This material looks at the UCC as the default law which it is when construing
enforcement of promissory notes utilized in home loans.
I often mention that the UCC is default law, a last resort to resolve a conflict
when the resolution of the issue isn’t readily available from / in the contract.
Well, the issue of whom may enforce our notes is in fact defined, enunciated in
the note itself. As to whom may enforce our promissory notes, another reader of
a popular defense blog did a pretty good job a couple years ago: "Patrick" said:
“.. The terms of the promissory note contract requires a two part test to
determine if an entity is the note holder entitled to enforce the instrument.
1) The note must be acquired via transfer and 2) the entity must be entitled to
receive payments made under the note. This requires the plaintiff, or anybody
alleging possession of the genuine note, to recognize the debt transfer by
reporting the instrument as a financial asset ....on its balance sheet."
The NOTE say who may enforce – not the UCC. If there were an ambiguity, the UCC
could be invoked, but there ISN’T. From the note:
” I understand that the LENDER may transfer this note. The Lender
or anyone who takes this note by transfer and who is entitled to
receive payment under this note is called the “note holder”.
This language does a few things, and imo, this language is wholly dispositive
of whom may enforce the note:
1) the note defines the person (entity) who may transfer the note (and it isn’t
“MERS”.)
2) It limits the enforcement of a note to someone who has taken the
note by ‘transfer’. That does NOT describe a person in mere possession or a
thief. A thief certainly doesn’t qualify, and one in possession of a note
must demonstrate it has the note as a result of transfer and that he is
entitled to payments. Imo, the current claimants' reliance on the default-law
UCC Article III is misplaced and positively errant, because OUR note defines
the party who may enforce.
3) It says that the ‘note holder’ will be someone who has taken the
note by TRANSFER and is entitled to payments under the note.
So why is anyone looking at the default-law UCC for who may enforce? There’s
no need to because THESE notes clearly define who is entitled to enforce and
is the "note holder".
The ONLY thing necessary, if anything, is a look at the UCC for its definition of ‘transfer’.This is found in Article III (applicable as long as article III is itself applicableto these notes). It may be found in other articles of the UCC - I don't know - , but this is the first one I landed on, and since current claimant do in fact rely on Article III, I thought it fit for reference:
“UCC § 3-203. TRANSFER OF INSTRUMENT; RIGHTS ACQUIRED BY TRANSFER.
(a) An instrument is transferred when it is **delivered** by a person other
than its issuer for the **purpose** of giving to the person **receiving delivery**
the right to enforce the instrument.
(b) Transfer of an instrument, whether or not the transfer is a negotiation,
vests in the transferee any right of the transferor* to enforce the instrument,
including any right as a holder in due course, but the transferee cannot
acquire rights of a holder in due course by a transfer, directly or indirectly,
from a holder in due course if the transferee engaged in fraud or illegality
affecting the instrument.
jg: “any right of the transferor” = one must HAVE a right to transfer a right.
(c) Unless otherwise agreed, if an instrument is transferred for VALUE and the
transferee does not become a holder because of lack of indorsement by the
transferor, the transferee has a specifically enforceable right to the
unqualified indorsement of the transferor, but negotiation of the instrument
does NOT occur until the indorsement is made.
jg: transfer includes delivery, as seen in (a).
(d) If a transferor purports to transfer less than the entire instrument,
negotiation of the instrument does not occur. The transferee obtains no rights
under this Article and has only the rights of a partial assignee.”
Imo, the language in the note puts a restriction on the class of people who may
enforce the note. IF the note were otherwise a negotiable instrument, this
condition expressed in the note (above) may well preclude the note from being a
negotiable instrument; if the person in possession of a note doesn’t meet those
conditions, he has no claim against the borrower, imo. The note not only says
it may not and won’t be enforced by a thief, but it does in fact make
assurances by putting restrictions on who may enforce, who is the “note
holder”: one who has taken by transfer and is entitled to receive payment under
the note.
Since I'm big on injury as a jurisdictional threshold, I note the UCC has its
own defnition of 'aggrieved party':
Ҥ 1-201. General Definitions (subject to definitions contained in other
articles of the Uniform Commercial Code that apply to particular articles
or parts thereof:
2) “Aggrieved party” means a party entitled to pursue a remedy.”
According to the online legal dictionary, the definition of “remedy” is:
“The manner in which a right is enforced OR satisfied by a court when some
HARM or INJURY, recognized by society as a wrongful act, is inflicted upon
an individual. The law of remedies is concerned with the character and extent
of relief to which an individual who has brought a legal action is entitled
once the appropriate court procedure has been followed, and the individual
has established that he or she has a substantive right that has been
infringed by the defendant.”
And while we're on the subject of remedies, an injured party is entitled to only one remedy. He doesn’t get five, or even two. Imo, that means he gets a tax-easing write-off or he gets a foreclosure, but he doesn't get both of equal amounts from the same agreement. I don't believe a loan which has been written-off may yet be sold for collection. As far as I, a lay person and not an accountant, knows, one may not indefinitely hold a soured asset, such as a non-performing mortgage loan, on his books. He may move it to charge-off status and then to written off status and derognize the asset.
That’s my lay person take on the home loan promissory note v the provisions of the default law UCC. . If there are arguments, I’d like to hear them (really!)