Court Opinion

ID: 9648667
Source: CourtListenerOpinion
Date Created: 2023-08-23 14:32:01.194109+00
Date Added: 2024-06-11T09:07:46.212895
License: Public Domain

DOGGETT, Justice,
concurring and dissenting.
I concur in the court’s acceptance of this certified question but disagree with its answer. This writing seeks to clarify the proper function of the Texas .Supreme Court in responding to such queries and to explain why the answer provided in this particular case is erroneous.
I.
In our federal system, proper deference should be given to our state courts in the *799interpretation of the unique law of each state. To further this objective the people of Texas approved a constitutional amendment specifically empowering this court to “answer questions of state law certified from a federal appellate court.” Tex. Const, art. V, § 3-c. We in turn adopted a procedure to “answer questions of law of this state which may be determinative of the cause then pending [in the certifying court when] there is no controlling precedent in the decisions of the Supreme Court of Texas” or alternatively to “decline to answer [such] questions.” Tex.R.App.P. 114(a). During the five years since adoption of this procedure, we have received eight certifications, of which five were accepted1 and three were declined.2
To some extent, each time a question is certified to a state court, the federal court is fulfilling its obligation under our federal system to respect a state’s laws. Federal courts throughout the country should also recognize the strong desire of this court to fulfill the responsibilities and opportunities afforded to us by that federalism. Each state has its own distinctive history, and that of Texas is certainly unique among all others in this union. We, like other states,3 have emphasized the “independent vitality” of our Texas Constitution and “our power and duty to protect the additional state guaranteed rights [it affords] all Texans.” LeCroy v. Hanlon, 713 S.W.2d 335, 339 (Tex.1986). We encourage federal courts to inquire concerning the resolution of doubtful questions of state law which are critical to the outcome of pending litigation. Certainly we have a strong preference for this approach rather than the alternative— an incorrect federal surmise regarding how we would resolve a matter of disputed Texas law. Such federal errors would only serve to make our work more difficult by leading to misreliance on federal precedents by both the bench and bar.
In addressing properly presented queries regarding state law, we should not, however, be viewed as a mere adjunct of the federal judiciary. Such a misconception of our role4 apparently formed the basis for the recent comments that:
while certification is a useful means of giving the state’s highest courts an opportunity to decide cases of first impression involving state law, the Texas Supreme Court has evinced a mysterious reluctance to accept questions of first impression that we have recently submitted to it for decision. E.g., Hotvedt v. Schlumberger Ltd. (N.V.), 925 F.2d 119 (5th Cir.1991) (certification subsequently rejected); Exxon Co., U.S.A. v. Banque de Paris et des Pays-Bas, 889 F.2d 674, 676 (5th Cir.1989), cert. denied, 496 U.S. 943 [110 S.Ct. 3230, 110 L.Ed.2d 676] (1990).... Additionally, the amount of time taken by that court in deciding to reject a certification has been, at times, frustratingly long. E.g., Reliance Ins. Co. v. Capital Bancshares, Inc./Capital Bank, 912 F.2d 756 (5th Cir.1990) (eleven months).
Jackson v. Freightliner Corp., No. 90-7092, slip op. 5171, 5174-75 (5th Cir. Aug. 7, 1991), published as modified, 938 F.2d *80040 (5th Cir.1991). Whether this criticism reflects the true sentiments of some members of the Fifth Circuit5 or only a clerical mishap,6 our commitment to addressing certified questions expeditiously but independently should be reaffirmed.
Although this court has never expressed “reluctance” to answer certified questions, there have been appropriate reasons for declining some requests. Response to a certified question is inappropriate when the factual record is not adequately developed. See Exxon Co., supra.7 Further, when the federal court has already properly resolved the legal issue, a writing by this court may be unnecessary. For example, see Hotvedt v. Schlumberger Ltd., 925 F.2d 119 (5th Cir.1991),8 and Reliance Insurance Co. v. Capital Bancshares, Inc., 912 F.2d 756 (5th Cir.1990).9 Additionally, we must make an independent determination for each certification that the matter involved is of general 'importance to the jurisprudence of the state.10
Whatever our response, it should be provided expeditiously. Contrary to the observation in Jackson, we have generally accomplished this objective. With one exception,11 this court has taken an average of about three months to decide whether or not to answer the questions certified. While this represents a response time far superior to much decisionmaking in the federal courts, it nevertheless can and should be improved. If the question involved is particularly time sensitive or deserving of immediate attention, the federal court should “request, together with supporting reasons, that expeditious treatment be accorded to a particular case.”12 The process may be delayed if, as has sometimes occurred, requests are submitted dur*801ing our summer recess. The certifying court should also ensure that any record or stipulated statement of facts forwarded are sufficient to enable a proper answer to the question.13 We want no misunderstanding concerning our willingness to cooperate fully with the federal courts to assure correct and expeditious adjudication. At the same time we know they will continue to respect our need to make independent decisions consistent with federalism.
II.
The particular question to which we respond today concerns the construction of section 3.104 of the Texas Uniform Commercial Code, which provides that a negotiable instrument must
contain an unconditional promise or order to pay a sum certain in money ...14
Although this provision does not specifically include variable rate notes in the definition of negotiable instruments, the court concludes that a promissory note requiring interest to be paid at a rate that can be determined only by reference to an interest rate not included in the note is “a negotiable instrument as defined by the Texas Uniform Commercial Code.” See p. 797. Today’s opinion conflicts with the opinion of every court that has ever interpreted this Texas statute with only one exception.15 Additionally it conflicts with the conclusion of the overwhelming majority of those courts considering the same provision in other states.
