An Allonge is invalid unless the original Note is “all backed up”

*This is not legal advice, just informational editorialization.

This is big.

I have felt for some time, that the use of an Allonge as evidence for the endorsement of a Note is not legally sufficient, unless the back of the Note is chaulk full of endorsements, requiring an “extra paper”. Thus was born the Allonge.

This case is older, however, it goes indepth to cite case law surrounding the UCC and interpretation of the Holder in Due Course and ……..

How an endorsement by Allonge is not valid unless the back of the Note is full of other endorsements!!!!!!!!!!!!!!

Pribus v. Bush

COURT OF APPEAL OF CALIFORNIA, FOURTH APPELLATE DISTRICT, DIVISION TWO

Citation Number 118 Cal.App.3d 1003, 173 Cal.Rptr. 747, 749 (1981)

May 12, 1981
HELEN A. PRIBUS, PLAINTIFF AND RESPONDENT,
v.
PHILIP L. BUSH, DEFENDANT AND APPELLANT
Superior Court of Orange County, No. 314923, Philip Edgar Schwab, Jr., Judge.
Howser, Gertner & Brown and David L. Sanner for Defendant and Appellant.
Stephen D. Johnson for Plaintiff and Respondent.
Opinion by Morris, J., with Kaufman, Acting P. J., and Garst, J.,*fn* concurring.
Morris
COURT OF APPEAL OF CALIFORNIA, FOURTH APPELLATE DISTRICT, DIVISION TWO
Civ. No. 23473
1981.CA.40697 ; 173 Cal. Rptr. 747; 118 Cal. App. 3d 1003
May 12, 1981
HELEN A. PRIBUS, PLAINTIFF AND RESPONDENT,
v.
PHILIP L. BUSH, DEFENDANT AND APPELLANT
Superior Court of Orange County, No. 314923, Philip Edgar Schwab, Jr., Judge.
Howser, Gertner & Brown and David L. Sanner for Defendant and Appellant.
Stephen D. Johnson for Plaintiff and Respondent.
Opinion by Morris, J., with Kaufman, Acting P. J., and Garst, J.,*fn* concurring.
Morris

Defendant appeals from a judgment enjoining the foreclosure of a trust deed on plaintiff’s house, and ordering the cancellation of a promissory note signed by plaintiff. Judgment was entered against defendant after the trial court concluded that he was not a holder in due course.

Facts
Charles Pribus, the son of Helen Pribus (plaintiff), owed $126,500 to Ford and Mary Williams. At Charles’ request, plaintiff executed a promissory note for $126,500 and a trust deed on plaintiff’s house to secure the note, both in favor of the Williams. Charles delivered the trust deed to Ford Williams, who caused it to be recorded. The note was never delivered. Ford Williams then induced the plaintiff to execute a second promissory note for $126,500, the subject of this appeal. The trial court made the finding, which is not now challenged, that this note was executed on the false representation by Williams that he would hold the note and would make no use of it. The court also made the uncontroverted finding that plaintiff received no consideration for the note.
Within a few months, Williams bought from Philip Bush (defendant) an option to purchase Bush’s contractual rights to buy an apartment complex in Texas. As part of Williams’ written agreement with defendant Bush, Williams assigned the trust deed on plaintiff’s house to defendant and transferred to defendant the promissory note which Williams had induced plaintiff to execute. Stapled to the note was a paper, signed by Ford and Mary Williams, which stated: “For a valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned do hereby assign the attached Note to Phillip L. Bush.” There was sufficient space on the note itself to write an indorsement in the words that were written on the paper stapled to the note.
After an unsuccessful effort to collect on the promissory note, defendant filed a “Notice of Breach and Default and of Election to Cause Sale of Real Property Under Deed of Trust.” Plaintiff responded by initiating the present action, seeking “cancellation of instrument, declaratory relief, and injunction.”

Following a trial on the merits, the court found for the plaintiff. Although the promissory note was a negotiable instrument payable to order, the court held that the plaintiff could assert the defenses of fraudulent inducement and lack of consideration against the defendant because he was not a holder in due course.*fn1 The court concluded that the Williams’ indorsement of the promissory note was not sufficient for effective negotiation, because 1) the paper attached to the note was ineffective as an indorsement because there was sufficient space to write the indorsement on the note itself, and 2) the Williams retained an interest in the note. Judgment was entered ordering the cancellation of the promissory note and enjoining the defendant from foreclosing on the trust deed. This appeal followed.

