The Florida Bar
www.floridabar.org
The Florida Bar Journal
March, 2014 Volume 88, No. 3
Negotiability of Promissory Notes in Foreclosure Cases: Ballast Is Not Luggage

by William H. Burgess III

Page 8

The negotiability of promissory notes in mortgage foreclosure cases is the subject of extensive litigation in Florida courts. The central issue is what instructions or undertakings on a note destroy its negotiability. Arguing against the negotiability of the note has of late become an important defense against foreclosure. If the note is not negotiable, and the plaintiff is not the original maker of the note, the plaintiff cannot establish standing merely by possession of the original note endorsed in blank. The plaintiff must instead show it has the right to foreclose on the note through a series of assignments running in an unbroken line from the originator of the note to the plaintiff. This can be a cumbersome task when the foreclosure occurs years after the note was created and the note has passed through several hands. In some cases, this may be impossible for the plaintiff to accomplish due to gaps in record-keeping.1

Florida’s Uniform Commercial Code
Negotiability of promissory notes is governed by Florida’s Uniform Commercial Code, F.S. Ch. 670-80.2 The code is intended to facilitate commerce within the state of Florida. F.S. §671.102(1) provides that the code shall be liberally construed to promote the following underlying purposes and policies:

(a) To simplify, clarify, and modernize the law governing commercial transactions.

(b) To permit the continued expansion of commercial practices through custom, usage, and agreement of the parties.

(c) To make uniform the law among the various jurisdictions.3

Except as otherwise prohibited, the code’s provisions may be varied by agreement.4

The code is flexible. While the obligations of good faith, diligence, reasonableness, and care may not be disclaimed by agreement, the parties may determine the standards by which the performance of such obligations are to be measured if such standards are not manifestly unreasonable. Whenever the code requires an action to be taken within a reasonable time, a time that is not manifestly unreasonable may be fixed by agreement.5 Likewise, the code’s use of the phrase “unless otherwise agreed” or words of similar import does not imply that the effect of other provisions may not be varied by agreement.6

The code draws from longstanding historical experience.7 F.S. §671.103 provides that, unless displaced by the particular provisions of the code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.8 The concept of “displacement” allows the code to abrogate common law rules without requiring unequivocal, explicit reference to the common law in each statutory section that effects a modification.9 The result is that, although general principles of law and equity are applicable to supplement the provisions of the code, they will not prevail when in conflict with code provisions.10

The code provides a clear definition of negotiability. F.S. §673.1041(1) defines “negotiable instrument” as follows:

(1) Except as provided in subsections (3),11 (4),12 and (11),13 the term “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(a) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(b) Is payable on demand or at a definite time; and

(c) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain:

1. An undertaking or power to give, maintain, or protect collateral to secure payment;

2. An authorization or power to the holder to confess judgment or realize on or dispose of collateral; or

3. A waiver of the benefit of any law intended for the advantage or protection of an obligor.14

Negotiability under the code does not preclude instructions or undertakings on a note, but encourages the proper use of them. While superfluous undertakings or instructions are generally discouraged, those that strengthen the obligation to pay but do not have independent value are not. The instructions or undertakings on a promissory note should, therefore, be interpreted in light of the purposes they serve. The test is that if an instruction or undertaking serves any of the purposes of simplification, clarification, modernization, expansion, and uniformity listed in §673.1041(1)(c), then by definition it does not adversely affect the negotiability of the note.

Law Merchant
The historic role and influence of the law merchant provides a broad context for understanding negotiability under the code. The law merchant is a body of private commercial law that developed in Europe and its trading areas over the past millenium. The law merchant reflects business practice and usage, and comprises objective and impartial laws that support and reinforce business practice and do not supercede it. Determinations under the law merchant originally were conducted through private, largely informal, merchant courts located in the commercial areas of seaports and trading centers. The law merchant was subsequently absorbed into English common law, which in the 14th century resulted in the codification of the Carta Mercatoria. By the 17th century, the merchant courts were absorbed into the official government courts of England. From England, the law merchant spread to the North American colonies and was partially codified in the statutory law of negotiable instruments and, later, in the Uniform Commercial Code. The law merchant and its progeny reflect the fact that the private sector is the primary source of law for the support of a market system. Customary law’s authority to “govern” most commercial interaction is based on voluntary recognition of rules of obligation because of reciprocal gains from such recognition. Customary law promotes order in commercial activities, and so serves the public interest.15

Unconditionality
Generally stated, to be negotiable in a commercial sense, a promissory note “must be free from contingencies of conditions that would embarrass it in its course; for a memorandum to control it, though endorsed on it, would be incorporated with it and destroy it. But a memorandum which is merely directory or collateral, will not affect it.”16

