2 UNIT FIVE: NEGOTIABLE INSTRUMENTS
If a note is the best primary evidence of the existence of a debt, what might be the best
evidence of the amount of the debt and the interest calculation? The lender’s records of
the debt are the best evidence of the amount of the debt and the interest calculation. And there
should be a witness who is familiar with the records not only as a user but also as someone with
a working acquaintance of the methods by which the records are made to testify about them.
CASE 25.2—LEGAL REASONING QUESTIONS
1. The lower court concluded that the note was non-negotiable and dismissed the bank’s
attempt to enforce it. Was this an error? Yes, the lower court in the OneWest case
committed an error when it concluded that the bank could not maintain its action simply because
it possessed a non-negotiable note.
Promissory notes are commonly assigned from one lender, or payee, to another.
Assignment does not affect the maker’s obligation to pay the note as promised. Thus, generally,
the assignee of a non-negotiable note takes it with all of the rights that the assignor had to
enforce it, and subject to all of the defenses that the debtor had against the assignor at the time
of the assignment. An assignee may not be a holder in due course, and so other defenses may
apply, but the assignee may still be able to enforce a non-negotiable instrument.
In this case, the defendants signed a note that contained an acceleration clause and a
2. Suppose that the note in this case had stated, “The terms of the mortgage are by this
reference made a part hereof.” Would the result have been different? If the note in the
OneWest case had stated, “The terms of the mortgage are by this reference made a part
hereof,” the result might not have been different—the negotiability of the note would not have
affected the bank’s ability to enforce it—but the appellate court’s conclusion about the
negotiability would likely have been different.
Here, three borrowers signed a note that included a reference to a mortgage, which
“describes how and under what conditions” acceleration may be invoked. The payee assigned
the note to OneWest Bank. When the debtors defaulted on the payments, the bank asked a
state court to enforce the note. The defendants responded that the note’s reference to the