Question

In Re Boardwalk Marketplace    688 F. Supp 115 US District Court, Connecticut, 1987

Investors purchased interests in limited partnerships that were organized to redevelop property in Atlantic City. To finance their purchases, the investors executed promissory notes payable to American Funding Limited. The notes stated, in part:

            I will pay __ monthly installments of principal and interest, each in the amount of $________, commencing on the ____ day of _________ (estimated first payment date). Lender will notify me in writing of the first payment due date, the amount of the first payment, the date of the first payment, the date of the final payment and the amount of the final payment.

In the blanks, someone had handwritten figures representing the number of monthly payments, the amount of each payment, and an estimated date on which the payments were to begin. American Funding Limited sold these notes to various banks. When the redevelopment plan collapsed, many of the investors ceased making payments on their notes. The investors asserted that the notes were non-negotiable because the payment date was not definite. The banks argued that, whether or not the payment date was definite, equity demanded that the notes be treated as if they were negotiable so that the banks, which were innocent of all wrongdoing, could collect the money owed them. If the notes were non-negotiable, the banks’ right to collect might be defeated by claims the investors had against American Funding.

Did these notes comply with UCC requirements for negotiability? If not, should the notes be treated as if they were negotiable?

Answer 1

The UCC requirements for negotiability are as given below.

The paper must meet following criteria to be negotiable.

(a) It must be in writing.

(b) It must be signed by the maker or drawer.

(c) It must be an unconditional promise or order to pay.

(d) It must be for a fixed amount of money.

(e) It must be payable on demand or at a definite time.

(f) It must be payable to the order or bearer if it is not a check.

According to the points listed above, the notes still fulfill the condition of negotiability if the handwritten dates were acknowledged by the maker and drawer at the time of issue of notes. If the dates were written by some unconcerned person after the issue, the condition (e) is not met. However, the undated notes are still negotiable if the maker and drawer at the time of issue of the notes intended them to be negotiable. This condition is true because at the time of issue, negotiability was intended by both parties. Hence, the Banks' claim is valid.