The obvious purpose of an instruction or undertaking in a promissory note must be taken as a whole to determine its meaning.17 Thus it is that even when such instructions or undertakings are prohibitive, they may not always prove fatal to negotiability. Negotiability is not destroyed, for example, by language of instruction or undertaking that reflects pre-existing lawful authority, as such language adds nothing and is considered surplusage.18 Directory language in a note will not alter a note’s negotiability.19 In a similar vein, an instruction or undertaking that is self-contradicting or creates an impossibility is treated as a nullity.20

Generally, a promise or order is conditional if the instrument states that it is subject to or governed by another agreement.21 The law draws a distinction, however, between collateral instruments qualifying the terms of negotiable instruments and collateral instruments destroying the negotiability of negotiable instruments.22 Mere recitals of the existence of a separate agreement or references to it for information do not affect negotiability.23 A mortgage and note executed at the same time in one transaction are read together as one contract, but references in the note to the mortgage are not fatal to the negotiability of the note.24 A loan modification that changes the principal, interest rate, and maturity date of the original note does not change the negotiability of the note, as such modifications involve no other undertakings aside from security for the note’s repayment.25 On the other hand, a note containing a statement that it was given for stock and is not transferable unless the certificate of stock was attached thereto is not negotiable.26 A forfeiture clause dealing with matters beyond the payment of money will also render a note non-negotiable.27

The policy of the law favors the free circulation of commercial paper, and the court should not hold any provision fatal to the negotiability of such paper which, by general usage of the business world, does not have that effect.28 Conversely, a provision that does not favor free circulation — such as one that leaves the amount uncertain or conditional, or is so carelessly written as to be subject to alterations that do not arouse suspicion as to amount — would be fatal to negotiability.29 “The negotiability of notes and drafts is favored in law, and, whenever the promise can be held unconditional without doing violence to the ordinary meaning of the language used, it will be so held.”30

Certainty
In addition to unconditionality, certainty strikes at the core of negotiability of a note. Federal district Judge Charles Fremont Amidon put the rule of certainty in context in 1904 when he wrote:

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 functions of negotiable instruments in the judgment of business men ought not to be regarded by the courts. The fine phrase of Chief Justice Gibson…that a negotiable instrument “is a courier without luggage,” has been made to do much service in the discussion of this subject. The real question, however, is who shall determine what constitutes “luggage”: the business world, or the judge in his library? In no branch of the law has the sound judgment of the English courts shown itself more conspicuously than in the treatment of this subject. Whenever a new instrument, varying in some of its features from the ordinary promissory note or bill of exchange, has been presented for admission to the class of commercial paper, those courts have called for their guidance men from the actual business world, best qualified to speak on the subject. If, from their evidence, it has appeared that the instrument in question was by the general custom and practice of the business world treated as a negotiable instrument, the court has given effect to that usage, and adjudged the instrument to be subject to the same law as other negotiable paper.31

Commercial certainty may be defined generally as that “degree of certainty which would be sufficient to satisfy a business man of average business intelligence.”32 A recital in a promissory note that destroys its negotiability must, therefore, be of a kind that in some respect qualifies or makes uncertain or conditional the promise.33

Within the bounds of reason, then, liberality of construction must be exercised in favor of negotiability.34

Specific Challenges to Negotiability in the Context of Foreclosure
Courtroom challenges to negotiability are usually tied to the specific language of the promissory note at issue in a given foreclosure case. For purposes of illustration, the standardized terms of the Florida Fixed Rate Note — Single Family — Fannie Mae/Freddie Mac Uniform Instrument Form 3210 will be used to illustrate the principal challenges to negotiability of promissory notes in mortgage foreclosure cases.

Charging Interest
The argument is sometimes made that the provision for interest payments in §2 of the note defeats the negotiability of the note because it renders uncertain the amount owed. Of all of the arguments against negotiability, this is probably the weakest. On its face, F.S §673.1041(1) defines a negotiable instrument as an unconditional promise or order to pay “a fixed amount of money, with or without interest or other charges described in the promise or order.35 A provision in a note calling for the payment of interest, thus, cannot as a matter of law destroy the negotiability of the note.

Time and Place of Payments
The standard language of §3(A) of the note sets forth the time and place of payments, and reads as follows:

I will pay principal and interest by making a payment every month.

I will make my monthly payments on the _____ day of each month beginning on _______________. I will make these payments every month until I have paid all of the principal and interest and any other charges described below that I may owe under this Note. Each month payment will be applied as of its scheduled due date and will be applied to interest before Principal. If, on _______________, I still owe amounts under this Note, I will pay those amounts in full on that date, which is called the “Maturity Date.”

I will make my monthly payments at _______________ or at a different place if required by the Note Holder.

