978-1285770178 Lecture Note BL ComLaw 1e IM-Ch12 Part 2

10 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

whole or in part.

demand term.

whole or in part.

CASE SYNOPSIS—

Case 12.3: Las Vegas Sands, LLC v. Nehme

Amine Nehme applied for credit at the Venetian Resort Hotel Casino in Las Vegas and was granted

$500,000 in credit. He soon accrued more than $1.2 million in gambling debts, which he paid. About a year

later, Nehme deposited $1,000 with the Venetian and signed a marker for $500,000. Nehme quickly lost that

amount gambling. The Venetian presented the marker for payment to Bank of America, Nehme’s bank, which

returned it for insufficient funds. The casino’s owner, Las Vegas Sands, applied Nehme’s deposit against the

marker and filed a suit to recover the remainder—$499,000—plus interest, for failure to pay a negotiable

instrument. A federal district court issued a summary judgment in the Venetian’s favor. Nehme appealed.

The U.S. Court of Appeals for the Ninth Circuit agreed with the lower court that the marker was a

negotiable instrument. The marker fit the UCC’s definitions of negotiable instrument and check. It is a means

for payment of $500,000 from Bank of America to the order of the Venetian. It does not state a time for

payment and thus is payable on demand. It is unconditional and states no “undertaking” by Nehme in addition

to the payment of a fixed amount of money. The Venetian can enforce the marker against Nehme unless he

can establish a defense to liability. To determine whether he could establish a defense, the appellate court

reversed the lower court’s judgment and remanded the case for a trial.

………………….………………….………………….………………….………………………..……..…………………

Notes and Questions

To obtain credit, Nehme filled out a credit application that stated the Venetian “endorses

responsible gaming. We will cancel or reduce your credit line upon your request.” Nehme’s attorney

later wrote a letter to the casino, asking that no further credit be extended to Nehme. In defense to the

casino’s suit, Nehme claimed that by later granting him credit for $500,000, the casino breached the

terms of the credit application. How might the Venetian have breached its credit application

agreement with Nehme? There are a couple of possibilities. If the casino simply failed to cancel Nehme’s

credit line on receipt of Bennett’s letter, this would have breached the promise to “cancel or reduce your credit

line upon your request.” If, however, the casino had canceled the credit line and simply reinstated it when

Nehme signed the marker, this would have made the promise to ensure “responsible gaming” illusory. In

either situation, Nehme’s duty to pay the maker would be discharged.

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?”

QUESTION IN CASE 12.3

CHAPTER 12: THE FUNCTION AND CREATION OF NEGOTIABLE INSTRUMENTS 13

whole or in part.

In a case decided in 1920, the Kentucky Court of Appeals (Kentucky’s highest state court until 1976)

stated that “the rule is well settled that the name of the payee may be left blank, which makes the instrument

payable in effect to the bearer” [Finley v. Rose, 189 Ky. 359, 224 S.W. 1059 (1920)]. Under the UCC, which

Kentucky adopted in 1958, this rule was superseded. Comment 2 to UCC 3–111 explains that the drafters of

the UCC reworded parts of Section 9 of the Uniform Negotiable Instruments Law in drafting UCC 3–111 “to

remove any possible implication that ‘Pay to the order of _____’ makes the instrument payable to bearer. It

is an incomplete order instrument, and falls under Section 3–115.”

In a case decided in 1992, the Court of Appeals of Kentucky held that a note with the name of the payee

left blank was not a bearer instrument. In 1984, Aubrey and Jessie Davis were married. Aubrey allegedly

gave his mother, Eva Davis, a note for $12,000 as payment for property in 1985. Aubrey died in 1987, Eva in

1988. Darrell Davis (Aubrey’s son by a previous marriage), claimed that Eva had given him the note. The note

had been written on a preprinted bank form, but the bank’s name was scratched out, as was the town. The

note had been dated and signed by Aubrey, but no payee was indicated. Darrell sought payment from Jessie,

alleging that he was the holder of a bearer instrument. Jessie refused to pay, claiming that Darrell had no

ownership rights in the note. She also claimed that the note could not be enforced because it had been

materially altered. The trial court held that the note was a bearer instrument and granted summary judgment

for Darrell. Jessie appealed.

