# Cal. Comm. Code §§ 3101-3605 — UCC Article 3 (Negotiable Instruments) as Enacted in California

- Citation: Cal. Comm. Code, §§ 3101-3605
- Code: Commercial Code, Division 3
- Subject: Negotiable instruments — California's enactment of UCC Article 3
- Source: https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=COM
- Last verified: 2026-05-13

> Authored from canonical California statutory sources; verify
> against leginfo.legislature.ca.gov before relying.

## Overview

California has enacted UCC Article 3 (revised 1990) as Division
3 of the Commercial Code. Article 3 governs **negotiable
instruments** — notes, drafts, checks — and the holder-in-due-
course doctrine.

The most-cited Article 3 provisions for consumer-debt
litigation are:

1. **§ 3118** — 6-year statute of limitations on negotiable
   notes
2. **§ 3302** — definition of "holder in due course" (relevant
   to debt-buyer chain-of-title disputes)
3. **§ 3308** — burden of proving signatures and authenticity

For verbatim Model UCC Article 3 text, see
[`../ucc-model/Article-3.md`](../ucc-model/Article-3.md).

## Scope and definitions

### § 3102 — Scope

(a) This division applies to negotiable instruments. It does
not apply to money, to payment orders governed by Division 11,
or to securities governed by Division 8.

### § 3104 — "Negotiable instrument" defined

(a) Except as provided in subdivisions (c) and (d), a
"negotiable instrument" means an unconditional promise or
order to pay a fixed amount of money, with or without
interest or other charges described in the promise or order,
if it satisfies all of the following:

(1) Is payable to bearer or to order at the time it is issued
or first comes into possession of a holder.

(2) Is payable on demand or at a definite time.

(3) Does not state any other undertaking or instruction by the
person promising or ordering payment to do any act in addition
to the payment of money...

**Note**: Most consumer credit-card agreements are NOT
negotiable instruments under § 3104 (they typically don't
satisfy the "fixed amount" or "payable to bearer/order"
requirements). The relevant credit-card-debt SOL is therefore
typically the CCP § 337 4-year general contract SOL, not the
6-year UCC § 3118 SOL.

However, **promissory notes** (including some retail
installment contracts and many auto-loan notes) ARE
negotiable instruments under § 3104.

## Holder in due course

### § 3301 — "Person entitled to enforce" instrument

A "person entitled to enforce" an instrument means any of the
following:

(a) The holder of the instrument.

(b) A nonholder in possession of the instrument who has the
rights of a holder.

(c) A person not in possession of the instrument who is
entitled to enforce the instrument pursuant to Section 3309 or
subdivision (d) of Section 3418.

### § 3302 — HOLDER IN DUE COURSE

(a) Subject to subdivision (c) and Section 3106 (d), "holder
in due course" means a holder of an instrument if both of the
following apply:

**(1)** The instrument when issued or negotiated to the holder
does not bear such apparent evidence of forgery or alteration
or is not otherwise so irregular or incomplete as to call into
question its authenticity.

**(2)** The holder took the instrument:

(A) For value;

(B) In good faith;

(C) Without notice that the instrument is overdue or has been
dishonored or that there is an uncured default with respect to
payment of another instrument issued as part of the same
series;

(D) Without notice that the instrument contains an
unauthorized signature or has been altered;

(E) Without notice of any claim to the instrument described
in Section 3306;

(F) Without notice that any party has a defense or claim in
recoupment described in subdivision (a) of Section 3305.

### Practical implications for consumer-debt cases

**Debt buyers do NOT acquire holder-in-due-course status with
respect to charged-off consumer debt**, because:

1. The instrument (if any) is typically overdue at the time of
   acquisition (charge-off occurs after default).
2. The debt buyer has notice that there is an uncured default
   (that's literally why they bought the debt at a discount).
3. The "good faith" requirement is difficult to satisfy when
   the buyer knows the consumer is in default.

Without HDC status, the debt buyer takes the instrument subject
to any claims and defenses the consumer could assert against
the original creditor. This includes:

- All Rosenthal / FDCPA / FDBPA violations
- Defenses arising from the underlying transaction (fraud,
  failure of consideration, etc.)
- All counterclaims under federal and state consumer-protection
  law

## Burden of proof

### § 3308 — Proof of signatures and status as holder

(a) In an action with respect to an instrument, the
authenticity of, and authority to make, each signature on the
instrument is admitted unless specifically denied in the
pleadings. If the validity of a signature is denied in the
pleadings, the burden of establishing validity is on the person
claiming validity, but the signature is presumed to be
authentic and authorized unless the action is to enforce the
liability of the purported signer and the signer is dead or
incompetent at the time of trial of the issue of validity of
the signature.

(b) If the validity of signatures is admitted or proved and
there is compliance with subdivision (a), a plaintiff producing
the instrument is entitled to payment if the plaintiff proves
entitlement to enforce the instrument under Section 3301, unless
the defendant proves a defense or claim in recoupment.

### § 3309 — Enforcement of lost, destroyed, or stolen instrument

A person not in possession of an instrument is entitled to
enforce the instrument if:

(1) The person was entitled to enforce the instrument when
loss of possession occurred, or has directly or indirectly
acquired ownership of the instrument from a person who was
entitled to enforce the instrument when loss of possession
occurred.