The challenge often mounted is that this section destroys the precision of the amount owed and thereby destroys the note’s negotiability. The requirement of precision in the amount of negotiable instruments applies to the principal amount, and not to ancillary and incidental additions of interest or exchange.36 The fact that a note is subject to a fixed interest rate does not render the amount to be paid uncertain.37 Similarly, a provision for periodical payment of interest before the due date of the principal does not destroy negotiability.38 The provisions of this clause do not, in any event, adversely affect the negotiability of the note.39 The language is merely directory and follows the express intent of the parties to the note. It adds no additional cost or burden to the borrower and is consistent with the purpose of maintaining or protecting the collateral to secure payment.

Prepayment
The standardized language of §4 of the note allows the borrower the right to prepay, and reads in full:

I have the right to make payments of Principal at any time before they are due. A payment of Principal only is known as a “Prepayment.” When I make a Prepayment, I will tell the Note Holder in writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all of the monthly payments due under the Note.

I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under the Note. However, the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment account, before applying my Prepayment to reduce the Principal amount of the Note. If I make a partial Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the Note Holder agrees in writing to those changes.

The right of the borrower to prepay under the note does not constitute an “other instruction or undertaking” that adversely affects the negotiability of the note. To the contrary, the right of prepayment is a voluntary option that the borrower may elect to exercise solely at his or her discretion. It confers a benefit, and not a burden, upon the borrower, who can freely choose to decline the opportunity. The fact that the borrower must notify the lender in the event that he or she opts for prepayment imposes no additional liability on the borrower and is not a condition placed on the borrower’s promise to pay. Rather, notification is simply a requirement of the exercise of the right of prepayment that the borrower is free to accept or reject. The requirement does not render the note non-negotiable.40

Usury Savings Clause
The standardized language of §5 of the note is the usury savings clause, and reads in full as follows:

If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceed permitted limits will be refunded to me. The Note Holder may choose to make this refund by reducing the Principal I owe under the Note or by making a direct payment to me. If a refund reduces Principal, the reduction will be treated as a partial Payment.

It is sometimes asserted that this section renders the note non-negotiable because it makes it impossible to determine the “fixed amount of money” owed under the note, and because it requires reference to an outside source — the statutes and case law governing maximum charges on loans — to determine the amount of money due under the note. This position is erroneous, for several reasons.

The Florida Legislature has abrogated the old “four corners rule” of certainty with the addition to F.S. §673.1041(1) of the words “with or without interest or other charges.”41 The requirement of precision in the amount of negotiable instruments applies to the principal amount, and not to ancillary and incidental additions of interest or exchange.42 The fact that a note is subject to a fixed interest rate does not render the amount to be paid uncertain.43 Similarly, a provision for periodical payment of interest before the due date of the principal does not destroy negotiability.44

The code’s fundamental purpose is to “simplify, clarify and modernize the law governing commercial transactions.”45 When the code was first adopted, variable interest rates were virtually unknown, but that has changed. Since the 1980s, variable interest rates have come to dominate modern commercial practices. Indexing a variable rate of interest to a bank’s prime rate is, thus, commonplace in the commercial market. A variable rate of interest does not prevent the holder of such a note from establishing that a certain balance is due, and so does not destroy the negotiability of an instrument.46 The charging of a variable rate of interest is authorized by F.S. §673.1121(2). A construction of the code that recognizes commercial certainty can be accomplished by reference to some authority outside the writing itself also serves the purpose of the law of negotiable instruments, which is to make the instrument the functional equivalent of money.47

Conditions that appear on the face of an instrument that are consistent with what the law implies do not destroy the instrument’s negotiability.48 A promise or order otherwise unconditional is not made conditional by the fact that the instrument is subject to implied or constructive conditions because the test of unconditionality applies only to express conditions.49 Thus, the restatement of a condition that is an implied or constructive condition of any draft does not destroy negotiability.50 For example, a draft may be deemed negotiable even if it states that it is payable upon acceptance, on the ground that such a draft merely restates the rule that the drawee is not liable unless the drawee accepts the draft.51 Likewise, memoranda inserted into a negotiable instrument for mere convenience in matters of reference generally do not affect the negotiability of the instrument because they are not incorporated into the instrument and cannot affect the liability of the maker, and so are immaterial.52

The law presumes that parties will contract so as to obey the law. Savings clauses that remove the taint of usury are favored by the law and will be given effect if reasonably possible.53 The usury savings clause inures to the benefit of the borrower by effectively capping the rate of interest at which he or she can be charged and protecting the borrower against unlawful overcharging.

The language of §5 is merely directory and follows the express intent of the parties to the note. It adds no additional cost or burden to the borrower and is consistent with the purpose of maintaining or protecting the collateral to secure payment. The principal owed remains unchanged, regardless of any cap or reduction of interest on the principal. The provisions of this clause do not, by any lawful analysis, adversely affect the negotiability of the note.54

Late Charges
One of the more vigorous challenges of late to negotiability is the allegation that the note’s provision for late charges is an “other undertaking” that destroys the note’s negotiability. Section 6(A) of the note addresses late charges for overdue payments upon the borrower’s failure to pay as required and reads as follows:

If the Note Holder has not received the full amount of any monthly payment by the end of _____ calendar days after the date it is due, I will pay a late charge to the Note Holder. The amount of the charge will be __________% of my overdue payment of principal and interest. I will pay this late charge promptly but only once on each late payment.