The state intermediate appellate court reversed. The court pointed out that UCC 3–111 describes a

bearer instrument as “[a]n instrument * * * payable to bearer [that] by its terms it is payable to (a) bearer or the

order of bearer; or (b) a specified person or bearer; or (c) ‘cash’ or the order of ‘cash,’ or any other indication

which does not purport to designate a specific payee.” The court reasoned that the note was not a bearer in–

strument under any of these definitions. The instrument was incomplete and could not be enforced until it was

completed. Because there was no indication that Aubrey had authorized anyone to complete the note, the

note was unenforceable [Davis v. Davis, 838 S.W.2d 415 (Ky.App. 1992)].

Would the result in this case have been different if it had been decided under revised Article 3?

Probably not. The phrasing of UCC 3–111 (the section under which the Davis case was decided) is not

distinctly different from the phrasing of UCC 3–109—revised Article 3’s related section, which states in part

that “[a] promise or order is payable to bearer if it: states that it is payable to bearer or to the order of bearer

or otherwise indicates that the person in possession of the promise or order is entitled to payment; does not

state a payee; or states that it is payable to or to the order of cash or otherwise indicates that it is not payable

to an identified person.”

a. Can Be Payable to Nonexistent Person

An instrument that “indicates that it is not payable to an identified person” (“X” or “Captain

America”) is a bearer instrument [UCC 3–109(a)(3)].

Factors not affecting negotiability include —

14 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

• The fact that an instrument is undated, unless the date of an instrument is necessary to determine a

definite time for payment [UCC 3–113(b)].

• Postdating or antedating an instrument [UCC 3–113(a)].

• Handwritten terms (in fact, handwritten terms control typewritten and printed terms, and typewritten

terms control those that are printed [UCC 3–114].

• The use of words (in fact, words control figures unless the words are ambiguous [UCC 3–114].

• A provision for interest at an unspecified rate (the rate would then be the judgment rate at the place of

payment and runs from the date of the instrument or, if undated, from the date of its issue [UCC 3–

112(b)]).

whole or in part.

who possesses that note or check is the bearer. One of the most common methods of creating a bearer instrument is

a negotiable instrument is used as a cash-substitute. Drafts, promissory notes, and certificates of deposit that are

payable either on demand or on some specified date in the future are other examples of negotiable instruments that

may be used in place of cash.

Negotiable instruments may represent an extension of credit. If a buyer gives a seller a promissory note, the

4. What are the requirements for an instrument to be negotiable? For an instrument to be negotiable, it must

meet the following requirements: (1) be in writing, (2) be signed by the maker or the drawer, (3) be an unconditional

promise or order to pay, (4) state a fixed amount of money, (5) be payable on demand or at a definite time, and (6) be

payable to order or to bearer, unless it is a check.

object on which the writing is placed (such as the hide of a cow) can be moved, it may be unsatisfactory because it is

commercially impractical.

6. What sort of signature is required by the UCC to create a negotiable instrument? UCC 1–201(39) defines

the word “signed” as including “any symbol executed or adopted by a party with present intention to authenticate a

7. Must a negotiable instrument contain a promise or order to pay? Yes. All negotiable instruments must con-

tain an express order or promise to pay. A mere acknowledgment of the debt, which might logically imply a promise,

is not enough under the UCC to create a negotiable instrument because the promise must be an affirmative

undertaking that is apparent on the face of the instrument.

whole or in part.

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whole or in part.

 ISSUE SPOTTERS 

1. Sasha owes $600 to Yale, who asks Sasha to sign an instrument for the debt. Suppose that each

of the following is included on that instrument: “I.O.U. $600,” “I promise to pay $600,” or an

instruction to Sasha’s bank stating, “I wish you would pay $600 to Yale.” Which of these phrases

would prevent the instrument’s negotiability? Why? A statement that “I.O.U.” money (or anything else) or

an instruction to a bank stating, “I wish you would pay,” would render any instrument nonnegotiable. To be

negotiable, an instrument must contain an express promise to pay. An I.O.U. is only an acknowledgment of

indebtedness. An order stating, “I wish you would pay,” is not sufficiently precise.

2. Marit worked for Town & Garden, a landscape design service, owned by Donald. Marit signed a

note payable to Donald to become a co-owner of Town & Garden. The note, which was undated,

required installment payments, but Donald never asked for them. Is Marit’s note a demand note?

Explain. Yes. Instruments that are payable on demand may state “Payable on demand.” The nature of an

instrument may indicate that it is payable on demand. If no time for payment is specified, then the instrument

is also payable on demand. Here, the note required installments but did not state a date for their payment.

That Donald did not make a demand for payment did not affect this characteristic of the note.

