The Society National Bank (Society) agreed in a promissory note to lend U.S.A. Diversified Products, Inc. (USAD) up to $2 million in the form of an operating line of credit upon which USAD could make draws of varying amounts
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The Society National Bank (Society) agreed in a promissory note to lend U.S.A. Diversified Products, Inc. (USAD) up to $2 million in the form of an operating line of credit upon which USAD could make draws of varying amounts. The outstanding balance was to be paid on April 30 of the following year. USAD defaulted on the line of credit, and Society filed a complaint against USAD. Is the promissory note negotiable? Explain. |
Explanation
If Company U had never drawn on the line of acclaim, it would have owed nothing when the agreement matured and the principal would have been zero. This is noteworthy because it showcases an important feature of the line of acclaim; one must look beyond the agreement itself to ascertain the principal owed. Because of the possibly changing principal, which is likely from such an arrangement, the line of acclaim contains no sum certain or fixed amount. In case of an incomplete unconditional pledge to pay a certain sum or fixed amount, the line of acclaim may fall outside the definition of a negotiable tool.
Verified Answer
In this case, the payable notation may not be negotiable since the agreement in this case is a limit of acclaim, on which Company U can make withdrawals of varying amounts. Indeed, the face of the note contains a notation regarding the withdrawals. Although Company U did make various withdraws on the line of acclaim, it was under no obligation to make any withdrawals.