The most often-cited authority for this challenge is the opinion in GMAC v. Honest Air Conditioning & Heating, 933 So. 2d 34 (Fla. 2d DCA 2006). Reliance on GMAC is misplaced, however. As the GMAC opinion makes clear, F.S. §673.1041(1)(c) does not apply to automobile retail installment sales contracts that create a series of obligations in addition to the payment of money. Imposing such additional instructions or undertakings brings the installment sales contract within the exclusionary language of F.S. §673.1041(1)(c).

The relevant facts of GMAC are as follows: An automobile finance company sued an automobile buyer for damages resulting from the alleged breach of an automobile installment sale contract (RISC). The defendants asserted affirmative defenses and sought application of provisions of Florida’s Uniform Commercial Code. The trial court made no oral findings as to the nature of the contract at issue, and its oral decision was that GMAC’s business practices were the cause of the loss it suffered. The final judgment was prepared by the attorney for the defendants, who had argued at the hearing that the contract was a negotiable instrument. In the final judgment, the trial court determined that the RISC was a negotiable instrument as defined by F.S. Ch. 673 (2001). The court also found that because GMAC’s conduct impaired the value of the debtor’s collateral, no damages were due to GMAC. GMAC appealed.

On appeal, the Second District concluded that the trial court erred in finding that the RISC was a negotiable instrument, but affirmed the judgment because GMAC, by its business practices and conduct, bore the risk of loss in its transactions involving defendants. The court cited a number of undertakings in the RISC that it concluded brought the RISC within the exclusionary language of F.S. §673.1041(1), which provides that a negotiable instrument “does not state any undertakings” in addition to the payment of money. The last of the undertakings listed by the court was that the RISC obligated the buyer “to pay fees for late payment or dishonored checks.” The court, quoting from the 1926 Florida Supreme Court opinion in Mason v. Flowers, 107 So. 334, 335 (Fla. 1926), which in turn quoted without attribution from Overton v. Tyler, 3 Pa. 346, 1846 WL 4875 (Pa. 1846), reasoned that a negotiable instrument should be “simple, certain, unconditional, and subject to no contingencies. As some writers have said, it must be a ‘courier without luggage.’”55

The court then quoted the U.C.C. comment to F.S. §673.1041 clarifying that Article 3 was not intended to apply to an automobile sales contract, but that nothing in Article 3 would prevent a court from arriving at a similar result if the writing were a negotiable instrument as defined in F.S. §673.1041. The court went on to find that since GMAC’s policy regarding checks tendered in satisfaction of a RISC did not include ensuring that a check is backed by sufficient funds before releasing their lien, GMAC could not transfer the risk of loss from nonpayment to an innocent purchaser. This was the basis of the court’s opinion in this case, not that the RISC was non-negotiable.

The question of whether late charges per se destroy the negotiability of a note was not implicated in GMAC. The court made no specific findings as to whether any given instruction or undertaking destroyed the negotiability of the note, but instead listed a group of seven “undertakings” that it felt collectively brought the RISC within the exclusionary language of F.S. §673.1041(1)(c). The court did not make a finding as to whether the late charges were for forbearance of the debt. The court also did not address the question of whether late charges are treated as a form of interest under Florida law. In addition, the decision in GMAC was issued more than seven years ago and cited authority that predates the U.C.C. and the 1992 amendments to the U.C.C., providing that interest and other charges do not destroy the negotiability of a note. Further, GMAC has never been cited as binding precedent on this issue by any appellate court in Florida.

For all of these reasons, GMAC is not persuasive authority regarding the issue of the effect on negotiability of a provision in a promissory note for payment of late fees.

Moreover, on its face, F.S. §673.1041(1) defines a negotiable instrument as an unconditional promise or order to pay “a fixed amount of money, with or without interest or other charges described in the promise or order.”56 The “interest or other charges” language, and the exceptions listed in F.S. §673.1041(1)(c), therefore, appear to cover generally the matter of late charges. This perspective makes sense for a host of reasons.

First, late charges do not, moreover, alter the certainty of the amount due under the note. The fact that there is a charge for any overdue payment is of no consequence to the payments required by the note.57 Late charges serve the purpose of protecting the collateral that is the subject of the note and, thus, do not destroy its negotiability.

