Opinion ID: 1584969
Heading Depth: 1
Heading Rank: 2

Heading: whether the check in question contained an unconditional promise to pay?

Text: The trial court directed a verdict for the Bank at the close of all the evidence, holding as a matter of law, that the phrase typed in at the lower left corner of the check, payee must prove clear title to material, did not have the effect of making the check conditional, and that Bank was a bona fide holder in due course. This was a law question properly addressed by the trial court. Although determination of whether notice has been given is a question of fact for the jury, construction or sufficiency of the notice is for the court. Great Central Insurance Co. v. Bowery Savings Bank, 142 Ga.App. 630, 236 S.E.2d 772 (1977). SDCL 57A-3-104(1) sets forth four elements necessary to constitute a writing as a negotiable instrument. (a) It must be signed by the maker; (b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this chapter; (c) be payable on demand or at a definite time; and (d) be payable to order or to bearer. In this case, there is no dispute that elements (a), (c) and (d) have been fulfilled. RaDEC claims, however, that element (b) has not been met because the check was a conditional instrument and therefore subject to his defenses. RaDEC relies heavily on our decision in Bank of America v. Butterfield, 77 S.D. 170, 88 N.W.2d 909 (1958). In that case, the draft in question stated: Subject to approval of title, pay to the order of Vernon H. Butterfield and Laura E. Butterfield. It is important to note that the phrase subject to approval of title immediately precedes the standard phrase, Pay to the order of. The Bank of America, nevertheless, claimed it was a holder in due course and that the Butterfields should be held liable for the amount of the draft. In affirming the trial court we said: In addition to other requirements, an instrument to be negotiable `must contain an unconditional promise or order to pay a sum certain in money.' The promise or order to pay money contained in the draft in question is clearly not unconditional. The payment therein ordered is subject to approval of title. Consequently, it is not a negotiable instrument. Negotiability is determined from the face, the four corners, of the instrument without reference to extrinsic facts. The conditional or unconditional character of the promise or order is to be determined by what is expressed in the instrument itself. Holsonback v. First State Bank, etc., 394 So.2d 381 (Ala.Civ.App.1980). RaDEC claims that the check was not a negotiable instrument because of the condition written on its face. Moreover, RaDEC argues that the location of the conditional language in the place usually reserved for memo is of little consequence, since the language itself was sufficient to give Bank notice that RaDEC's obligation to pay was conditioned upon Carpet Center's having proved clear title to the material. The Bank, on the other hand, argues that the instant factual situation can be distinguished from that of Bank of America, supra, because in that case the conditional language, i.e., subject to approval of title, preceded the words Pay to the Order of the Butterfields. Further, a witness for the Bank testified that RaDEC's conditional phrase was located at the place reserved for memos by the maker or drawer of the check, and as such were not calculated to draw the specific attention of the Bank's personnel in the ordinary day to day processing of checks. We conclude that the phrase payee must prove clear title to material written where it was, did not make the check conditional thereby depriving the Bank of its status as a holder in due course. It appears that the notation in the memo area of the check is nothing more than a self-serving declaration by RaDEC for its own benefit and record keeping and for informational purposes only. An otherwise unconditional negotiable instrument cannot be rendered conditional by such a device. What was written by the Minnesota Supreme Court in Eldon's Super Fresh Stores, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 296 Minn. 130, 207 N.W.2d 282 (Minn.1973), is pertinent here: Courts are often confronted with the obligation of applying rules to determine which of two relatively innocent persons must suffer a loss due to misconduct of a third person. The instant case is such a situation. The Minnesota cases dealing with situations such as the one at bar have indicated that the loss must fall on the drawer rather than upon the payee (or other holder) because it was the drawer who created the situation and opportunity for defalcation by its agents.