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What rules does the court apply when determining negotiability?
The UCC favors negotiability of commercial instruments. It contains a number of rules to resolve any uncertainty as to the terms of the instrument and to supply missing terms. The following rules apply to situations where terms in a negotiable instrument contradict each other:
• words take precedent over numbers;
• handwritten terms prevail over typed and printed terms; and
• typed terms win over printed or boiler-plate terms.
These rules can allow for any number of general assumptions about the intent and obligations of the parties.
Example: If the applicable interest rate of a promissory note is left off, courts hold that a judgment rate applies.
• Discussion: How do you feel about these generally applicable rules of interpretation for negotiable instruments? Is there any argument against the application of these rules?
• Practice Question: Hank drafts a check to Ira that is drawn on First Bank. When Ira presents the check for payment, she realizes that the check indicates “Five-hundred dollars” and “5,000.00” in the amount column. What is the likely interpretation of First Bank’s obligation to accept and pay the check?