In addition, §6(A) of the note is modified by the preceding usury savings clause, §5. The savings clause provides that interest or other loan charges collected, or to be collected, cannot exceed limits permitted under applicable law. Such a clause reflects an intent by the parties to comply with usury laws and indicates a spreading of interest should be used to avoid a charge of usury. Florida’s usury laws58 apply to notes in the same form as used in this article for illustration — that is late charges under the note are considered “interest” under Florida law, and so under F.S. §673.1041(1), the provision for late charges does not destroy the negotiability of a note.59

Furthermore, “interest” is the compensation allowed by law or fixed by the parties for the use or forbearance of borrowed money.60 By way of illustration, the amount paid for the use of a house is called “rent”; the amount paid for the use of money for the purchase of the house is called “interest.”61 It is well-established in law that late charges constitute interest only if they are for the forbearance of a debt. A charge imposed because of the late payment of a debt comes within the definition of interest under a usury statute only when it is paid as consideration for the creditor’s forbearance of the right to collect. A late charge imposed by a loan agreement or note in case of default is interest, and usury results if the total interest charged was greater than the maximum interest rate allowed by law.62

This rule does not apply to installment contracts where there is no loan, such as contracts for the purchase of construction materials or other goods. In those cases, if the purpose of a reasonable late charge is to induce timely payment of an obligation and the debtor can avoid the charge by prompt payment, the late charge is not interest and the note is not negotiable.63 This may have been the hidden reasoning in the GMAC case. Courts will not, in any event, hesitate to declare usurious an agreement providing for late charges if the agreement is a mere contrivance to avoid the usury law and is in reality a loan or forbearance of money for more than the lawful interest rate.64

Costs and Expenses, Including Attorneys’ Fees
It is sometimes argued in mortgage foreclosure cases that the provision in a note for costs and expenses destroys the negotiability of a note. Section 6(E) of the note addresses payments of the note holder’s costs and expenses in the event of the borrower’s failure to pay as required, and reads as follows:

If the Note Holder has required me to pay immediately in full as described above, the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys’ fees.

A note’s provision for attorneys’ fees, expenses, and costs incident to enforcement of the note fall squarely within “other charges described in the promise” allowed by F.S. §673.1041(1), and does not adversely affect the note’s negotiability. Such an obligation does not enlarge the obligation of the borrower, but is merely a means of collecting the indebtedness represented by the note.65

Giving of Notices
Mortgage foreclosure challengers will often argue that the provision for giving notices contained in a promissary note comprise additional undertakings that destroy the negotiability of the note. Section 7 of the note pertains to the giving of notices between the parties and reads as follows:

Unless applicable law requires a different method, any notice that must be given to me under this Note will be given by delivering it or mailing it by first class mail to me at the Property Address above or at a different address if I give the Note Holder a notice of my different address.

Any notice that must be given to the Note Holder under this Note will be given by delivering it or by mailing it by first class mail to the Note Holder at the address stated in Section 3(A) above or at a different address if I am given a notice of that different address.

Notice provisions in a promissory note should not be construed pedantically, or construed as if it were a common law pleading requirement under which every slip would be fatal.66 As to its effect on negotiability, each notice instruction should be viewed in light of the general purpose of that notice provision and whether it falls within the language of F.S. §673.1041(1).

The note used for our illustration calls for three types of notice: 1) notice to the note holder that the borrowers are making a prepayment; 2) default notice from the note holder to the borrower; and 3) notice of acceleration. The first type of notice, as discussed above, is a voluntary undertaking that provides a benefit to the borrower, and is not an “other instruction or undertaking” such as would destroy the negotiability of the note. The purpose of a notice of default provision is not difficult to fathom. One purpose is to notify a defaulting party of the default and give that party the opportunity to cure the default. Other purposes include giving the defaulting party a chance to investigate the claimed default, minimize the other party’s damages, or reach a compromise of a potential claim for breach of contract.67 Notice of acceleration falls squarely into the category of an undertaking to maintain or protect collateral to secure payment and does not destroy the negotiability.68 This is because notice of acceleration arises out of the right to accelerate. A provision in a mortgage accelerating the maturity of the accompanying note in the case of default is intended to permit recovery of the full amount due in suit on the notes and does not alter the note’s negotiability.69 Thus, the requirements under a note for the giving of notice between the parties is a necessary incident to the enforcement of the note that comprises “an undertaking or power to give, maintain, or protect collateral to secure payment.”70

Conclusion
The appropriate response to Chief Justice Gibson’s declaration in Overton v. Tyler, 3 Pa. 346, 1846 WL 4875 (Pa. 1846), that “a negotiable bill or note is a courier without baggage” is simply this: Provisions in promissory notes that facilitate circulation of such instruments are not luggage, but ballast.71 An instruction or undertaking within the plain language of F.S. §673.1041(1), or which serves any of the purposes of the statute, cannot destroy the negotiability of a note, and is lawful.


