Question

FP Operating Partners, L.P. (FFP Operating) operates a number of convenience stores and gas stations. FFP Operating executed 31 promissory notes in favor of Franchise Mortgage Acceptance Company (FMAC). In connection with the notes, FFP Marketing Company, Inc. (FFP Marketing), executed guaranties of payment in favor of FMAC for all 31 notes. Loan and security agreements were also executed in connection with all 31 transactions. The promissory notes incorporated by reference the loan, security, and guaranty agreements, which included waivers, consents, and acknowledgments. Long Lane Master Trust IV (LLMT) became a successor in interest to FMAC with respect to the promissory notes, guaranties, and associated loan documents.

FFP Operating failed to make payments on the notes to LLMT. LLMT gave notice to FFP Operating of the default, accelerated the obligations under the promissory notes, and demanded payment. The notes went unpaid. The outstanding principal of the notes was $13,212,199, with unpaid interest of $1,488,899. LLMT filed suit against FFP Operating and FFP Marketing. LLMT filed a motion for summary judgment on its claim of default under the 31 promissory notes and guaranties for the amount due. FFP Operating declared bankruptcy and was dismissed from this case.

Topic Questions:

1. Why does LLMT want the notes to be found to be negotiable instruments?
2. Are the 31 promissory notes negotiable instruments that can be enforced against FFP Marketing?

Answer 1

1. Since LLMT was an fascinating successor to FMAC, they wanted the maximum profit from the notes which they wanted to use to their advantage.

2. No. The thirty-one promissory notes are neither negotiable nor enforceable against FFP Marketing Business, Inc. (FFP). A promissory note must be a negotiable instrument, in order to be subject to the Uniform Commercial Code (UCC) governance. A promissory note is a negotiable instrument subject to the UCC if it is an unconditional written commitment to pay a certain amount of money, on demand or at a certain date, and is payable to the issuer by the orderer. The notes held by Long Lane Master Trust IV (LLMT) loosely describe, in the case before us, the duty of the author to fulfill obligations contained beyond the four corners of the notes. This defeats the amount of such requirement, as the extent of the liability of the creator can not be calculated from the face of each note. Moreover, the notes lack the requirement for an unconditional commitment since each note explicitly "incorporates by comparison" the terms of other documents, allowing one to review certain documents to decide if they impose payment conditions. The appeals court ruled that the 31 promissory notes were non-negotiable instruments and that the UCC's rules on negotiable instruments did not apply.

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