Fixed Amount of Money. William Bailey and William Vaught, as officers for Bailey, Vaught, Robertson, and Co (BVR), signed a promissory note to borrow $34,000 from the Forestwood National Bank. The interest rate was variable: "the lender's published

Question

prime rate" plus 1 percent. Forestwood went out of business, and ultimately, the note was acquired by Remington Investments, Inc When BVR failed to make payments, Remington filed a suit in a Texas state court against BVR. BVR contended in part that the note was not negotiable because after Forestwood closed, there was no "published lender's prime rate" to use to calculate the interest. Did the note provide for payment of a "fixed amount of money"? Discuss fully.

Answer 1

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" from which to calculate the interest. "Because the amount due could not be determined with commercial certainty, the note was not a negotiable instrument." Ultimately, because the note was nonnegotiable, BVR's personal defenses operated to block its liability on the note. The court limited its holding, however, adding that "this opinion should not be construed as holding that no amount due may be calculated for the note."