Discussion
California Uniform Commercial Code section 3302, subdivision (1) provides,*fn2 “A holder in due course is a holder who takes the instrument a) For value; and (b) In good faith; and (c) Without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.” In the present case, the trial court did not question defendant’s status as a holder in due course because of any failure to satisfy the value, good faith, or no notice requirements. Rather, the court concluded that defendant is not a holder in due course because he is not a holder at all, an essential prerequisite to qualifying as a holder in due course. A holder is “a person who is in possession of . . . an instrument . . ., issued or indorsed to him . . . .” (? 1201, subd. (20).) The trial court ruled that the Williams’ signature on the paper attached to the promissory note did not qualify as an indorsement because there was adequate space for the indorsement on the note itself.*fn3 We affirm the judgment.

Section 3202, subdivision (2) states, “An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.” Thus, the code does not say whether or not such a paper, called an “allonge,” may be used when there is still room for an indorsement on the instrument itself. Nor has any reported California case dealt with this issue under the code.*fn4 The code does, however, instruct us as to where to look for the law with which to resolve the issue. Section 1103 states that “[unless] displaced by the particular provisions of this code, the principles of law and equity, including the law merchant . . . shall supplement its provisions,” and that section’s Uniform Commercial Code comment notes “the continued applicability to commercial contracts of all supplemental bodies of law except insofar as they are explicitly displaced by this Act.” Therefore, since the Commercial Code has not addressed the issue, we decide the present case according to the rules on allonges of the law merchant.*fn5

Although the cases are not unanimous, the majority view is that the law merchant permits the use of an allonge only when there is no longer room on the negotiable instrument itself to write an indorsement. (See generally Annot., Indorsement of Negotiable Instrument By Writing Not On Instrument Itself (1968) 19 A.L.R.3d 1297, 1301-1304; Annot., Indorsement of Bill or Note by Writing Not On Instrument Itself (1928) 56 A.L.R. 921, 924-926.) Typical of the majority position is Bishop v. Chase (1900) 156 Mo. 158 [56 S.W. 1080]. There it was held that the general rule is that an instrument could be indorsed only by writing on the instrument itself, but that an exception to the rule allows the use of an attached paper “when the back of the instrument is so covered as to make it necessary.” (Id., 56 S.W. at p. 1083.) Thus, the court invalidated an attempted indorsement by allonge when “there was plenty of room upon the back of the note to have made the indorsement, and the only excuse for not doing so was that it was more convenient to assign it on a separate paper.” (Id., 56 S.W. at p. 1084.)*fn6

As the Bishop case indicates, the law merchant rule on allonges was developed as a refinement of the basic rule that an indorsement must be on the instrument itself. This basic rule must have become impractical when strictly applied in certain multiple indorsement situations, due to the finite amount of space on any given instrument. The allonge, then, was apparently created to remedy the inconveniences of the basic rule, not as an alternative method of indorsement. Support for this analysis is found in Folger v. Chase (1836) 35 Mass. (18 Pick.) 63. There, the Massachusetts Supreme Court dealt with an allonge indorsement as a case of first impression. The indorsement had been made on “a paper attached to the back of the note by a wafer” because the back of the note was covered with previous indorsements. The defendants, citing the basic rule, contended that no indorsement had been made. The court disagreed. “The objection is, that such an indorsement is not sanctioned by custom; but we think it is supported by the reasons on which the custom was originally founded. Bills of exchange and promissory notes were indorsed on the back of the bills and notes, because it was a convenient mode of making the transfer, and in order that the evidence thereof might accompany the note. Such an indorsement as this will rarely happen, and no authority to support it could reasonably be expected; but there is no authority against it.” (Id., at p. 67.)*fn7

The minority position is best expressed in Crosby v. Roub (1863) 16 Wis. 616, 626-628.*fn8 There it was said that “the usual reason stated for using [an allonge] is, that there is no longer room on the note to make the indorsement. But this does not mean that there must be an actual physical impossibility to write the indorser’s name on the original paper. On the contrary, the usage of the mercantile law is, as Chief Justice Marshall says, ‘founded in convenience.’ And all that its spirit or its letter requires is, that when it is inconvenient to write on the back of the note the real contract between the vendor and the vendee, which, if so written, would pass the title, it may be written on another paper and attached to it with like effect.” (Id., at p. 626.)*fn9 The Crosby case was considered, but rejected, in a number of majority jurisdictions. (See, e.g., Bishop v. Chase, supra, 56 S.W. at pp. 1083-1084; Doll v. Hollenback (1886) 19 Neb. 639 [28 N.W. 286, 288].)

