Opinion ID: 1951645
Heading Depth: 2
Heading Rank: 1

Heading: Negotiability

Text: The Superior Court has described the purpose of negotiable instruments and the Commercial Code as follows: A negotiable instrument is an instrument capable of transfer by endorsement or delivery. Negotiability provides a means of passing on to the transferee the rights of the holder, including the right to sue in his or her own name, and the right to take free of equities as against the assignor/payee. [Citations omitted]. The purpose of the Commercial Code is to enhance the marketability of negotiable instruments and to allow bankers, brokers, and the general public to trade in confidence. [Citations omitted]. As a matter of sound economic policy, the Commercial Code encourages the free transfer and negotiability of commercial paper to stimulate financial interdependence. Manor Bldg. Corp. v. Manor Complex Assocs., 435 Pa.Super. 246, 252-53, 645 A.2d 843, 846 (1994) ( en banc ). With these principles in mind, we turn to a discussion of the American Express money orders at issue here. The threshold question is whether the money orders qualify as negotiable instruments under Division Three of the Commercial Code, 13 Pa.C.S. § 3101, et seq., which governs negotiability. [3] Both parties agree that if the money orders are not negotiable instruments then Triffin's claims against American Express must fail. Initially, we note that the Commercial Code does not specifically define the term money order, nor does it provide a descriptive list of financial documents that automatically qualify as negotiable instruments. Instead, 13 Pa.C.S. § 3104(a) sets forth the following four part test to determine if a particular document qualifies as a negotiable instrument: (a) Requisites to negotiability.-Any writing to be a negotiable instrument within this division must: (1) be signed by the maker or drawer; (2) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this division; (3) be payable on demand or at a definite time; and (4) be payable to order or to bearer. 13 Pa.C.S. § 3104(a). The Superior Court described the face of the money orders in question as follows: Prior to being stolen[,] the American Express money orders read: AMERICAN EXPRESS MONEY ORDER . . . CHASE SAVINGS BANK . . . DATE (blank). PAY THE SUM OF (blank), NOT GOOD OVER $1,000, TO THE ORDER OF (blank). Louis V. Gerstner, Chairman. SENDER'S NAME AND ADDRESS (blank). Issued by American Express Travel Related Services Company, Inc., Englewood, Colorado. Payable at United Bank of Grand Junction, Downtown, Grand Junction, Colorado. The two Dillabough instruments were in this form. The third Lynn instrument was identical, except it did not bear an authorized agent's name, e.g., Chase Savings Bank, and was not good for over $200. Triffin v. Dillabough, 448 Pa.Super. 72, 82, 670 A.2d 684, 689 (1996). When presented at Chuckie's, the sections for date, amount, payee and sender had been completed. The first requisite of negotiability, a signature by the drawer or maker, includes any symbol executed or adopted by a party with present intention to authenticate a writing. 13 Pa.C.S. § 1201. Authentication may be printed, stamped or written; it may be by initials or by thumbprint. . . . The question always is whether the symbol was executed or adopted by the party with present intention to authenticate the writing. 13 Pa.C.S. § 1201, Comment 39. Additionally, section 3307(a)(2) states that when the effectiveness of a signature is challenged, it is presumed to be genuine or authorized unless the signer has died or become incompetent. 13 Pa.C.S. § 3307(a)(2). Here, the drawer, American Express, affixed the pre-printed signature of Louis Gerstner, its then Chairman, to the money orders in question before forwarding them to its agents. American Express does not argue that Gerstner's signature was affixed to the money orders for any reason other than to authenticate them. Accordingly, the money orders satisfy the first requisite for negotiability. The second requisite, American Express argues, is lacking because the money orders do not contain an unconditional promise or order to pay. Specifically, American Express claims that a legend it placed on the back of the money orders qualifies an otherwise unconditional order on the front directing the drawee to PAY THE SUM OF a specified amount TO THE ORDER OF the payee. The legend provides as follows: IMPORTANT DO NOT CASH FOR STRANGERS THIS MONEY ORDER WILL NOT BE PAID IF IT HAS BEEN ALTERED OR STOLEN OR IF AN ENDORSEMENT IS MISSING OR FORGED. BE SURE YOU HAVE EFFECTIVE RECOURSE AGAINST YOUR CUSTOMER. PAYEE'S ENDORSEMENT According to American Express, this legend renders the order to pay conditional on the money order not being altered, stolen, unendorsed or forged and destroys the negotiability of the instrument. We disagree. In a factually similar case, the Louisiana Court of Appeal construed a legend on the back of an American Express money order similar to the one at issue here. Hong Kong Importers, Inc. v. American Express Co., 301 So.2d 707 (La.App.1974). The legend there stated CASH ONLY IF RECOURSE FROM ENDORSER IS AVAILABLE. IF THIS MONEY ORDER HAS NOT BEEN VALIDLY ISSUED OR HAS BEEN FRAUDULENTLY NEGOTIATED, IT WILL BE RETURNED. Id. at 708. The money order also had the following language printed on its face: KNOW YOUR ENDORSER CASH ONLY IF RECOURSE IS AVAILABLE. Id. The Louisiana Court held that the legend on the back and the language on the front did not convert the money order into a conditional promise to pay, but merely operated as a warning to the party cashing the money order to protect himself against fraud. Although Hong Kong was decided before Louisiana adopted the Uniform Commercial Code, we find its rationale to be persuasive and applicable to 13 Pa.C.S. § 3104. American Express attempts to distinguish Hong Kong by asserting that the legend in this case is more specific because it explicitly conditions payment on the money orders not being altered, stolen, unendorsed or forged. This argument misses the point. Any writing which meets the requirements of subsection [(a)] and is not excluded under Section [3103] is a negotiable instrument, and all sections of this [Division] apply to it, even though it may contain additional language beyond that contemplated by this section.  