Sec. 3. When promise is unconditional. An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with:
(a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.
APPLICATION OF SECTION
Whether or not the indication of a particular fund or particular account, or the statement of the transaction which gives rise to the instrument, would make the promise or order conditional
INDICATION OF A PARTICULAR FUND
First case, the particular fund is not the direct source of the payment, only the source of reimbursement
Unconditional—drawee pays the payee from his own funds and afterwards, the drawee pays himself from the particular fund indicated
But an order or promise to pay out of a particular fund is not unconditional—particular fund is the direct source of payment
Conditional—where the payment to the payee is directly from the funds indicated, the payment is the subject to the condition that the funds indicated are sufficient
PARTICULAR ACCOUNT TO BE DEBITED
The instrument is to be paid first and afterwards, the particular account indicated will be debited
The payment is not subject to the sufficiency or adequacy of the particular account to be debited
STATEMENT OF TRANSACTION
Instruments are not issued without any transaction upon which they are based
Generally negotiable but a statement of transaction will render the instrument non-negotiable where the promise or order to pay is made subject to the conditions and terms of the transactions stated, then the instrument is rendered non-negotiable
AS PER CONTRACT NOTES
The appearance of words “as per contract” on the face of the instruments in any position doesn’t affect the negotiability of the instrument
CHATTEL NOTES
A promissory note given for a chattel and stipulating that the title to the chattel shall remain in the vendor-payee until the note is paid, is not conditional
REFERENCE TO MORTGAGES
Provisions in the mortgage doesn’t affect the negotiability of the instrument it secures
Where a note otherwise negotiable contains the words “this note is secured by a mortgage” and the mortgage contains clauses promising to do many acts other than the payment of money, it was held that the note is not rendered non-negotiable
WHEN REFERENCE TO A MORTGAGE RENDERS INSTRUMENT NON-NEGOTIABLE
When there is uncertainty in amount or when such provisions become part of the note, even though they aren’t in the note itself, the instrument is also rendered non-negotiable
