Case Summary 

Defendants-Appellants, Sam Yin (‘‘Yin’’) and Sophia Kung (‘‘Kung’’) appeal from the grant of partial summary judgment in favor of Plaintiff-Appellee, Society National Bank (‘‘Society’’). We reverse and remand for trial on the merits.

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Facts and Procedural History 

The undisputed facts are as follows. On January 2, 1991, Society agreed in a note to lend U.S.A. Diversified Products, Inc. (‘‘USAD’’) up to $2,000,000.00 in the form of an operating line of credit. Paul Davis (‘‘Davis’’) signed the note both personally and as the president of USAD. Yin, who jointly owns USAD with Davis, signed the note personally. Kung, who at that time was married to Yin, also signed the note personally. During negotiations regarding the note, Society directly dealt only with Davis. Once negotiations were finalized, Davis took the note, obtained Yin’s and Kung’s signatures, and returned it to Society. No party challenges the authenticity of any of the signatures on the 1991 note. The outstanding balance was to be paid on April 30, 1992, the note’s expiration date.

   Some time prior to the end of April, 1992, Davis told Society that a 60-day extension of the original payment date was needed. Society agreed to the extension. Davis represented that he would obtain Yin’s and Kung’s signatures as he had for the 1991 document. However, for purposes of this partial summary judgment, the parties agree that Yin’s and Kung’s signatures were forged on the extension document.

   As a result of USAD’s default on the line of credit, Society filed a complaint against USAD, Davis, Yin, and Kung on December 8, 1992. On May 27, 1994, the trial court granted partial summary judgment in favor of Society and against Yin and Kung in the amount of $2,160,331.73 including interest and attorney fees and expenses.

Discussion and Decision
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Is this line of credit a negotiable instrument?
   [Article 3] appl[ies] only to negotiable instruments. [Citation.] Non-negotiable agreements are governed by Indiana common law. [Citations.] Yin and Kung challenge the trial court’s finding that their agreement for a line of credit is a negotiable instrument. * * * We hold that it is not.

   In determining the negotiability of an agreement, we apply the law in effect at the time of the execution of the agreement [Prior Article 3.] 

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   Yin and Kung assert that their line of credit meets neither the sum certain [fixed amount under Revised Article 3] nor the unconditional requirement. * * *

   Other courts have faced the issue or a situation quite similar to it and held that such an agreement is not a negotiable instrument. For example, in [Citation] the Fifth Circuit agreed with a district court’s opinion that ‘‘[t]he note in this case does not contain an obligation to pay a ‘sum certain,’ but rather ‘the sum of TWO MILLION AND NO/ 100 DOLLARS ($2,000,000) or so much thereof as may be advanced. * * * ’’’ [Citation.] The Fifth Circuit reasoned that the language employed by the note failed to disclose the exact amount to be repaid. [Citation.] That is, the amount advanced to the parties could not be determined with certainty absent an inquiry to other documents. Accordingly, the note did not facially demand payment of a sum certain [fixed amount], and hence was not negotiable. [Citations.]

   The parties do not seriously dispute that the agreement in the present case is a line of credit upon which USAD could make draws of varying amounts. Indeed, the face of the note contains a notation regarding ‘‘draws.’’ We note that although USAD did make various draws upon the line of credit, it was under no obligation to make any draws whatsoever. In fact, if USAD had never drawn upon the line of credit, it would have owed nothing when the agreement matured. The principal would have been zero. This is noteworthy because it illustrates an important feature of the line of credit: in order to ascertain the principal owed, one must look beyond the agreement itself. A current history of USAD’s draws would also be necessary in order to calculate the amount USAD owed. Because of the potentially variable principal which results from such an arrangement, the line of credit contains no sum certain [fixed sum]. In addition, USAD’s ability to make draws up to two million dollars was not unfettered. It was dependent upon the sufficiency of USAD’s accounts receivable. That is, if USAD sold the accounts receivable (Society’s security), then Society ‘‘in all likelihood * * * would put a hold on any further draws.’’

   Society conditioned USAD’s access to the line of credit by tracking the company’s collateral. Lacking an unconditional promise to pay a sum certain, the line of credit falls outside the definition of a negotiable instrument. [Court’s footnote: In reaching this conclusion, we distinguish between a variable principal and a variable interest rate. Unlike the former, the latter would not destroy the negotiability of an instrument. [Revised Article 3 holds] that variable interest rates do not affect negotiability. * * *] Thus, in addressing the parties’ other issues regarding the line of credit, we apply Indiana common law. * * *

   Because the change must be a material and binding one, we cannot agree with Yin’s and Kung’s assertion that the forged extension note serves to discharge them from the potential liability they incurred upon signing the original 1991 agreement. They cannot be bound by a document (here, the extension note) which does not bear their signatures. In addition, by signing the 1991 note which contained a consent to future extensions provision, they explicitly gave prior consent to an extension. [Citation.] Accordingly, the extension note has no effect on their liability.

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   Reversed and remanded for trial on the merits.