Use of an interest rate that cannot be calculated from information on the face of the note has been consistently held to violate the Texas statute’s “sum certain” requirement. See Dillard v. NCNB Texas Nat’l Bank, 815 S.W.2d 356, 360 (Tex.App.—Austin 1991, no writ) (negotiability defeated by provision for interest at “Lender’s Prime Rate Plus 2.00%” because it “precluded the calculation of a ‘sum certain in money’ ”); Lexington Ins. Co. v. Gray, 775 S.W.2d 679, 682 (Tex.App.—Austin 1989, writ denied) (note with variable interest rate set by issuer is nonnegotiable); In re Gas Reclamation, Inc. Securities Litig., 741 F.Supp. 1094, 1102-03 (S.D.N.Y.1990) (note bearing specific bank’s prime rate interest nonnegotiable under Texas law because a “holder of a negotiable instrument must be able to calculate the amount of any interest due without reference to any outside source”), appeal dism’d sub nom. Abish v. Northwestern Nat’l Ins. Co., 924 F.2d 448 (2d Cir.1991); National Union Fire Ins. Co. v. Alexander, 728 F.Supp. 192, 195, 200 (S.D.N.Y.1989) (note charging interest at “the lesser of the maximum rate allowed by law or two percent (2%) above the ‘prime rate’ then charged by the Cullen/Frost Bank of Dallas, N.A.” nonnegotiable).16
Because a rate of “[tjhree percent (3.00%) over Chase Manhattan Prime to be adjusled monthly,” though readily ascertainable from published sources, could not be found within the “four corners” of a note, it was declared nonnegotiable in Taylor v. Roeder, 234 Va. 99, 360 S.E.2d 191, 194 (1987). The Virginia Supreme Court concluded that:
[T]he drafters of the Uniform Commercial Code adopted criteria of negotiability intended to exclude an instrument which requires reference to any source outside
*802the instrument itself in order to ascertain the amount due, subject only to the exceptions specifically provided for by the U.C.C.
Id. As a further policy justification for its decision, the court noted that:
The U.C.C. introduced a degree of clarity into the law of commercial transactions which permits it to be applied by laymen daily to countless transactions.... The relative predictability of results made possible by that clarity constitutes the overriding benefit arising from its adop-tion_ Accordingly, we decline the ap-pellee’s invitation to create an exception, by judicial interpretation, in favor of instruments providing for a variable rate of interest not ascertainable from the instrument itself.
Id. 360 S.E.2d at 195.17
The effect of U.C.C. § 3-106 on a note assessing interest “at a rate of 1% above the ‘floating prime or equivalent rate’ charged ... by [the lender]” was considered recently in Chemical Bank v. D3J Associates L.P., 14 U.C.C.Rep.Serv. (Callaghan) 790, 791, 1991 WL 58049 (D.Md. April 16, 1991).18 Finding that the “vast majority” of courts deciding the question had determined that a variable interest rate provision defeated a note’s negotiability, see id. at 793, a conclusion supported by the official comment to § 3-106, see id. at 794, the court held that “a variable interest rate was not a sum certain under Maryland law and that holders of notes containing such interest rates could not be holders in due course.” Id.
Numerous other state and federal courts have reached similar conclusions. See, e.g., New Conn. Bank & Trust Co. v. Stadium Mgmt. Corp., 132 B.R. 205, 208-09 (D.Mass.1991) (an interest provision that cannot be determined without reference to an external, variable rate renders a note nonnegotiable); Northern Trust Co. v. E.T. Clancy Export Corp., 612 F.Supp. 712, 715 (N.D.Ill.1985) (where interest cannot be computed without reference to the lender’s prime rate, “the sum payable is uncertain and the instrument is nonnegotiable”); Farmers Prod. Credit Ass’n v. Arena, 145 Vt. 20, 481 A.2d 1064, 1065 (1984) (note providing for variable interest rate is nonnegotiable).19
The court today rejects all of these decisions in favor of the minority view that variable interest rate notes are included within the definition of negotiable instruments, even in the absence of specific statutory language affording them such a status. Two of the cases supporting the minority position are particularly unpersuasive, since they interpret different versions of the U.C.C., amended specifically to include variable interest rate clauses within the definition of negotiable instruments. See First City Federal Savings Bank v. Bhogaonker, 715 F.Supp. 1216 (S.D.N.Y.1989); Schwegmann Bank & Trust Co. v. Falkenberg, 931 F.2d 1081 (5th Cir.1991).20 *803Indeed, the court seems to rely on the fact that legislatures in several states have enacted such amendments following a judicial decision that variable rate notes are nonnegotiable. See pp. 795, 796. The Texas Legislature, as the court concedes, has declined to approve such an amendment. See id. Presumptuously, today’s opinion does the very work which the Texas Legislature declined.
Nor do the interest rate provisions of the promissory notes in this case appear similar even to those notes held negotiable under the minority view. This particular promissory note requires the payment of:
Interest on the principal amount remaining unpaid hereunder from time to time outstanding, at a rate per annum equal to the lesser of (a) the rate (the “Basic Rate”) which is equal to the sum of the prime interest rate (the “Prime Rate”) for short-term loans published by Lender, plus 2 percent (2%) per annum, which Basic Rate shall be variable and shall be adjusted for the term hereof, effective at the close of business on the day of any such change in the Prime Rate; or, (b) the maximum lawful rate of interest (the “Maximum Rate”) permitted by applicable usury laws... .21
In contrast to those cases upholding the negotiability of variable interest rate notes, which involved reference rates that are widely published and readily ascertainable,22 the interest that Mr. Amberboy and the other borrowers must pay cannot be readily determined by reference to a widely published rate. These notes purport to compute interest based on a short-term prime rate published by Societe de Banque Privee, the lender. However, its counsel admitted in oral argument that the lender has no published prime rate; instead, it calculates interest using the prime rate of an undisclosed third-party financial institution. These facts comport with neither the court’s answer to the certified question, nor with most of the recent statutory amendments passed in other states to allow notes with variable interest rates to be negotiable.23
*804III.
Though I disagree with the answer provided here by a majority of my colleagues, it should be clear that our court gives careful attention to disputed questions of state law. The very nature of our debate demonstrates the reason why such matters should be certified by the federal courts for our consideration.
MAUZY, HIGHTOWER and GAMMAGE, J., join in this concurring and dissenting opinion.

