Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

تمرين 8

FACTS Jerome J. Bruha signed a promissory note on December 16, 2008, with Sherman County Bank. The note evidenced a promise to pay ''the principal amount of Seventy-five Thousand 00/100 ($75,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance.'' The note stated that it ''evidence[d] a revolving line of credit.'' The note contained a variable interest rate. The rate was subject to change every month and calculated on an index maintained by Sherman County Bank.
On this note, Bruha received advancements in the amount of $10,000 on December 16, 2008, $40,000 on December 17, and $1,000 on January 30, 2009. This totaled $51,000. Bruha then invested the money in accounts with a trading company, which allegedly shared management with Sherman County Bank.
There are a few typographical errors on the note. First, the maturity date on the note is February 1, 2008, which, read literally, means that the note would have matured about 10 months before Bruha signed it. Other notes he had signed stated maturity dates of February 1, 2009. Second, in a section titled ''COLLATERAL'' the note reads: ''Borrower acknowledges this Note is secured by an assignment of hedge account from Jerome Bruah [sic] to Sherman County Bank dated DATE [sic].'' Thus, Bruha's name is misspelled and a line for a date is unfilled.
Sherman County Bank eventually failed, and the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver. The FDIC then sold and assigned some of Sherman County Bank's assets to Heritage. These assets included the note signed by Bruha. Heritage sued Bruha to enforce the note.
In his answer, Bruha admitted that he signed the note but claims that he did not do it voluntarily. He claimed that Sherman County Bank had procured his signature ''by fraud and/or misrepresentation.'' Bruha also claims that the typographical errors destroyed the negotiability of the promissory note. Moreover, Bruha claims that Sherman County Bank misled him into borrowing money that, in turn, he invested with a trading company that generated trade commissions through risky and speculative commodity trading. Bruha admitted that he had not paid the note but denied that he was obligated to do so.
The district court granted summary judgment to Heritage and awarded it $61,384.67 ($51,000 plus interest) on this note. The court disallowed Bruha's defenses because, under federal law, for certain defenses to be asserted against the FDIC or its assignees, the defenses must be evidenced in writing. The court found that there was no evidence in writing of a defense that would invalidate the note. The court also concluded that the FDIC had become a holder in due course and thus not subject to most defenses. Bruha appealed.
DECISION Summary judgment is affirmed in part, reversed in part, and remanded for correction.
OPINION Connolly, J. The primary issues are whether either the holder-in-due-course rule of Nebraska's Uniform Commercial Code or federal banking law bars Bruha's defenses to the enforcement of the note.
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Bruha argues that Heritage is not a holder in due course. Similarly, he argues that the FDIC was not a holder in due course when it held the note. A holder in due course is, with some exceptions, ''immune to defenses, claims in recoupment, and claims of title that prior parties to commercial paper might assert. The holder in due course always enjoys certain pleading and proof advantages.'' So if Heritage were a holder in due course, it would enjoy an advantageous position in litigation with Bruha.
We conclude, however, thatHeritage is not a holder in due course because the note was not ''negotiable'' and article 3 of the Uniform Commercial Code does not apply to this case.
Neb. U.C.C. § 3-104(a) provides: ''Except as provided in subsections (c) and (d), 'negotiable instrument' means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.… '' (Emphasis supplied.) Here, the note fails to meet the definition of a ''negotiable instrument'' because it was not a promise ''to pay a fixed amount of money.''
Although the Uniform Commercial Code allows notes to have a variable interest rate, under § 3-104(a), the principal amount must be fixed. ''A fixed amount is an absolute requisite to negotiability.'' This is because unless a purchaser can determine how much it will be paid under the instrument, it will be unable to determine a fair price to pay for it, which defeats the basic purpose for negotiable instruments.
We applied this principle in [citation], in which we stated that ''[a] guaranty is not an agreement to pay a fixed amount and is therefore not a negotiable instrument subject to article 3 of the Nebraska Uniform Commercial Code.'' To meet the fixed amount requirement, the fixed amount generally must be determinable by reference to the instrument itself without any reference to any outside source. If reference to a separate instrument or extrinsic facts is needed to ascertain the principal due, the sum is not ''certain'' or fixed.
Here, the text of the note states that Bruha ''promises to pay … the principal amount of Seventy-five Thousand 00/100 Dollars ($75,000.00) or so much as may be outstanding.… '' Further, the note states that it ''evidences a revolving line of credit'' and that Bruha could request advances under the obligation up to $75,000. This fails the ''fixed amount of money'' requirement of § 3-104(a); one looking at the instrument itself cannot tell how much Bruha has been advanced at any given time. So, the note is not negotiable. Stated simply, ''[a] note given to secure a line of credit under which the amount of the obligation varies, depending on the extent to which the line of credit is used, is not negotiable.… ''
For a person to be a holder in due course, the instrument must be negotiable. Because the note was not a negotiable instrument, neither the FDIC nor Heritage could ever become a holder in due course of it under Nebraska law. And further, because this note is not a negotiable instrument, article 3 does not apply.
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[The Supreme Court of Nebraska reversed the district court's finding that the holder-in-due-course rule of Nebraska's Uniform Commercial Code bars Bruha's defenses. The Supreme Court, however, concluded that federal law bars Bruha's defenses and thus affirmed the district court's summary judgment in part. The Supreme Court also held that Bruha had failed show how the typographical errors had invalidated the note. But because the Supreme Court found a minor error in the district court's calculation of interest, the Supreme Court remanded the case to the district court for correction.]
INTERPRETATION To be negotiable a note must be for a fixed amount payable in money and the fixed amount generally must be determinable by reference to the instrument itself without any reference to any outside source.
CRITICAL THINKING QUESTION Do you agree with the opinion in this case? Explain.