1 See Thomas Erskine Ice, Negotiating the American Dream: A Critical Look at the Role of Negotiability in the Foreclosure Crisis, 86 Fla. B. J. 8 (Dec. 2012); Richard H. Martin, Proving Standing to Foreclose a Florida Mortgage, 85 Fla. B. J. 31 (Nov. 2011); David E. Peterson, Cracking the Mortgage Assignment Shell Game, 85 Fla. B. J. 10 (Nov. 2011).

2 See Fla. Stat. §671.101.

3 Fla. Stat. §671.102(1).

4 Id.


5 Fla. Stat. §671.102(2)(b).

6 Fla. Stat. §671.102(2)(c).

7 See Jim C. Chen, Code, Custom, and Contract: The Uniform Commercial Code as Law Merchant, 27 Tex. Int’l L. J. 91, 92-93 (1992).

8 Fla. Stat. §671.103.

9 Burtman v. Technical Chemicals and Products, Inc., 724 So. 2d 672, 676 (Fla. 4th DCA 1999).

10 Weiner v. American Petrofina Marketing, Inc., 482 So. 2d 1362, 1364 (Fla. 1986).

11 “(3) An order that meets all requirements of subsection (1), except paragraph (a), and otherwise falls within the definition of ‘check’ in subsection (6) is a negotiable instrument and a check.”

12 “(4) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this chapter.”

13 “(11) A warrant of this state is not a negotiable instrument governed by this chapter.”

14 Fla. Stat. §673,1041(1).

15 See Bruce L. Benson, The Spontaneous Evolution of Commercial Law, 55 Southern Economic J. 644-661 (Jan. 1989).

16 See Overton v. Tyler, 3 Pa. 346, 1846 WL 4875 (Pa. 1846), which held that a note containing a warrant to confess judgment and an agreement to waive appeasement and stay of execution, terms not authorized by the then-applicable Statute of Anne, was not “a courier without luggage” and so was non-negotiable.

17 See First Nat. Bank v. Sullivan, 119 P. 820, 821 (Wash 1911) (“This note like every other written instrument must be construed as a whole so as to give effect to every part of it if possible.”); First Nat. Bank of Albuquerque v. Stover, 155 P. 905, 906-08 (N.M. 1915).

18 See In re Liquidation of Canal Bank & Trust Co., 162 So. 31, 33-34 (La. 1935); Sharpe v. Schoenberger, 184 N.W. 209-10 (S.D. 1921).

19 See Jones v. Green, 293 S.W. 749, 750 (Ark. 1927).

20 See Commercial Credit Co. v. Nissen, 207 N.W. 61, 63 (S.D. 1926); Sharpe v. Schoenberger, 184 N.W. 209-10 (S.D. 1921).

21 See In re Apponline.com, Inc., 285 B.R. 805, 821 (Bkrtcy. E.D.N.Y. 2002), aff’d, 321 B.R. 614 (Bkrtcy. E.D.N.Y. 2003), aff’d, 128 Fed. Appx. 172 (2d Cir. 2004).

22 See Robert T. Tobin, Negotiable InstrumentsDue Date of Notice — Effect of Acceleration Clause in Mortgage — Poultrymen’s Service Corp. v. Brown, 4 Boston College Law Rev. 772 (1963).

23 See In re Apponline.com, Inc., 285 B.R. 805, 821 (Bkrtcy. E.D.N.Y. 2002), aff’d, 321 B.R. 614 (Bkrtcy. E.D.N.Y. 2003), aff’d, 128 Fed. Appx. 172 (2d Cir. 2004).

24 See Wipfli v. Bever, 155 N.W. 2d 71, 72-73 (Wis. 1967).

25 See U.S. Bank, N.A. v. Armstrong, 2013 WL 2298432 (Ct. App. Ohio 2013).

26 See Mason v. Flowers, 107 So. 334, 335 (Fla. 1926).

27 See Ameritrust Company, N.A. v. White, 1993 WL 819124 (N.D. Ga. 1993).

28 See Jack J. Fisher, The Effect of Fluctuating Rates of Interest on the Negotiability of an Instrument, 23 Washington University L. Rev. 391-92, 398 (1938); Cudahy Packing Co. v. State Nat. Bank of St. Louis, Mo., 134 F. 538, 542-43 (C.A.8 1904).

29 See United Nat. Bank of Miami v. Airport Plaza Ltd. Partnership, 537 So. 2d 608, 609 (Fla. 3d DCA 1988) (note specifically providing that borrower shall have no personal liability, limiting recourse to foreclosure against secured property, renders the note conditional and thus non-negotiable); see also Dwight Arven Jones, A Treatise on the Construction or Interpretation of Commercial and Trade Contracts 494-96 (1886).

30 See First Nat. Bank v. Sullivan, 119 P. 822 (Wash. 1911); see also Jones v. Green, 293 S.W. 749, 750 (Ark. 1927).

31 Cudahy Packing Co. v. State Nat. Bank of St. Louis, Mo., 134 F. 538, 542-43 (C.A.8 1904).

32 See Jack J. Fisher, The Effect of Fluctuating Rates of Interest on the Negotiability of an Instrument, 23 Washington University L. Rev. 398 (1938); Cudahy Packing Co. v. State Nat. Bank of St. Louis, Mo., 134 F. 538, 542-43 (C.A.8 1904).

