2018 New Mexico Statutes
Chapter 55 - Uniform Commercial Code
Article 3 - Negotiable Instruments
Section 55-3-303 - Value and consideration.
(a) An instrument is issued or transferred for value if:
(1) the instrument is issued or transferred for a promise of performance, to the extent the promise has been performed;
(2) the transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding;
(3) the instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due;
(4) the instrument is issued or transferred in exchange for a negotiable instrument; or
(5) the instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.
(b) "Consideration" means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in Subsection (a), the instrument is also issued for consideration.
History: 1978 Comp., § 55-3-303, enacted by Laws 1992, ch. 114, § 116.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1. Subsection (a) is a restatement of former Section 3-303 and subsection (b) replaces former Section 3-408. The distinction between value and consideration in Article 3 is a very fine one. Whether an instrument is taken for value is relevant to the issue of whether a holder is a holder in due course. If an instrument is not issued for consideration the issuer has a defense to the obligation to pay the instrument. Consideration is defined in subsection (b) as "any consideration sufficient to support a simple contract." The definition of value in Section 1-201(44) [55-1-201 NMSA 1978], which doesn't apply to Article 3, includes "any consideration sufficient to support a simple contract." Thus, outside Article 3, anything that is consideration is also value. A different rule applies in Article 3. Subsection (b) of Section 3-303 [55-3-303 NMSA 1978] states that if an instrument is issued for value it is also issued for consideration.
Case #1. X owes Y $1,000. The debt is not represented by a note. Later X issues a note to Y for the debt. Under Subsection (a)(3) X's note is issued for value. Under Subsection (b) the note is also issued for consideration whether or not, under contract law, Y is deemed to have given consideration for the note.
Case #2. X issues a check to Y in consideration of Y's promise to perform services in the future. Although the executory promise is consideration for issuance of the check it is value only to the extent the promise is performed. Subsection (a)(1).
Case #3. X issues a note to Y in consideration of Y's promise to perform services. If at the due date of the note Y's performance is not yet due, Y may enforce the note because it was issued for consideration. But if at the due date of the note, Y's performance is due and has not been performed, X has a defense. Subsection (b).
2. Subsection (a), which defines value, has primary importance in cases in which the issue is whether the holder of an instrument is a holder in due course and particularly to cases in which the issuer of the instrument has a defense to the instrument. Suppose Buyer and Seller signed a contract on April 1 for the sale of goods to be delivered on May 1. Payment of 50% of the price of the goods was due upon signing of the contract. On April 1 Buyer delivered to Seller a check in the amount due under the contract. The check was drawn by X to Buyer as payee and was indorsed to Seller. When the check was presented for payment to the drawee on April 2, it was dishonored because X had stopped payment. At that time Seller had not taken any action to perform the contract with buyer. If X has a defense on the check, the defense can be asserted against Seller who is not a holder in due course because Seller did not give value for the check. Subsection (a)(1). The policy basis for subsection (a)(1) is that the holder who gives an executory promise of performance will not suffer an out-of-pocket loss to the extent the executory promise is unperformed at the time the holder learns of the dishonor of the instrument. When Seller took delivery of the check on April 1, Buyer's obligation to pay 50% of the price on that date was suspended, but when the check was dishonored on April 2 the obligation revived. Section 3-310(b) [55-3-310 NMSA 1978]. If payment for goods is due at or before delivery and the Buyer fails to make the payment, the Seller is excused from performing the promise to deliver the goods. Section 2-703. Thus, Seller is protected from an out-of-pocket loss even if the check is not enforceable. Holder-in-due-course status is not necessary to protect Seller.
3. Subsection (a)(2) equates value with the obtaining of a security interest or a nonjudicial lien in the instrument. The term "security interest" covers Article 9 cases in which an instrument is taken as collateral as well as bank collection cases in which a bank acquires a security interest under Section 4-210. The acquisition of a common-law or statutory banker's lien is also value under Subsection (a)(2). An attaching creditor or other person who acquires a lien by judicial proceedings does not give value for the purposes of Subsection (a)(2).
