In December 2008, Jason Garcia signed a motor vehicle sales contract with Mac Haik Dodge Chrysler Jeep, a dealer. In the contract, Garcia agreed to purchase a 2009 Dodge Ram 1500. The contract includes Garcia’s agreement to pay a total of \($62,370\) spread out over 84 monthly payments of \($742.50.\) Mac Haik Dodge Chrysler Jeep assigned the sales contract to Amplify Federal Credit Union (AFCU).
In 2010, after Garcia defaulted on payments, AFCU repossessed the vehicle, sold it, and applied the proceeds to the remaining balance. Garcia still owed \($20,711\) on the sales agreement and continued to accrue interest. In 2015, AFCU sued Garcia to recover over \($35,000\) and Garcia responded by asserting AFCU’s claim was barred by the statute of limitations. Both parties moved for summary judgment. The trial court granted AFCU’s motion for summary judgment and Garcia subsequently appealed.
JUSTICE FIELD In one issue, Amplify argues that the trial court erred in concluding that its claim was barred by a four-year statute of limitations. Amplify argues that the sales contract is a negotiable instrument subject to the six-year statute of limitations provided in section 3.118 of the Texas Business and Commerce Code. To be subject to chapter three of the Texas Business and Commerce Code, an instrument must be “negotiable.” An instrument is negotiable if it is a written unconditional promise to pay a sum certain in money, upon demand or at a definite time, and is payable “to bearer” or “to order” at the time it is issued or first comes into possession of a holder. Whether an instrument is negotiable is a question of law we review de novo.
Except in the case of checks, to be negotiable, an instrument must contain words of negotiability. Specifically, an instrument must be “payable to bearer or to order.” Uniform Commercial Code comment 2 explains:
Total exclusion from Article 3 of other promises or orders that are not payable to bearer or to order serves a useful purpose. It provides a simple device to clearly exclude a writing that does not fit the pattern of typical negotiable instruments and which is not intended to be a negotiable instrument. If a writing could be an instrument despite the absence of “to order” or “to bearer” language and a dispute arises with respect to the writing, it might be argued that the writing is a negotiable instrument because the other requirements of subsection [3.104(a)] are somehow met. Even if the argument is eventually found to be without merit it can be used as a litigation ploy. Words making a promise or order payable to bearer or to order are the most distinguishing feature of a negotiable instrument and such words are frequently referred to as ‘words of negotiability.’ Article 3 is not meant to apply to contracts for the sale of goods or services or the sale or lease of real property or similar writings that may contain a promise to pay money. The use of words of negotiability in such contracts would be an aberration. Absence of the words precludes any argument that such contracts might be negotiable instruments.
Section 3.109 provides that an instrument is payable to bearer if it (1) states that it is payable to bearer or to the order of bearer or to anyone who is in possession of the promise or order; (2) does not state a payee; or (3) states that it is payable to or to the order of cash or is not to an identified person. The sales contract at issue in this case does not state that it is payable to bearer or to the order of bearer or to anyone who is in possession of it. Nor does it state that it is payable to the order of cash. The sales contract identifies a payee, Mac Haik Dodge Chrysler Jeep, by stating that Garcia “agree[s] to pay us the Amount Financed, Finance Charge, and any other charges in this contract” and by defining “us” as “the Seller,” which was Mac Haik Dodge Chrysler Jeep. Thus, the sales contract is not an instrument “payable to bearer.”
A promise that is not payable to bearer is payable to order if it is payable (1) to the order of an identified person (i.e., “Pay to the order of J. Smith”) or (2) to an identified person or order (i.e., “Pay to J. Smith or order.”). See id. § 3.109(b). The sales contract at issue in this case does not state that it is payable “to the order” of an identified person or that it is payable to an identified person “or order.” Rather, it provides only that Garcia promises to pay Mac Haik Dodge Chrysler Jeep, the seller, the sales price for the vehicle set forth in the sales contract. Although the sales price is payable to a specific payee, the sales contract lacks the words of negotiability “or order” required under Texas Business and Commerce Code section 3.109. Thus, the sales contract is not an instrument “payable to order.”
Because the sales contract is not payable to bearer or payable to order, it lacks an essential element to make it a negotiable instrument. The trial court properly concluded that the six-year statute of limitations applicable to actions on negotiable instruments did not apply to Amplify’s claim. We overrule Amplify’s sole appellate issue.
CRITICAL THINKING:
What distinction does the court make between a negotiable instrument and a contract that only provides that one party promises to pay another? Why do you think this distinction exists and is accepted?
ETHICAL DECISION MAKING:
Did Mac Haik Dodge Chrysler Jeep have an ethical obligation to inform AFCU the sales contract lacked the words of negotiability? Does the onus to verify the contract fall on AFCU or on Mac Haik Dodge Chrysler Jeep?