Court Opinion

ID: 9580414
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:04:44.41577+00
Date Added: 2024-06-11T13:36:15.854889
License: Public Domain

*106COMPTON, J.,
dissenting.
The majority views the Uniform Commercial Code as inflexible, requiring legislative action to adapt to changing commercial practices. This overlooks a basic purpose of the Code, flexibility and adaptability of construction to meet developing commercial usage.
According to Code § 8.1-102(1), the UCC “shall be liberally construed and applied to promote its underlying purposes and policies.” One of such underlying purposes and policies is “to permit the continued expansion of commercial practices through custom, usage and agreement of the parties.” § 8.1-102(2)(b). Comment 1 to this section sets out clearly the intention of the drafters:
“This Act is drawn to provide flexibility so that, since it is intended to be a semipermanent piece of legislation, it will provide its own machinery for expansion of commercial practices. It is intended to make it possible for the law embodied in this Act to be developed by the courts in light of unforeseen and new circumstances and practices. However, the proper construction of the Act requires that its interpretation and application be limited to its reason.” (Emphasis added).
The majority’s rigid interpretation defeats the purpose of the Code. Nowhere in the UCC is “sum certain” defined. This absence must be interpreted in light of the expectation that commercial law continue to evolve. The § 8.3-106 exceptions could not have been intended as the exclusive list of “safe harbors,” as the drafters anticipated “unforeseen” changes in commercial practices. Instead, those exceptions represented, at the time of drafting, recognized conditions of payment which did not impair negotiability in the judgment of businessmen. To limit exceptions to those existing at that time would frustrate the “continued expansion of commercial practices” by freezing the Code in time and requiring additional legislation whenever “unforeseen and new circumstances and practices” evolve, regardless of “custom, usage, and agreement of the parties.”
“The rule requiring certainty in commercial paper was a rule of commerce before it was a rule of law. It requires commercial, not mathematical, certainty. An uncertainty which does not impair the function of negotiable instruments in the judgment of business men ought not to be regarded by the *107courts .... The whole question is, do [the provisions] render the instruments so uncertain as to destroy their fitness to pass current in the business world?” Cudahy Packing Co. v. State National Bank of St. Louis, 134 F. 538, 542, 545 (8th Cir. 1904).
Instruments providing that loan interest may be adjusted over the life of the loan routinely pass with increasing frequency in this state and many others as negotiable instruments. This Court should recognize this custom and usage, as the commercial market has, and hold these instruments to be negotiable.
The majority focuses on the requirement found in Comment 1 to § 8.3-106 that a negotiable instrument be self-contained, understood without reference to an outside source. Our cases have interpreted this to mean that reference to terms in another agreement which materially affect the instrument renders it nonnegotiable. See, e.g., McLean Bank v. Nelson, Adm’r, 232 Va. 420, 350 S.E.2d 651 (1986) (where note was accepted “pursuant” to a separate agreement, reference considered surplusage and the note negotiable); Salomonsky v. Kelly, 232 Va. 261, 349 S.E.2d 358 (1986) (where principal sum payable “as set forth” in a separate agreement, all the essential terms did not appear on the face of the instrument and the note was nonnegotiable).
The commercial market requires a self-contained instrument for negotiability so that a stranger to the original transaction will be fully apprised of its terms and will not be disadvantaged by terms not ascertainable from the instrument itself. For example, interest payable at the “current rate” leaves a holder subject to claims that the current rate was established by one bank rather than another and would disadvantage a stranger to the original transaction.
The rate which is stated in the notes in this case, however, does not similarly disadvantage a stranger to the original agreement. Anyone coming into possession could immediately ascertain the terms of the notes; interest payable at three percent above the prime rate established by the Chase Manhattan Bank of New York City. This is a third-party objective standard which is recognized as such by the commercial market. The rate can be determined by a telephone call to the bank or from published lists obtained on request. Associated East Mortgage Co. v. Highland Park, Inc., 172 Conn. 395, 406, 374 A.2d 1070, 1076 (1977); see *108Constitution Bank and Trust Company v. Robinson, 179 Conn. 232, 425 A.2d 1268 (1979).
Accordingly, I believe these notes are negotiable under the Code and I would affirm the decision below.