Held Up in Due Course: Codification and the Victory of Form Over Intent in Negotiable Instrument Law

55 Pages Posted: 26 May 2006

See all articles by Kurt Eggert

Kurt Eggert

Chapman University, The Dale E. Fowler School of Law

Abstract

This first article of two articles on the holder in due course doctrine traces the history of the development of negotiable instrument law and the changing roles that the form of the instrument and the intent of the maker play in that law. The article describes the forgotten role that the intent of the maker of a note originally played in the development of negotiable instrument law. Almost universally, scholars have concluded that the codification of negotiable instrument law did not significantly change the common law regarding negotiability, but merely preserved it. Instead, this article shows that the codification of negotiable instrument law fundamentally altered that law by eliminating the role of intent and, in the United States at least, replacing it with a list of mere formal requirements.

Originally, negotiable instruments were used created by people who often understood how these instruments functioned and what legal rules governed them. The typical intent of the parties as expressed in the instrument governed whether an instrument was negotiable. As the monetary system became more sophisticated, Bills of Exchange created by private parties were no longer used as currency, as that role was taken over by bank bills or by currency printed by governments. Popular understanding of the rules governing negotiable instruments faded as their use declined precipitously. When consumer credit became widely available during the twentieth century, lenders turned to a then archaic form, the promissory note, to take advantage of rules such as the holder in due course doctrine that protect creditors. However, the borrowers and consumers who have signed these notes did not normally understand the law of negotiable instruments or the holder in due course doctrine. In codifying the common law of negotiable instruments, the new national code adopted by the states replaced the intent of the parties as the central element of negotiability with a set of mere formal requirements. As a result, lenders are able to benefit from rules regarding negotiable instruments that their borrowers neither understand nor intend to govern the transaction.

Keywords: negotiable instruments, holder in due course, mortgages, legal history, bills of exchange

JEL Classification: E43, F34, G22

Suggested Citation

Eggert, Kurt, Held Up in Due Course: Codification and the Victory of Form Over Intent in Negotiable Instrument Law. Creighton Law Review, Vol. 35, p. 363, 2002, Available at SSRN: https://ssrn.com/abstract=904656

Kurt Eggert (Contact Author)

Chapman University, The Dale E. Fowler School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States

HOME PAGE: http://www.chapman.edu/law/faculty/eggert.asp

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