. In addition to the present case, this court has answered the questions certified by the Fifth Circuit in Moreno v. Sterling Drug, Inc., 787 S.W.2d 348 (Tex.1990); Humana Hosp. Corp. v. American Medical Sys., Inc., 785 S.W.2d 144 (Tex.1990); Lucas v. United States, 757 S.W.2d 687 (Tex.1988). Oral argument has recently been heard in Boyert v. Tauber, D-1885 (certified by the Fourth Circuit).

. Hotvedt v. Schlumberger Ltd., 34 Tex.Sup.Ct.J. 610 (June 5, 1991); Reliance Ins. Co. v. Capital Bancshares, Inc., 33 Tex.Sup.Ct.J. 615 (June 27, 1990); Exxon Co. U.S.A. v. Banque de Paris et des Pays-Bas, 32 Tex.Sup.Ct.J. 623, 1989 WL 240212 (Sept. 20, 1989).

. See, e.g., Commonwealth v. Edmunds, 526 Pa. 374, 586 A.2d 887, 894 & 903 (1991); State v. Ball, 124 N.H. 226, 471 A.2d 347, 350 (1983); People v. Brisendine, 13 Cal.3d 528, 119 Cal.Rptr. 315, 329-30, 531 P.2d 1099, 1113-14 (1975).

. This misconception is no doubt reinforced by the subservient philosophy sometimes espoused by members of our own court. See p. 798, n. 10; see also Bexar Cty. Sheriff's Civ. Serv. v. Davis, 802 S.W.2d 659, 669 (Tex.1990) (Doggett, J., dissenting) ("[S]tate courts share an important responsibility in assisting the federal judiciary to shape the fundamental constitutional fabric of our country.... I prefer a little more Texas thinking ... in Washington instead of waiting for Washington to think for Texas.”)

