Question

The Negotiable Instruments Law took effect in the year 1911, do you think the said law is still relevant as of today? Why or why not?

Answer 1

The Negotiable Instruments Law took effect in the year 1911, but there is no relevance for the said law today because of alternative payment systems that is much more relevant as of today. It is explained in detailed below:

The evolution in recent years of alternatives to the check system,such as credit card systems and electronic funds transfer systems, has prompted considerable interest in the law of payment systems.

The core of much of the present law of the check system is the proposition that checks are negotiable instruments; that is, that the concepts of negotiable instruments law provide a sensible foundation on which to erect a system of law specifying the rights and duties of participants in check transactions. 7What I shall refer to as the "negotiable instruments law approach" rests on three assumptions concerning the design of legal rules for the check-based payment system:

First-it is important to specify certain standardized liabilities incurred by the parties to checks, independent of their obligations arising out of the underlying transactions.

Second-it is important that these independent liabilities, along with the instructions given by the checks to the banking system for making payment, be "reified" in the pieces of paper used, so that checks may be regarded as items of property subject to property law concepts like transfer, title, and conversion.

Third-it is important to apply to checks the rule of transfer that permits a transferee to become a holder in due course, taking free of most claims and defenses.

Briefly stated, these assumptions are false; for that reason negotiable instruments law concepts are at best irrelevant, and often misleading.

None of the central assumptions of the negotiable instruments approach to the check system proves accurate. Neither the concept of independent liabilities on the instrument, nor the notion that checks can be regarded as items of property, nor the holder in due course rules play any useful role in payment systems law for the paper-based check system.

The time is long overdue to begin thinking about the check system, and teaching the law of payment systems generally, without reliance on the concepts of negotiable instruments law.

A reader thoroughly familiar with the law of negotiable instruments might object that this Article shows only that it is possible to achieve appropriate resolutions of the problems of payment systems without the conceptual framework of negotiable instrument law, but this does not prove that we should abandon the familar concepts of negotiable instruments law. That objection, however, is itself the best illustration of the perversity of the negotiable instruments approach to the check system.

The negotiable instruments framework seems sensible only because it is, at least to some of us, familiar.

One who suggests that the negotiable instruments framework provides a plausible approach to the problems of payment systems law should listen, I think, a bit more closely to the students who must learn the subject anew, and should reflect a bit more deeply on the source of the students' sense that this is all an arcane wordgame, mastery of which is a rite of passage into the profession. One might also consider how plausible the negotiable instruments approach to the check system would seem if we applied similar techniques to other legal problems.

Thus the law is not as relevant as some other systems like check systems which are more relevant now a days.