(2) The loss of possession was not the result of a transfer by
the person or a lawful seizure.

(3) The person cannot reasonably obtain possession of the
instrument because the instrument was destroyed, its
whereabouts cannot be determined, or it is in the wrongful
possession of an unknown person or a person that cannot be
found or is not amenable to service of process.

## § 3118 — STATUTE OF LIMITATIONS

**(a) — NOTE PAYABLE AT DEFINITE TIME**: Except as provided in
subdivision (e), an action to enforce the obligation of a
party to pay a note payable at a definite time must be
commenced within **six years after the due date or dates stated
in the note** or, if a due date is accelerated, within six
years after the accelerated due date.

**(b) — DEMAND NOTE**: Except as provided in subdivision (d) or
(e), if demand for payment is made to the maker of a note
payable on demand, an action to enforce the obligation of a
party to pay the note must be commenced within **six years
after the demand**. If no demand for payment is made to the
maker, an action to enforce the note is barred if neither
principal nor interest on the note has been paid for a
continuous period of 10 years.

**(c) — UNACCEPTED DRAFT**: An action to enforce the obligation
of a party to an unaccepted draft to pay the draft must be
commenced **within three years after dishonor of the draft or
10 years after the date of the draft, whichever period
expires first**.

**(d) — CERTIFICATE OF DEPOSIT**: An action to enforce the
obligation of the issuer of a certificate of deposit to pay
the instrument must be commenced **within six years after
demand for payment is made to the maker**, but if the
instrument states a due date and the maker is not required to
pay before that date, the six-year period begins when a demand
for payment is in effect and the due date has passed.

**(e) — CASHIER'S CHECK / CERTIFIED CHECK / TELLER'S CHECK**:
An action to enforce the obligation of a party to a cashier's
check, teller's check, traveler's check, or money order to pay
the check or money order must be commenced **within three
years after demand for payment is made to the issuer**.

**(f) — DOMESTIC OBLIGATIONS**: An action to enforce the
obligation of a party to pay a check is governed by the law
of obligations on contracts. **The cause of action accrues on
the date of the check's dishonor**.

**(g) — CONVERSION**: An action for conversion of an
instrument, for money had and received, or like action based
on conversion, for breach of warranty, and to enforce an
obligation, duty, or right arising under this division and not
governed by this section must be commenced within three years
after the cause of action accrues.

### Practical implications for SOL analysis

The § 3118 6-year SOL applies to **negotiable promissory notes**
— a longer period than the CCP § 337 4-year general contract
SOL. Practitioners must determine whether the underlying
instrument is a negotiable instrument:

- **Promissory note (auto, personal, secured)**: typically
  negotiable → § 3118 6-year SOL
- **Credit-card agreement**: typically NOT negotiable → CCP
  § 337 4-year SOL
- **Retail installment contract (RIC)**: depends on form;
  often non-negotiable consumer contract → CCP § 337
- **Cashier's check**: § 3118(e) 3-year SOL

## Defenses and claims in recoupment

### § 3305 — DEFENSES AGAINST PERSON ENTITLED TO ENFORCE

(a) Except as stated in subdivision (b), the right to enforce
the obligation of a party to pay an instrument is subject to
the following:

**(1)** A defense of the obligor based on any of the following:

(A) Infancy of the obligor to the extent it is a defense to a
simple contract;

(B) Duress, lack of legal capacity, or illegality of the
transaction that, under other law, nullifies the obligation
of the obligor;

(C) Fraud that induced the obligor to sign the instrument with
neither knowledge nor reasonable opportunity to learn of its
character or its essential terms;

(D) Discharge of the obligor in insolvency proceedings.

**(2)** A defense of the obligor stated in another section of
this division or a defense of the obligor that would be
available if the person entitled to enforce the instrument
were enforcing a right to payment under a simple contract.

**(3)** A claim in recoupment of the obligor against the
original payee of the instrument if the claim arose from the
transaction that gave rise to the instrument.

**(b) — HDC LIMITATION**: The right of a holder in due course
to enforce the obligation of a party to pay the instrument is
subject to defenses of the obligor stated in subdivision (a)(1),
but is not subject to defenses of the obligor stated in
subdivision (a)(2) or claims in recoupment stated in
subdivision (a)(3) against a person other than the holder.

### Practical implication

If the plaintiff IS a holder in due course, only the "real
defenses" in § 3305(a)(1) (infancy, duress, fraud in the
factum, bankruptcy discharge) survive. The standard contract
defenses (lack of consideration, payment, etc.) and recoupment
claims are cut off.

If the plaintiff is NOT a holder in due course (the typical
debt-buyer scenario), ALL defenses and claims in recoupment
survive — including any FDCPA / Rosenthal / FDBPA violations
that arose from the underlying transaction.

## Cross-references

- `../ucc-model/Article-3.md` — Model UCC Article 3 verbatim
  text
- `CommCode-Art-9-Secured.md` — Article 9 (secured transactions);
  closely related when notes are secured
- `CCP-SOL.md` — general SOL framework
- `../../../ca-consumer-debt/references/ucc-article-9.md` —
  practitioner-facing guidance on chain of title under UCC
  Article 9 (with cross-reference to Article 3 HDC analysis)
- `../../../ca-consumer-debt/references/chain-of-title.md` —
  debt-buyer chain-of-title analysis