Daniels is involved in two different scenarios that have a few issues. In the first fact pattern the issues presented are holder in due course, negotiable instrument, ordinary contract principles, and estoppel. In the following fact pattern, the issue presented is surety versus guaranty. The issues will be solved by analyzing the law of the specific topic or term.
First State Bank of Gallup was trying to collect from the maker of the note, in this case Daniels, because Clark defaulted on the loan after several payments. Daniel refuses to pay arguing that the note was a nonnegotiable instrument and therefore invalid in the hands of the bank.
For First State Bank to able to collect from Daniels, has to be a holder in due course if the note is a negotiable instrument. Under the U.C.C. – Article 3 – a holder in due course means the “holder of an instrument if: the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 3-305(a)” (§3-302). First State Bank loaned Clark a loan for $50,000. Clark presented the note for the $100,000 created by Daniels as collateral for the loan. First State Bank accepted the note for value, in good faith, without notice that the instrument is overdue or has been dishonored, and without notice that the instrument contains an unauthorized signature or has been altered. By these requirements, First State Bank is a holder in due course of the note. The last requirement is to determine if the note is a negotiable instrument.
The following issue is whether or not the note is a negotiable instrument. A negotiable instrument must “be evidenced by record. The requirement of a ‘record’, under Revised Article 3, is satisfied by handwriting, typing, printing, electronic record, and any other method of making record” (Twomey & Jennings 586). In this case, Daniels executed the note in writing; meeting the first requirement for a negotiable instrument. Also “the instrument must be authenticated (signed under old Article 3) by the maker or the drawer” (Twomey & Jennings 586). Under the U.C.C. – Article 3 – Negotiable Instruments define negotiable instrument as an “unconditional promise of order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: payable to bearer or to order at the time it is issued or first comes into possession of a holder; is payable on demand or at a definite time; and does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor” (§3-104).
The note meets almost every requirement of a negotiable instrument. Daniels promised a $100,000 to Clark, meeting the requirement of a sum certain and payment in money. Lastly, the note is payable to Clark. The only requirement in that the note fails to meet is that the note does state an instruction by the person promising the payment. The note is a nonnegotiable instrument because is conditional.
Another issue is if Article 3 does not apply to the instrument, is the note negotiable as between the parties under ordinary contract principles. As found out before, the note is a nonnegotiable instrument. Twomey & Jennings stated that a nonnegotiable instrument’s terms are enforceable, but the instrument is treated simply as a contract governed by contract law (585). For a contract to arise there should be an offer and acceptance (277). In this case, the note is negotiable under ordinary contract law.
The last issue is whether, under ordinary contract law, Daniels is estopped to deny the note’s validity. A rule of law that when person A, by act or words, gives person B reason to believe a certain set of facts upon which person B takes action, person A cannot later, to his (or her) benefit, deny those facts or say that his (or her) earlier act was improper (Duhaime).
In this first fact pattern, First State Bank of Gallup can recover on the money loaned to Clark because the collateral, which was the note, is a negotiable instrument under ordinary contract law principles. Also, Daniels is estopped to deny the note’s validity because he was in agreement that his note could be accepted as collateral.
In this next fact pattern, GMAC sued Daniels because, according to GMAC, the brother was the surety of the loan. Daniels bought a car from Caddy Cadillac Co. and because of his poor credit he had his brother act as surety for the loan to purchase the car. His brother signed the purchase contract on the line marked “buyer” and he signed on the line marked “co-buyer.” For GMAC to recover from the brother, he had to be the surety. The issue is whether or not GMAC can sue Daniels’ brother because he is acting as a surety for the loan. “An individual who undertakes an obligation to pay a sum of money or to perform some duty or promise for another in the event that person fails to act” (Surety). “An accommodation party may sign the instrument as maker, drawer, acceptor, or indorser and, subject to subsection (d), is obliged to pay the instrument in the capacity in which the accommodation party signs. The obligation of an accommodation party may be enforced notwithstanding any statute of frauds and whether or not the accommodation party receives consideration for the accommodation” (§3-419). “Guaranty agreements should explicitly mention the creditor’s right to pursue the guarantor only in the event that the company defaults. If the language is ambiguous, then the guarantor may actually by a surety” (Bigelow). The ambiguity of the language in the contract for the loan suggests that the brother is the surety and not a guarantor. Also, the brother signed on the line marked “buyer” making him surety. Therefore, GMAC can proceed against the brother of Daniels directly because he is the surety of the loan for the car.
The previous fact patterns were solved by analyzing the law of each issue. The issues resolved were holder in due course, negotiable instrument, ordinary contract principles, estoppel, and surety versus guaranty. Holder in due course has four requirements and a negotiable instrument has seven. All of the requirements were taken into consideration to determine the outcome. For a contract to be formed, there has to be an offered and consideration. An estoppel is in placed to stop from denying the truth. Lastly, a surety answers for the default of the principal. To summarize, the conclusions of the fact patterns were that the note was not a negotiable instrument because it was not unconditional but was negotiable under the ordinary contract principles; and that Daniels’ brother was the surety and not the guarantor of the loan.

Work Cited
3 U.C.C. §3-104. Negotiable Instruments (a)(1)(2)(3)(i)(ii)(iii).
3 U.C.C. §3-302. Holder In Due Course. (a)(1)(2).
3 U.C.C. §3-419. Instruments signed for accommodation.
Bigelow, Lisa. Surety Vs. Guarantor. eHow Contributor. Web.
Duhaime, Lloyd. Estoppel Definition. Duhaime’s Law Dictionary. Web.
"Surety." West's Encyclopedia of American Law, edition 2. 2008. The Gale Group
Twomey & Jennings. Anderson’s Business Law And the Legal Environment. 22nd Edition. Mason, OH: South-Western College Pub, 2013. Print.