. See also Exxon Co., U.S.A. v. Banque de Paris et des Pays-Bas, 889 F.2d 674, 676 (5th Cir.1989), cert. denied, 496 U.S. 943, 110 S.Ct. 3230, 110 L.Ed.2d 676 (1990), (referring to the “Delphic refusal” of the Texas Supreme Court to answer a certified question).

. According to the opinion’s author, "[n]o such opinion ever issued from the 5th Circuit Court of Appeals_ West Publishing Company erroneously issued it.” Janet Elliott, Inter-Court Friction Bubbles Briefly to Surface: Message to State Court Vanishes from Ruling’s Official Version, Texas Lawyer, Sept. 23, 1991, at 2, 3 (quoting Judge Jerry E. Smith). West Publishing, however, indicates that the critical section was included in the slip opinion received from the Clerk of the Fifth Circuit on August 7. A subsequent notice that this paragraph had been stricken caused its deletion in the final version published at 938 F.2d 40. See id.

. Our brief order declining to answer specifically noted that a majority of this court believed that since the question presented was "dependent upon issues of fact,” 32 Tex.Sup.Ct.J. at 623, it could not be properly answered in the limited scope of the certified question procedure.

. The circumstances surrounding the Hotvedt certification are particularly curious. The issue presented had already been answered correctly based on Texas law at 914 F.2d 79 (5th Cir.1990). On rehearing the court of appeals strangely reversed its position by applying the law of California and disregarding that of Texas. See Hotvedt v. Schlumberger Ltd., 942 F.2d 294 (5th Cir.1991) (opinion on rehearing). This change occurred despite the thoughtful dissent of Judge Garza, id. at 298 (assuming that the question was declined because the Fifth Circuit had already correctly determined Texas law on the issue in its original opinion and protesting the majority’s new resort to California law).

. The question certified had already been addressed in Bank of the Southwest v. National Surety Co., 477 F.2d 73 (5th Cir.1973). After the question was declined, this precedent was followed. See Reliance Ins. Co. v. Capital Bancshares, Inc., 912 F.2d 756, 758 (5th Cir.1990) (following the district court’s application of Bank of the Southwest).

. "There are many prudential reasons ... why a [state] court may not wish to respond to particular questions at a given time. No supreme court should neglect its own docket simply to accommodate federal courts.” Chief Justice Thomas R. Phillips, Certification of Questions of Law by Federal to State Courts, Presented to the Judicial Conference of the United States, Federal-State Jurisdiction Committee 7 (Jan. 16, 1992) (Manuscript on file with the Supreme Court of Texas).

. That case, Reliance Insurance, supra, did take a period of time that is correctly characterized as “frustratingly long.” Jackson, supra. A question filed here on August 15, 1989 was not declined until June 27, 1990. At my urging internal procedural rules and reporting requirements were instituted at our court in 1990 to reduce the incidence of such mishaps. This is the only instance in which this court has taken longer than four months to accept or decline certified questions.

. Phillips, supra note 10, at 8.

. In a situation involving a record which has been substantially supplemented following the decision to certify, the certifying court should give careful consideration to modifying its certification order to comport with the supplemented record.

. Tex.Bus. & Com.Code Ann. § 3.104(a)(2).

. That one exception is Tanenbaum v. Agri-Capital, Inc., 885 F.2d 464, 468-89 (8th Cir.1989).

. In National Union Fire Insurance Co. v. Cooper, 729 F.Supp. 1423 (S.D.N.Y.1989), notes provided for interest at 10% per annum before maturity and for interest after default of “two percent (2%) above the 'prime rate’ then being charged by RepublicBank Dallas, N.A.” Id. at 1436. The court concluded that under the Texas Uniform Commercial Code, “the rate of two percent above prime would render the note[s] nonnegotiable if it applied to the entire life of the note[s].” Id. at 1437. However, since the notes did not invoke the "variable rate” provision until after default, the court distinguished the case before it from leading cases on the non-negotiability of variable rate notes.

. Accord New Conn. Bank & Trust Co. v. Stadium Mgmt. Corp., 132 B.R. 205, 209 (D.Mass.1991) ("The primary importance of the Uniform Commercial Code is the certainty and uniformity which it provides for commercial transactions.").

. As it existed in 1988, the Maryland statute contained the same language as the current Texas U.C.C. The Maryland Legislature subsequently amended this section to allow some variable interest rate provisions. See infra note 24.

