When promise is unconditional - Negotiable Instruments

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