Chapter 4 - Constitutional Authority to Regulate Business s15

FBLEC-2e Case Problem with Sample Answer Chapter 18: Negotiability, Transferability, and Liability

18.5 Case Problem with Sample Answer

In September 2001, Cory Babcock and Honest Air Conditioning & Heating, Inc., bought a new 2001 Chevrolet Corvette from Cox Chevrolet in Sarasota, Florida. Their retail installment sales contract (RISC) required monthly payments until $52,516.20 was paid. The RISC imposed many other conditions on the buyers and seller with respect to the payment for, and handling of, the Corvette. Cox assigned the RISC to General Motors Acceptance Corp. (GMAC). In August 2002, the buyers sold the car to Florida Auto Brokers, which agreed to pay the balance due on the RISC. The check to GMAC for this amount was dishonored for insufficient funds, however, after the vehicle’s title had been forwarded. GMAC filed a suit in a Florida state court against Honest Air and Babcock, seeking $35,815.26 as damages for breach of contract. The defendants argued that the RISC was a negotiable instrument. A ruling in their favor on this point would reduce any damages due GMAC to less than the Corvette’s current value. What are the requirements for an instrument to be negotiable? Does the RISC qualify? Explain. [General Motors Acceptance Corp. v. Honest Air Conditioning & Heating, Inc., 933 So.2d 34 (Fla.App. 2 Dist. 2006)]

Sample Answer:

The court issued a judgment in favor of Babcock and Honest Air, based in part on a determination that the RISC was a negotiable instrument. GMAC appealed to a state intermediate appellate court, which concluded that the RISC was not a negotiable instrument. The appellate court pointed out that under the UCC, to be negotiable an instrument must contain “an unconditional promise or order to pay.” Its payment cannot be conditioned on the occurrence or nonoccurrence of some other event or agreement. In this case, the RISC imposed a series of obligations on the buyers and the seller. Among other things, the buyers could not take the car outside the United States and were required to pay any of the seller’s repair or storage bills. On the buyers’ default and the seller’s repossession of the Corvette, under the RISC the seller could dispose of the vehicle only in certain ways. There were also extra fees in the event of a late payment or a dishonored check. The court affirmed the judgment in the defendants’ favor on other grounds, however, principally GMAC’s “improvident” release of the title to the car before Florida Auto Brokers’s check was honored. The court also noted that the current value of the Corvette in fact exceeded the amount that remained unpaid under the RISC.