13 Pa. C.S. § 3104, Comment 4 (emphasis added). An otherwise unconditional order to pay that meets the section 3104 requirements is not made conditional by including implied or constructive conditions in the instrument. 13 Pa.C.S. § 3105(a)(1). Moreover, purported conditions on an otherwise negotiable instrument, that merely reflect other provisions of the law, do not vitiate negotiability. State v. Phelps, 125 Ariz. 114, 608 P.2d 51 (1979); see also Falk's Food Basket, Inc. v. Selected Risks Ins. Co., 214 Pa.Super. 522, 257 A.2d 359 (1969); 4 William D. Hawkland & Larry Lawrence, Uniform Commercial Code Series § 3-105:03 (Clark Boardman Callaghan) (1994). Here, the alleged conditions on the back of the money orders are nothing more than a restatement of American Express' statutory defenses against payment because of alteration, 13 Pa.C.S. § 3407, theft, 13 Pa.C.S. § 3306(4), absence of signature, 13 Pa.C.S. § 3401, and forgery, 13 Pa.C.S. § 3404. Contrary to American Express' claims, expressing those statutory defenses in a legend with the conditional phrase THIS MONEY ORDER WILL NOT BE PAID IF . . . does not elevate the legend to a condition for the purposes of 13 Pa.C.S. § 3104(a) because it is merely a restatement of the defenses present in the Commercial Code. See 13 Pa.C.S. § 3104, Comment 4; Phelps. The legend is simply a warning that American Express has reserved its statutory defenses. Whether these defenses are effective against Triffin is a separate question to be answered after resolving the issue of negotiability. See 13 Pa.C.S. § 3104, Comment 4. We hold, therefore, that the money orders contain an unconditional order to pay, and satisfy the second requisite of negotiability. The third requisite, that the writing be payable on demand or at a definite time, and the fourth requisite, that the writing be payable to order or bearer, are clear from the face of the money orders and are not disputed by the parties. Thus, the American Express money orders qualify as negotiable instruments pursuant to 13 Pa.C.S. § 3104. American Express contends that even if the money orders are facially negotiable, they should not be viewed as negotiable instruments because they were never issued or otherwise placed in the stream of commerce. Issue is defined as [t]he first delivery of an instrument to a holder or a remitter. 13 Pa.C.S. § 3102. Delivery is defined as the voluntary transfer of possession. 13 Pa.C.S. § 1201. American Express argues that because the money orders were incomplete when stolen and subsequently completed without authorization, the money orders were never delivered and it should have no liability for them. Authorized completion and delivery, however, are not listed as requisites to negotiability in section 3104. 13 Pa.C.S. § 3104. Moreover, section 3115 specifically permits the enforcement of incomplete and undelivered instruments and provides as follows: (a) General rule.  When a paper whose contents at the time of signing show that it is intended to become an instrument is signed while still incomplete in any necessary respect it cannot be enforced until completed, but when it is completed in accordance with authority given it is effective as completed. (b) Unauthorized completion.  If the completion is unauthorized the rules as to material alteration apply (section 3407), even though the paper was not delivered by the maker or drawer; but the burden of establishing that any completion is unauthorized is on the party so asserting. 13 Pa.C.S. § 3115 (emphasis added). Section 3407 provides that the defense of unauthorized completion discharges a party from liability to any person other than a holder in due course. 13 Pa.C.S. § 3407(a)(2); 13 Pa.C.S. § 3407(b). A subsequent holder in due course may in all cases enforce the [negotiable] instrument according to its original tenor, and when an incomplete instrument has been completed, he may enforce it as completed. 13 Pa.C.S. § 3407(c); see also National Loan Investors, L.P. v. Martin, 488 N.W.2d 163 (Iowa 1992) (holder in due course can enforce notes completed without authorization where notes signed in blank); Virginia Capital Bank v. Aetna Cas. & Sur. Co., 231 Va. 283, 343 S.E.2d 81 (1986) (subsequent holder in due course can enforce note as completed even though completion unauthorized). Additionally, section 3305 provides that a holder in due course takes a negotiable instrument free from the defense of nondelivery. See 13 Pa.C.S. § 3305, Comment 3. When read together, sections 3115, 3407 and 3305 demonstrate that unauthorized completion and non-delivery do not prevent enforcement of an otherwise negotiable instrument. Instead, the three sections permit a holder in due course to enforce the undelivered instrument as completed. The Comment to section 3115 explains the rationale for this rule as follows: Since under this [Division] (Sections 3305 and 3407) neither non-delivery nor unauthorized completion is a defense against a holder in due course, it has always been illogical that the two together should invalidate the instrument in his hands. A holder in due course sees and takes the same paper, whether it was complete when stolen or completed afterward by the thief, and in each case he relies in good faith on the maker's signature. The loss should fall upon the party whose conduct in signing blank paper has made the fraud possible, rather than upon the innocent purchaser. The result is consistent with the theory of decisions holding the drawer of a check stolen and afterwards filled in to be estopped from setting up the non-delivery against an innocent party. 13 Pa.C.S. § 3115, Comment 5; see also 13 Pa.C.S. § 3407, Comment 4. The next question then, is whether Triffin has the rights of a holder in due course who can enforce the negotiable money orders.