Mixed legal systems: value, causa, consideration and the holder in due course

Author:Alejandro Nieto Vincenty
Position:University of Puerto Rico
Pages:1-15
 
UNIFORM COMMERCIAL CODE
MIXED LEGAL SYSTEMS: VALUE, CAUSA,
CONSIDERATION AND THE HOLDER IN DUE COURSE
ALEJANDRO NIETO VINCENTY*
INTRODUCTION ................................................................................................................................................. 1
I. VALUE AND CONSIDERATION UNDER THE UNIFORM COMMERCIAL CO DE .......... 1
II. HOLDER IN DUE COURSE UNDER THE UNIFORM COMMERCIAL CODE .................. 5
III. THE SYSTEMS COME TOGETHER .................................................................................................. 8
A. CAUSA: CIVIL LAW; GENERAL CONTRACT DOCTRINE ..................................................................... 9
B. CONSIDERATION: COMMON LAW; GENERAL CONTRACT LAW DOCTRINE ................................ 10
C. CAUSA & CONSIDERATION................................................................................................................... 11
D. TRANSLATION OF CONSIDERATION AS CAUSA ................................................................................. 13
CONCLUSION ..................................................................................................................................................... 14
INTRODUCTION
Puerto Rico adopted parts of the Uniform Commercial Code (“U.C.C.”) by
enacting the Ley de Trans acciones Comerciales (“LTC”) or Commercial Transactions
Law in 1995.
1
Although the articles of the LTC are based on articles of the U.C.C.,
some of the translations have caused confusion. This is mainly due to the fact that
contract concepts in Puerto Rico are based on civil law, not common law doctrines.
Among the concepts that have cause this confusion are value and consideration as
related to the Holder in Due Course (“H.D.C.”) concept of Article 3 of the U.C.C.
This paper will discuss the controversy that results from the translation of
the articles governing the concepts of value and consideration in the LTC. First, it
will explain the definitions of value and consideration as stated in Article 3 of the
U.C.C. Then, it will analyze the impact that the notion of value has as a requisite
for qualification as an H.D.C. Lastly, it will study the similarities and differences
between the terms causa in the civil law doctrine and consideration in the common
law doctrine.
I. VALUE AND CONSIDERATION UNDER THE UNIFORM COMMERCIAL CODE
Under general contract law, when there is consideration, there is value and
vice versa. That is, both concepts are deemed to be the same under general contract
law.
2
Confirming this theory, the definition of value in Article 1 of the U.C.C.
* J.D., 2018, University of Puerto Rico School of Law. This article was originally written for a
seminar on the Uniform Commercial Code at the University of Puerto Rico School of Law under
the supervision of Prof. Antonio García Padilla.
1
Exposición de Motivos, Ley de Transacciones Comerciales, Ley Núm. 208 de 17 de agosto de
1995, 1995 (Parte 1) LPR 1012.
2
U.C.C. § 3-303, cmt.1(AM. LAW INST. & UNIF. LAW COMMN 2017); 1 WILLIAM H LAWRENCE,
COMMERCIAL PAPER AND PAYMENT SYSTEMS 6-5 (1990).
Mixed Legal Systems: Value, Causa, Consideration and the Holder in Due
Course
2
which expressly does not apply to Article 3 states that value is, among other
things, “any consideration sufficient to support a simple contract.”
3
With this, it
can be said that, unless we are dealing with Article 3 of the U.C.C., anything that
represents consideration also represents value.
4
Conversely, Article 3-303 of the U.C.C., which is used in the context of
commercial transactions involving the issuance or transfer of negotiable
instruments, modifies the general doctrine of consideration of the common law.
Article 3-303 of the U.C.C. defines value and consideration as follows:
(a) It shall be understood that an instrument is issued or transferred
for value if:
(1) It 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 another lien
in the instrument other than a lien obtained by judicial
proceeding;
(3) the instrument is issued or transferred as evidence,
payment, or as security for an existing obligation of any
person, whether the obligation is due;
(4) the instrument is issued or transferred in exchange for
another negotiable instrument, or
(5) the instrument is issued or transferred in exchange for
the incurring of an irrevocable obligation to a third
person 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) of this section, the
instrument is also issued for consideration.
5
Article 3-303(a) of the U.C.C. makes a distinction between value and
consideration when parties are making transactions involving negotiable
instruments. For transactions involving negotiable instruments, “‘value’ is a
broader concept than ‘consideration’, for one can also give value by giving
something that would not, because of the pre-existing duty rule, be
consideration.”
6
That is, under Article 3, one can give value by giving something
that would not be consideration under general contract law and it is deemed given
for consideration.
Article 3-303(b) which is a defense that the maker of an instrument has
when a negotiable instrument has been given without consideration states that
3
U.C.C. § 1-204.
4
U.C.C. § 3-303, cmt.1.
5
U.C.C. § 3-303.
6
E. ALLAN FARNSWORTH, NEGOTIABLE INSTRUMENTS CASES AND MATERIALS 65 (4th ed. 1993).

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