Transfer of Instruments. In July 1988, Chester Crow executed a promissory note payable "to the order of THE FIRST NATIONAL BANK OF SHREVEPORT or BEARER" in the amount of $21,578.42 at an interest rate of 3 percent per year above the "prime rate in

Question

effect at The First National Bank of Shreveport" in Shreveport, Louisiana, until paid. The note was a standard preprinted promissory note. In 1999, Credit Recoveries, Inc, filed a suit in a Louisiana state court against Crow, alleging that he owed $7,222.57 on the note, plus interest. Crow responded that the debt represented by the note had been canceled by the bank in September 1994, contending that, in any event, to collect on the note Credit Recoveries had to prove its legitimate ownership of it. When no evidence of ownership was forthcoming, Crow filed a motion to dismiss the suit. Is the note an order instrument or a bearer instrument? How might it have been transferred to Credit Recoveries? With this in mind, should the court dismiss the suit on the basis of Crow's contention?

Answer 1

Transfer of instruments
Although the court dismissed Credit Recoveries' suit and denied its subsequent motions to set aside the judgment and grant a new trial, Credit Recoveries appealed to a state intermediate appellate court, which reversed the judgment of the lower court and remanded the case for further proceedings. The appellate court noted that under UCC 3-109(a), "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." Under UCC 3-203(a), "An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument." The court concluded that under these provisions, "this preprinted note payable to either the named payee or to bearer was, at its inception, bearer paper. Accordingly, the note could be negotiated, not merely transferred, by physical delivery. Whatever person thereafter was in possession of the note became the holder * * * and any future holder had the right to enforce the instrument." Here, Credit Recoveries was in possession of the note and had the right to seek its enforcement.