4. Subsection (a)(3) follows former Section 3-303(b) in providing that the holder takes for value if the instrument is taken in payment of or as security for an antecedent claim, even though there is no extension of time or other concession, and whether or not the claim is due. Subsection (a)(3) applies to any claim against any person; there is no requirement that the claim arise out of contract. In particular the provision is intended to apply to an instrument given in payment of or as security for the debt of a third person, even though no concession is made in return.
5. Subsection (a)(4) and (5) restate former Section 3-303(c). They state generally recognized exceptions to the rule that an executory promise is not value. A negotiable instrument is value because it carries the possibility of negotiation to a holder in due course, after which the party who gives it is obliged to pay. The same reasoning applies to any irrevocable commitment to a third person, such as a letter of credit issued when an instrument is taken.
6. The term "promise" in paragraph (a)(1) is used in the phrase "promise of performance" and for that reason does not have the specialized meaning given that term in Section 3-103(a)(12) [55-3-103 NMSA 1978]. See Section 1-201 [55-1-201 NMSA 1978] ("Changes from Former Law"). No inference should be drawn from the decision to use the phrase "promise of performance", although the phrase does include the word "promise", which has the specialized definition set forth in Section 3-103. Indeed, that is true even though "undertaking" is used instead of "promise" in Section 3-104(a)(3) [55-3-104 NMSA 1978]. See Section 3-104 comment 1 (explaining the use of the term "undertaking" in Section 3-104 to avoid use of the defined term "promise").
Repeals. — Laws 1992, ch. 114, § 237 repealed former 55-3-303 NMSA 1978, as enacted by Laws 1961, ch. 96, § 3-303, relating to taking for value, effective July 1, 1992. Laws 1992, ch. 114, § 116, enacted a new section, effective July 1, 1992. For provisions of former section, see the 1991 NMSA 1978 on NMOneSource.com.
Presumption of consideration unless evidence to contrary. — Upon proof of execution of a note consideration is presumed to exist and when evidence is offered which shows or tends to show lack of consideration, it is then incumbent upon the holder to show by a fair preponderance of the evidence that there was consideration. Hutchison v. Boney, 1963-NMSC-040, 72 N.M. 194, 382 P.2d 525.
Additional credit deemed sufficient value. — Where credit was requested by appellant on behalf of the corporation, and appellee extended it on the condition that appellant and corporation as accommodation maker and maker, respectively, execute a note in favor of appellee for the entire amount of the open account plus the amount of additional credit requested, appellee was deemed to be a holder for value as the additional credit was extended to the corporation in reliance on appellant's promise to execute the note. Hutchison v. Boney, 1963-NMSC-040, 72 N.M. 194, 382 P.2d 525.
When failure of consideration defense against bona fide purchaser. — In order for a defense of failure of consideration to be available against a bona fide purchaser, before maturity, there must be proof that the failure occurred prior to the transfer of the note. Azar v. Slack, 1924-NMSC-025, 29 N.M. 528, 224 P. 398.
Law reviews. — For comment, "Assignments - Maker's Defenses Cut Off - Uniform Commercial Code § 9-206," see 5 Nat. Resources J. 408 (1965).
Am. Jur. 2d, A.L.R. and C.J.S. references. — 11 Am. Jur. 2d Bills and Notes §§ 215, 241, 334, 337 to 339, 347, 348, 428, 498.
One taking bill or note as gift, or in consideration of love and affection, as a holder for value, 48 A.L.R. 237.
Exchange of negotiable paper as supporting status as holder in due course, 69 A.L.R. 408.
Unperformed obligation as value, as regards one's status as a bona fide purchaser freed from prior equities, 124 A.L.R. 1259.
Crediting proceeds of negotiable paper to depositor's account, as constituting bank a holder in due course, 59 A.L.R.2d 1173.
When is instrument issued or transferred for "value" under UCC § 3-303, 77 A.L.R.5th 429.
10 C.J.S. Bills and Notes §§ 185 et seq., 284 et seq.
