Untitled Document

2015 Commercial Law Developments, Prepared by the Business Law Section Commercial Transactions Committee for the 2015 Business Law Section Annual Report
VII. Commercial Paper and Electronic Funds Transfers

A. Negotiable Instruments and Holder in Due Course

  • U.S. Bank N.A. v. Yashouafar, __ Cal.App.4th __ (Cal.Ct.App. 2015) – No prepayment fee due until defendants actually prepaid the note’s indebtedness.

  • In re Energy Futures Holding Co, _ B.R. _ (Bankr. D. Del. July 8, 2015) – Make-whole premium provision interpreted not to apply as a matter of contract law as a result of filing of bankruptcy.

  • Aurora Loan Services, LLC v. Taylor, 2015 WL 3616293 (NY 2015) – As a matter of common law (not UCC Articles 3 and 9) the person in possession of a note has the right to enforce it and the related mortgage follows the note.

  • Charles R. Tips Family Trust v. PB Commer. LLC, LLC, 459 S.W.3d 147, 2015 Tex. App. LEXIS 1657, 85 U.C.C. Rep. Serv. 2d (Callaghan) 886 (Tex. App. Houston 1st Dist. 2015) - The debtor, a trust, entered into a residential loan agreement with the secured party, which was guaranteed by the trustee. The debtor also issued a note, which was secured by real property, in favor of the creditor. The loan agreement, the note, and the guaranty described the principal loan amount in words as being as ‘one million seven thousand and no/100 dollars’ and in numerals as being ‘$1,700,000’. On the maturity of the loan, the debtor paid $595,586 to the creditor, which subsequently foreclosed on the note by selling the collateral and recovered $ 874,125. Thereafter, it sued the debtor for the balance $815,214.50 on the basis that the principal amount of the loan was $1,700,000. Based on the provisions of UCC § 3-114 (‘If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers.’). Accordingly, the amount of the promissory note and the guarantee obligations was held to be $1,007,000.

  • JP Morgan Chase Bank v. Jenkins, 2015 U.S. Dist. LEXIS 17134 (N.D. Ill. 2015) -The court held that a creditor had standing to foreclose a note as the creditor was in possession of the note, thereby making it the holder of the note even though the debtor contended that the creditor had only acquired a right to service the loan when it had acquired the assets of another bank (which was the original creditor of the debtor). A holder is defined to be a person in possession of a negotiable instrument that is payable either to the bearer or to an identified person in possession of the instrument. However, the creditor had attached a copy of the note to the complaint which under applicable state law in a foreclosure action is prima facie evidence of ownership and possession. Thus the note was payable to the creditor who qualified as a holder of the note.

  • Schaumburg Bank & Trust Co., N.A. v. Bellony Real Estate & Dev., LLC-PSM J.V., 2015 IL App (3d) 130896U, 2015 Ill. App. Unpub. LEXIS 212 (Ill. App. Ct. 3d Dist. 2015) – A promissory note had been transferred to a creditor by the successor of a failed bank by execution of a purchase and assumption agreement. The promissory note was given in relation to a construction loan obtained by the debtor from the failed bank. Here the court held that the transfer of possession of an instrument allowed a transferee to have the rights of a holder of an instrument under the provisions of article 3 of Uniform Civil Code.

  • DZ Bank AG Deutsche Zentral Genossenschaftsbank v. McCranie, 2015 WL 5234569 (M.D. Fla. 2015) – The bank with possession of a negotiable promissory note properly endorsed to it was a holder in due course despite the fact that the original payee had sold a participation interest in the note to another entity that did not file a financing statement or take possession of the note, because the bank had no notice of any claim to the note. Accordingly, the bank could enforce the note against the maker and, even if the maker had defenses to payment against the original payee for breach of contract, those defenses were not effective against the bank.

  • Aurora Loan Services, LLC v. Taylor, 2015 WL 3616293 (NY June 11, 2015) - As a matter of common law (not UCC Articles 3 and 9) the person in possession of a note has the right to enforce it and the related mortgage follows the note.

  • Wells Fargo Bank, N.A. v. Erobobo (2015 NY Slip Op 03522) – Obligor on mortgage note does not have standing to complain that there were defects under trust agreement in transfer of note to trust.

  • Phillips v. Bank of America, _ Cal.App.4th _ (2015) – State law prohibition on a debit by a national bank is not preempted by federal law.

  • In re MPM Silicones, LLC, F.Supp.2d _ (SDNY 2015) – Interpreting indenture re ‘senior debt’, how to apply proviso, and requiring express prepayment premium language when there is automatic acceleration.

  • Madden v. Midland Funding, LLC, _ F.3d _ ( 2d Cir. 2015) – National Bank Act provision that protects original secured party does not preempt claim against assignee that is not subject to the Act.

  • In re Energy Futures Holding Co., (Bankr. D. Del. 2015) – Makewhole premium provision interpreted not to apply as a matter of contract law as a result of filing of bankruptcy. [update]

  • CitiMortgage, Inc. v. Okahata, 2015 IL App (2d) 140651-U, 2015 Ill. App. Unpub. LEXIS 1205 (Ill. App. Ct. 2d Dist. 2015) – Under Illinois law, an original secured party had standing to foreclose on a mortgage despite having transferred its interest in the loan to a third party, because the original secured party was the holder of the promissory note, meaning it retained physical possession of the note that contained an indorsement in blank.

  • HSBC Bank USA, N.A. v. Perez, 40 Fla. L. Weekly D 1064 (Fla. Dist. Ct. App. 4th Dist. 2015) – As a result of a fraudulent scheme by a debtor, two banks took possession of nearly identical promissory notes secured by the same mortgage. One of the original banks assigned its interest to a third bank. After default, both banks tried to foreclose. The court was required to determine whether the UCC or the recording statute controlled priority. Article 9 of the UCC as adopted by Florida, generally does not apply to a real property mortgage. However, the court found that when the note in a real property mortgage is sold or assigned, Article 9 applies to the security interest created in favor of the assignee or purchaser of that note. Therefore, when the two banks attempted to collect on a real property mortgage, and one had been assigned the mortgage, Article 9 applied to the security interest in the mortgage.

  • Yvanova v. New Century Mortgage Corporation, _ Cal.4th _ (2016) – The transfer of a note secured by a mortgage automatically transfers the related mortgage. The original beneficiary of the note (and therefore the deed of trust), or its assignee or agent, may direct the trustee to sell the property. The maker of the note does not have standing to challenge a “voidable” transfer, as that person cannot assert someone else’s rights. The maker does have standing to challenge a “void” transfer. The court characterizes its ruling as “narrow” and “limited” and applicable only to the standing question. The court did not address when a transfer is “void.”

B. Electronic Funds Transfer


VIII. Letters of Credit, Investment Securities, and Documents of Title | Table of Contents