33 See Zollman v. Jackson Trust & Savings Bank, 87 N.E. 297, 298 (Ill. 1909).

34 See Townsend v. Adams, et al., 222 N.W. 878, 879 (Iowa 1929).

35 Fla. Stat. §673.1041(1) (emphasis added).

36 See John W. Daniel, A Treatise on the Law of Negotiable Instruments §54a, 64 (1903); Parker v. Plymell, 23 Kan. 402 (Kan. 1880).

37 See In re Apponline.com, Inc., 285 B.R. 805, 821 (Bkrtcy. E.D.N.Y. 2002), aff’d, 321 B.R. 614 (Bkrtcy. E.D.N.Y. 2003), aff’d, 128 Fed. Appx. 172 (2d Cir. 2004).

38 See Taylor v. American Nat. Bank of Pensacola, 57 So. 678, 684 (Fla. 1912) (construing the Florida Uniform Negotiable Instruments Law predecessor to §673.1041).

39 See Deutsche Bank, N.A. v. Najar, 2013 WL 1791372 (Ct. App. Ohio 2013).

40 See HSBC Bank, N.A. v. Gouda, 2010 WL 5128666 (Sup. Ct. N.J., App. Div. 2010); Summers v. Pennymac Corp., 2012 WL 5944943 (N.D. Texas 2012); In re Kain, 2012 WL 1098465 (Bkrtcy. D.S.C. 2012); Picatinny Federal Credit Union v. FNMA, 2011 WL 1337507 (D. New Jersey 2011); In re Darrell D. Edwards, 2011 WL 6754073 (Bkrtcy. E.D. Wis. 2011).

41 Fla. Stat. §673.1041(1).

42 See John W. Daniel, A Treatise on the Law of Negotiable Instruments §54a, 64 (1903); Parker v. Plymell, 23 Kan. 402, 1880 WL 867 (Kan. 1880).

43 See In re Apponline.com, Inc., 285 B.R. 805, 821 (Bkrtcy. E.D.N.Y. 2002), aff’d, 321 B.R. 614 (Bkrtcy. E.D.N.Y. 2003), aff’d, 128 Fed. Appx. 172 (2d Cir. 2004).

44 See Taylor v. American Nat. Bank of Pensacola, 57 So. 678, 684 (Fla. 1912) (construing the Florida Uniform Negotiable Instruments Law predecessor to §673.1041).

45 Fla. Stat. §671.102(1)(a).

46 Thompson v. First Union Nat. Bank, 643 So. 2d 1179, 1180 (Fla. 5th DCA 1994) (promissory note was “negotiable,” notwithstanding that it contained adjustable interest rate); see also The Cadle Company v. Regency Homes, Inc., 21 S.W.3d 670, 678 (Ct. App. Tex. 2000); Federal Savings & Loan Insurance v. Kralj, 968 F. 2d 500, 508 (5th Cir. 1992).

47 See Amberboy v. Societe de Banque Privee, 831 S.W.2d 793, 796 (Tex. 1992).

48 See State v. Phelps, 608 P. 2d 51 (Ct. App. Ariz. 1980).

49 See Uniform Commercial Code Comment to Fla. Stat. §673.1061, discussing U.C.C. §3-105(1)(a).

50 See Lialios v. Home Ins. Companies, 742, 410 N.E.2d 193, 194 (Ill. App. 1st Dist. 1980).

51 See id.; 55th and Ashland Currency Exchange v. City Mut. Ins. Co., 420 N.E.2d 780 (Ill. 1st Dist. 1981); Franklin v. Safeco Ins. Co. of America, 737 P.2d 1231, 1232 (Or. 1987); 10 C.J.S. Bills and Notes §169 Unconditional nature of promise or order.

52 See 11 Am. Jur. 2d Bills and Notes §98; Fl. Ur. Bills and Notes §75. See generally 2 John Warwick Daniel, A Treatise on the Law of Negotiable Instruments §1380, 402-03 (1891).

53 See Jersey Palm-Gross, Inc. v. Paper, 658 So. 2d 531, 534 (Fla. 1995) (savings clauses serve a legitimate function in commercial loan transactions and should be enforced in appropriate circumstances); Robert Joseph Phillips Living Trust et al. v. Scurry, 988 S.W.2d 418 (Ct. App. Tex. 1999).