. See also Morris v. Columbia Nat'l Bank of Chicago, 79 B.R. 777, 780 & n. 2 (N.D.Ill.1987) (note nonnegotiable where the interest rate was computed at 3% over the prime rate); Centerre Bank v. Campbell, 744 S.W.2d 490, 498 (Mo.Ct.App.1988) (note provision that "interest may vary with bank rates charged to [payee],’’ barred negotiability of the instrument); A. Alport & Sons, Inc. v. Hotel Evans, Inc., 65 Misc.2d 374, 317 N.Y.S.2d 937, 939-40 (N.Y.Sup.Ct.1970) (note containing the provision "with interest at bank rates” is nonnegotiable).

.In 1988, the New York legislature amended its version of § 3-106 to read:
For purposes of [§ 3-106(1) ] "a stated rate of interest” shall also include a rate of interest that cannot be calculated by looking only to the instrument but which is readily ascertainable by a reference in the instrument to a published statute, regulation, rule of court, generally accepted commercial or financial index, compendium of interest rates, or announced rate of a named financial institution.
N.Y.U.C.C. § 3-106(2) (McKinney 1991) (effective July 8, 1988). The legislative history of the bill indicated that the amendment was intended *803to encompass existing commercial practices. See Bhogaonker, 715 F.Supp. at 1219-20. This legislative enactment was dispositive of the question. Id.
This was also the case in Falkenberg. At the time the note was executed, Louisiana had a statute explicitly recognizing as negotiable any promissory note made for commercial or business purposes which contained an adjustable rate of interest. La.Rev.Stat.Ann. § 9:3509.1(A) (West 1991) ("Notwithstanding any other provisions of the law to the contrary, any person borrowing funds for commercial or business purposes ... may agree that the interest rate that is charged on the indebtedness may vary from time to time in accordance with the provisions of [ ] the promissory note_ Such conditions [shall not] destroy the negotiability of the promissory note_"), quoted at 931 F.2d at 1084.

. Ackerman v. FDIC, 930 F.2d 3, 4 n. 2 (5th Cir.1991) (emphasis added). However, a number of the promissory notes contained as exhibits in the appellate record of this case contain different language and/or terms.- Specifically, the notes differ as to (1) who, if anyone, is designated as the "Lender,” (2) whose short-term prime rate will serve as the reference rate, and (3) the percentage over prime the borrower is obligated to pay.

. See Tanenbaum, supra (rate tied to London Interbank Offered Rate ("LIBOR”)); Klehm v. Grecian Chalet, Ltd., 164 Ill.App.3d 610, 115 Ill.Dec. 662, 518 N.E.2d 187 (1987) (rate varied with minimum prime rate of New York banks published in The Wall Street Journal), Goss v. Trinity Savings & Loan Ass'n, 813 P.2d 492 (Okla.1991) (variable interest rate tied to Treasury bill rates); Bhogaonker, supra (rate tied to lender’s published rate in New York); and Falkenberg, supra (rate based on published rate of Citibank, N.Y.).

.Indeed, a review of the Notes included in the record before this court suggests that they would probably be negotiable only in Delaware, Iowa, North Dakota, Tennessee, and West Virginia. See, e.g., Del.Code Ann. tit. 6, § 3—106(1)(f) (Michie Supp.1990); Iowa Code Ann. § 554.-3106(1)(f) (West Supp.1991) (both allowing “a variable rate of interest, even though determinable with reference to a source other than the instrument"). The other states which have amended their versions of § 3-106 demand a higher level of commercial certainty. See, e.g., Fla.Stat. Ann. § 673.106(2) (West Supp.1992); Ky.Rev.Stat.Ann. § 355.3-106(2) (Michie/Bobbs-Merrill Supp.1990); Md.Com.Law Code Ann. § 3-106(2) (Michie Supp.1991); Mo. Ann.Stat. § 400.3-106(2) (Vernon Supp.1992); Nev.Rev.Stat. § 104.3106(2) (1991); Va.Code Ann. § 8.3-106(2) (Michie Supp.1991) (all requiring that the rate is "readily ascertainable by a reference in the instrument to a published statute, regulation, [rule of court,] generally accepted commercial or financial index, compen*804dium of interest rates, or announced or established rate of a named financial institution”).
Whether or not these notes would be negotiable under Louisiana statutory law is unclear. See La.Rev.Stat.Ann. § 10:3 — 106(l)(a) (West Supp.1992) (providing that "[a]n interest rate may be fixed or variable and may be stated or described in the instrument in any manner, provided that where an instrument provides for a variable interest rate such provision shall be subject to the Variable Rate Regulations promulgated by the office of financial institutions”).