Uniform Commercial Code and Negotiable Instruments - Essay Example

The loan was sanctioned under a promissory note and a deed of trust. Monthly payments of interest were to be given time and the principal balance was due on January 1, 2010.

            By January 2010, 16 of the 24 due interest payments were made in an untimely fashion. The last three payments prior to January 2010 had not been made.

            In November 2009, the Dealer contacted a loan officer of the Bank and said that he would be unable to pay the principal as required under the note on January 1, 2010. Also, he said that he would be willing to sell the Dealership to a third party. The loan officer verbally said that the Bank would not foreclose or sue on the promissory note as long as the note was paid when the Dealership was sold, but not later than September 1, 2010.

Issue Spotting and Legal Analysis

            Issue 1: The Dealer had contacted a loan officer of the Bank and attempted a verbal settlement.

            Analysis: The promissory note and the deed of trust both contained the following clause: “Any amendment hereto or modification hereof must be in writing signed by both parties. Any waiver or indulgence of any default by Dealer shall not operate as a waiver of any subsequent default. Time is of the essence hereof.” Clearly, the Dealer was able only to reach a verbal settlement with the bank officer, so his liability exists and he can be prosecuted for not making a written negotiation.

            Issue 2: The promissory note called for monthly payments of interest but 16 of the 24 interest payments due under the note had been made untimely. Moreover, the last three payments had not been paid at all.

            Analysis: The clause included both in the promissory note and the deed of trust clearly states that “Time is of the essence hereof” Therefore, the Dealer can be prosecuted for

1. Failure to pay the interest
2. Failure to make timely payments
3. Failure to pay off the principal

Issue 3: During the untimely interest payments, the Bank should have cautioned or warned the Dealer in time. Moreover, the Bank could have taken early steps to avoid the case of non-repayment.

      Analysis: It is astonishing that the bank did not take action in time. The bank could have sought legal help against the Dealer earlier too. In such circumstances, the role of the concerned lean officer should be examined by the court.

Conclusion

            The case may be dealt with under the U.C.C. Article 3 on Negotiable Instruments. The article is composed of the following parts
PART 1: GENERAL PROVISIONS AND DEFINITIONS,
PART 2: NEGOTIATION, TRANSFER, AND INDORSEMENT,
PART 3: ENFORCEMENT OF INSTRUMENTS,
PART 4: LIABILITY OF PARTIES,
PART 5: DISHONOR, and
PART 6: DISCHARGE AND PAYMENT
as stated by the website “Cornell Law School … Lawyers in the Best Sense” under the auspices of the American Law Institute and the National Conference of Commissioners on United States Laws. Needless to say, this article is equipped with a strong framework to prevent unfair and unreliable financial action and prosecute the wrongdoer.