54 See Deutsche Bank, N.A. v. Najar, 2013 WL 1791372 (Ct. App. Ohio 2013).

55 Mason v. Flowers, 107 So. 334, 335 (Fla. 1926).

56 Fla. Stat. §673.1041(1) (emphasis added).

57 See In re Apponline.com, Inc., 321 B.R. 614, 624 (Bkrtcy. E.D.N.Y. 2004).

58 See Fla. Stat. §687.02 (defining usurious contracts).

59 Fla. Stat. §673.1041(1) (emphasis added) (“[T]he term ‘negotiable instrument’ means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order….”); see Clark v. Grey,132 So. 832, 834 (Fla. 1931).

60 Black’s Law Dict. 812 (6th ed. 1990); see Reilly v. Barrera, 620 So. 2d 1116, n. 3 (Fla. 5th DCA 1993).

61 See Jefferson County v. Lewis, 20 Fla. 980, 1884 WL 2130 (Fla. 1884).

62 The essential elements of a usurious transaction are 1) a loan of money, 2) an absolute obligation that the principal be repaid, and 3) the exaction of a greater compensation than allowed by law for the use of the money by the borrower. For the usury laws to apply, there must be an overcharge by a lender for the use, forbearance, or detention of the lender’s money. See Fla. Stat. §687.02. See also 47 C.J.S. Interest & Usury §207; Pentico v. Mad-Wayler, Inc., 964 S.W.2d 708, 715 (Ct. App. Tx. 1998) (late payments under promissory note are treated as interest); Dikeou v. Dikeou, 928 P.2d 1286, 1288-89 (Colo. 1996) (late payment charges of set amount in nonconsumer loan agreement was interest within meaning of nonconsumer usury statute); Swindell v. Federal National Mortgage Association, 409 S.E.2d 892, 895 (N.C. 1991) (late payment charge constituted interest within meaning of usury statute); Dixon v. Brooks, 678 S.W.2d 728, 731 (Ct. App. Tx. 1984) (late charge in contract for deed is contingent additional charge and is to be added to interest contracted for if payment is received after expiration of grace period).

63 See 47 C.J.S. Interest & Usury §215; Massey Ferguson Credit Corp. v. Nelson, 450 N.W. 2d 435, 442-43 (S.D. 1990) (refinancing agreement pursuant to retail sales contract that contained provision for late payment fees was not negotiable); Homewood Inv. Co., Inc. v. Moses, 608 P. 2d 503, 506 (Nev. 1980) (late charges of 1.5 percent per month imposed on construction company for past-due balances on cost of material furnished to it by creditor was not usurious as there was no loan of money between construction company and creditor but merely contract of sale providing for assessment of reasonable late charges to induce timely payment of obligation); All Lease Co., Inc. v. Bowen, 1975 WL 22864 (Cir. Ct. Baltimore Co. 1975) (late charge for delinquent payment under contract for purchase of goods renders contract non-negotiable).

64 See Hayes v. First Nat. Bank of Memphis, 507 S.W.2d 701, 703 (Ark. 1974).

65 See Nussfeld v. Smith, 148 A. 388, 390 (Conn. 1930); Wood v. Ferguson, 230 P. 592, 594 (Mont. 1924); Mackintosh v. Gibbs, 80 A. 554, 556 (Ct. Err. and App. N.J. 1911); First Nat. Bank of Shawano v. Miller, 120 N.W. 820, 821 (Wis. 1909); see also Bills and Notes: Effect of Agreement to Pay Attorney’s Fees on Negotiability, 8 Michigan Law Review 235 (Jan. 1910); Bills and Notes: Certainty in Amount: Attorney’s Fees, 23 Harvard Law Review 307 (Feb. 1910).

66 See RBFC One, LLC v. Zeeks, Inc., 367 F. Supp. 2d 604, 617 (S.D.N.Y. 2005) (notice provisions in a commercial contract); 7 John D. Lawson, Rights, Remedies, and Practice, at Law, in Equity, and Under the Codes, Ch. CLXX, §3460, 5434-35 (1890) (failure to use proper form was fatal).

67 See Aeacus Real Estate Ltd. Partnership v. 5th Ave. Real Estate, 948 So. 2d 834, 835 (Fla. 4th DCA 2007); Columbus Container, Inc. v. Logility Inc., 2002 WL 449790 (S. D. Ind. 2002).

68 See Paepcke v. Paine, 235 N.W. 871, 874 (Mich. 1931); Enoch v. Brandon, 164 N.E. 45, 48 (N.Y. 1928).

69 Spandaro v. Baird, 119 So. 788, 790 (Fla. 1929); Taylor v. American Nat. Bank of Pensacola, 57 So. 678, 684 (Fla. 1912).

70 Fla. Stat. §673.1041(1)(c)1.

71 See John W. Daniel, A Treatise on the Law of Negotiable Instruments §61, 73-74 (1903).


Judge William H. Burgess III is a circuit court judge in the Civil Division of Florida’s Sixth Judicial Circuit. In 2013, he served as the presiding judge for all foreclosure cases in Pasco County.

[Revised: 02-27-2014]