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Business Law Chapter 25 Homework The Court Held That The Instrument Implied

Page Count
4 pages
Word Count
2050 words
Book Title
Business Law: Text and Cases 14th Edition
Authors
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 25
NEGOTIABLE INSTRUMENTS
25-1A. Bearer instruments
The court held that lottery tickets were not governed by the UCC but by the state lottery statute,
which applied even though the UCC applies to commercial transactions in general. Because
the lottery statute required that presentment of the winning ticket was a condition precedent to
winning the lottery prize, Ramirez was not eligible to collect the prize. The court noted that even
25-2A. Requirements for negotiation
This case was decided under the unrevised Article 3, but the result under the revised Article 3
would likely be the same. The court held that the note was not negotiable. The court pointed
out that UCC 3105(2) of the unrevised Article 3 (UCC 3106(a) of the revised Article 3)
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERSCHAPTER 25
25-3A. Requirements for negotiation
This case was decided under the unrevised Article 3, but the result under the revised Article 3
would be the same. The court held that the notes were negotiable. The court explained that the
unrevised UCC 3–106 “does not explicitly mention variable rate notes (‘VRNs’) because when
the U.C.C. was developed in the 1950s and adopted in the 1960s, VRNs were virtually
unknown. The necessity for VRNs came about as a result of the volatile financial markets of the
late 1970s. By the mid-1980s, VRNs accounted for 60% of the total loans made in this country.
That dominance in the financial markets has continued into the 1990s.” The court noted that
“[t]he majority of courts which have addressed the issue before us have declined to hold that
notes which contain variable interest rates are negotiable instruments.” But “the better
reasoned view is reflected in the opinions of those courts which have held that VRNs do meet
the sum certain requirement [of UCC 3–106] and thus are negotiable instruments.” The court
reasoned that “[a] VRN which contains provision for interest to be paid at a variable rate that is
readily ascertainable by reference to a bank’s published prime rate is compatible with the
Code’s objective of commercial certainty. The Code does not require ‘mathematical certainty’
but only ‘commercial certainty.’ Commercial certainty serves the purpose of the law of
negotiable instruments, which is to make the instrument the functional equivalent of money. If
25-4A. Undated instruments
No. The appellate court held that the note was nonnegotiable because although a time in-
strument was intended, the time for payment was not certain, because the maturity of the
ninety-day note could not be determined. The court, however, was quick to point out that this
fact did not mean that the defendants were not liable. The defendants had hired Appliances and
signed the note to have Appliances perform certain services. By accepting the note and
performing the services, Appliances created a binding agreement between itself and the defen-
dants, enforceable under basic contract law.
25-5A. Requirements for negotiation
No. The court granted the FDIC’s motion for summary judgment. The court pointed out that “[t]o
constitute a negotiable instrument, a document must * * * contain an unconditional promise to
pay.” The court acknowledged that “Patricia Fink and LaVonne Schroer executed separate
documents apart from the promissory notes that they guaranteed.” The court concluded,
however, that neither guaranty contained an “unconditional promise” to pay a fixed amount.
Thus, according to the court, “[n]either guaranty is a negotiable instrument.”
25-6A. Negotiable versus nonnegotiable instruments
If the instrument was a bearer instrument, then Broadway’s possession qualified it as a holder.
If it was an order instrument, wherein a specifically named payee must be determined upon the
25-7A. Negotiability
Regent filed a motion for summary judgment, which the court granted. The court found that each
draft declared on its face that it was payable a specified number of days after the bill of lading
date, which was on another writing. For this reason, the drafts were nonnegotiable instruments.
On appeal, a state intermediate appellate court reversed this part of the judgment. The court
acknowledged that a negotiable instrument must “be payable on demand or at a definite time.”
“Definite time” is defined in part by UCC 3–109(1)(b) as “a fixed period after sight.” The court
reasoned that “[w]hile the indicia of negotiability must be visible on the face of the instrument, a
note containing an otherwise unconditional promise is not made conditional merely because it
25-8A. Words versus figures
The court held that Galatia Bank was entitled to rely on the imprinted section of the check. UCC
3114 indicates that words control figures unless the words are ambiguous, and handwritten
terms control typewritten and printed terms, and typewritten control printed. The question here
was whether handwritten figures control printing. The court explained that “the purposes of the
U.C.C. are best served by considering an amount imprinted by a checkwriting machine as
‘words’ for the purpose of resolving an ambiguity between that amount and an amount entered
upon the line usually used to express the amount in figures.” The court reasoned that “[a] prime
purpose, as we see it, of making a sum payable when expressed in words controlling over the
B-4 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERSCHAPTER 25
amount and an amount entered upon the line usually used to express the amount in figures.”
The court also indicated that a portion of a check written by a checkwriting machine should be
25-9A. Fixed amount of money
The Texas state trial court ruled in favor of Remington on this issue, but the Court of Appeals of
Texas (Dallas) reversed. The appellate court held, among other things, that the note did not
provide for payment of a fixed amount of money (“a sum certain”) and thus was not a negotiable
instrument. The court explained that after Forestwood failed, there was no “lender’s prime rate”
25-10A. Negotiability
The court issued a judgment in favor of Babcock and Honest Air, based in part on a deter-
mination that the RISC was a negotiable instrument. GMAC appealed to a state intermediate
appellate court, which concluded that the RISC was not a negotiable instrument. The appellate
court pointed out that under the UCC, to be negotiable an instrument must contain “an
unconditional promise or order to pay.” Its payment cannot be conditioned on the occurrence or
nonoccurrence of some other event or agreement. In this case, the RISC imposed a series of
obligations on the buyers and the seller. Among other things, the buyers could not take the car

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