into possession of a holder;
(2) is payable on demand or at a definite time; and
(3) does not state any other undertaking or instruction by
the person promising or ordering payment to do any act in addition to the
payment of money, but the promise or order may contain
(i) an undertaking or power to give, maintain, or protect
collateral to secure payment,
(ii) an authorization or power to the holder to confess
judgment or realize on or dispose of collateral, or
(iii) a waiver of the benefit of any law intended for the
advantage or protection of an obligor.
"Instrument" means a negotiable instrument.
(c) An order that meets all of the requirements of subsection
(a), except paragraph (1), and otherwise falls within the definition of "check"
in subsection (f) is a negotiable instrument and a check.
(d) A promise or order other than a check is not an
instrument if, at the time it is issued or first comes into possession of a
holder, it contains a conspicuous statement, however expressed, to the effect
that the promise or order is not negotiable or is not an instrument governed by
(e) An instrument is a "note" if it is a promise and is a
"draft" if it is an order. If an instrument falls within the definition of both
"note" and "draft," a person entitled to enforce the instrument may treat it as
(f) "Check" means (i) a draft, other than a documentary
draft, payable on demand and drawn on a bank or (ii) a cashier's check or
teller's check. An instrument may be a check even though it is described on its
face by another term, such as "money order."
(g) "Cashier's check" means a draft with respect to which the
drawer and drawee are the same bank or branches of the same bank.
(h) "Teller's check" means a draft drawn by a bank (i) on
another bank, or (ii) payable at or through a bank.
(i) "Traveler's check" means an instrument that (i) is
payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is
designated by the term "traveler's check" or by a substantially similar term,
and (iv) requires, as a condition to payment, a countersignature by a person
whose specimen signature appears on the instrument.
(j) "Certificate of deposit" means an instrument containing
an acknowledgment by a bank that a sum of money has been received by the bank
and a promise by the bank to repay the sum of money. A certificate of deposit
is a note of the bank.
List of each State's Article 4: Bank Deposits and Collections