Broward paid off the mortgages associated with two promissory notes (“the

Amarante note” and “the Ciceron note”). These notes were negotiated to another

party who claimed ownership. Broward disputed whether the two mortgages

were negotiable instruments. The promissory notes in questions stated:

In return for a loan . . . Borrower promises to pay . . . plus interest. . . .

Interest will be charged on unpaid principal, from the date of disbursement

of the loan proceeds by Lender, at the rate of nine percent (9.000%) per

year until the full amount of the principal has been paid. . . . Borrower shall

make payment of principal and interest to Lender on the first day of each

month beginning on [specified date]. . . . Payment shall be made at . . .

Melville, New York. . . . Each monthly payment of principal and interest

will be in the amount of $663.01. This amount will be part of a larger

monthly payment required by the Security Instrument [defined in P 3 as the

mortgage], that shall be applied to principal, interest and other items in the

order described in the Security Instrument. . . . If Lender has not received

the full monthly payment required by the Security Instrument . . . by the

end of fifteen calendar days after the payment is due, the Lender may

collect a late charge in the amount of FOUR percent (4.0000%) of the

overdue amount of each payment. The court found that both the Amarante note and the Ciceron note

contained unconditional promises to pay. In addition, neither note contained any

language that the notes were “subject to” or “governed by” the mortgages, as

required to eradicate negotiability under UCC § 3-105.

CASE QUESTIONS
1. Was the notes’ reference to the existence of a separate agreement
a conditional promise? Why or why not?
2. When does a separate agreement not affect the negotiability of an
instrument?