[118 CalApp3d Page 1010]
The majority view interpretation of the law merchant rule of allonges was adopted statutorily in California. When the Civil Code was enacted in 1872, it contained these two provisions: 1) section 3109 — “One who agrees to indorse a negotiable instrument is bound to write his signature upon the back of the instrument, if there is sufficient space thereon for that purpose,” and 2) section 3110 — “When there is not room for a signature upon the back of a negotiable instrument, a signature equivalent to an indorsement thereof may be made upon a paper annexed thereto.”*fn10
These Civil Code sections were in force for 45 years until California adopted the Uniform Negotiable Instruments Act. The act, like its successor, the Uniform Commercial Code, did not state whether or not an allonge could be used when there was still room for an indorsement on the instrument itself. Section 31 of the act (former Civ. Code, ? 3112) stated in part, “The indorsement must be written on the instrument itself or upon a paper attached thereto.” (Stats. 1917, ch. 751, ? 1, p. 1538.) However, also like the Uniform Commercial Code, the Uniform Negotiable Instruments Act intended prior law not in conflict with the act to supplement the act. Former Civil Code section 3266d stated in part, “In any case not provided for in this title the rules of the law merchant shall govern.” (Stats. 1921, ch. 194, ? 12, p. 215.) Thus, it has been held that the act was “but a statutory affirmation of the rule of the old law merchant” that an allonge “was allowable only when the back of the instrument itself was so covered with previous indorsements that convenience or necessity required additional space for further indorsements.” (Clark v. Thompson (1915) 194 Ala. 504 [69 So. 925, 926]; see also Plattsmouth State Bank v. Redding (1935) 128 Neb. 268 [258 N.W. 661, 663].)

We conclude that the majority view of the law merchant relating to allonges is the better reasoned one, and is the view adopted by the Legislature.*fn11 It follows, then, that the assignment by allonge of plaintiff’s promissory note by the Williams to the defendant was ineffective as an indorsement, since there was sufficient space on the note itself for the indorsement. There having been no indorsement of the note, the defendant is not a holder in due course and, therefore, takes the note subject to the defenses that plaintiff has against the Williams. (? 3306.) The judgment is affirmed.

Disposition
We conclude that the majority view of the law merchant relating to allonges is the better reasoned one, and is the view adopted by the Legislature.*fn11 It follows, then, that the assignment by allonge of plaintiff’s promissory note by the Williams to the defendant was ineffective as an indorsement, since there was sufficient space on the note itself for the indorsement. There having been no indorsement of the note, the defendant is not a holder in due course and, therefore, takes the note subject to the defenses that plaintiff has against the Williams. (? 3306.) The judgment is affirmed.

Disposition FOOTNOTES
11 We have found four Uniform Commercial Code cases that discuss the allonge issue which is presented here. Three of the cases state the majority position. (Shepherd Mall St. Bank v. Johnson (Okla. 1979) 603 P.2d 1115, 1118; Tallahassee Bank & Trust Company v. Raines (1972) 125 Ga.App. 263 [187 S.E.2d 320, 321]; James Talcott, Inc. v. Fred Ratowsky Associates, Inc., supra, 2 U.C.C. R.S. at p. 1137.) The fourth case did not decide the issue. (Estrada v. River Oaks Bank & Trust Co. (Tex.Civ.App. 1977) 550 S.W.2d 719, 725.)

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Note Endorsed without Authentication means zip, zilch, nada.

*The following article is not to be construed as legal advice, consult with an attorney for that stuff.
What happens when the lender finally Produces the Note?

The “Produce the Note” defense is not a panacea, a cure-all tactic for homeowners who may be victim of an unlawful foreclosure Complaint. The homeowner may ultimately have their day in Court, where a party, claiming to be the Real Party in Interest, is before the Court with the Original Blue ink Note. Some Notes are lost or destroyed, but many may be retained. What is the defense when the party has an original Promissory Note, and a Mortgage Assignment(if they are not the original lender)?

Discovery and Evidentiary Hearings

The Discovery process is the only way to fight the foreclosure. An esoteric and complicated securitized mortgage defense will rarely work in convincing the Judge to dismiss a foreclosure at a hearing, so the homeowner must begin the argument up front and out of Court using the Civil Rules of Procedure.

If you are ever presented with a Note Endorsement, you must carefully examine the Endorsement and/or Allonge. If you are served an Allonge, the extra piece of paper, this likely means the Endorsement was back dated or fabricated. An allonge was only intended to be used as “extra” endorsing space, assuming the back of the Note or negotiable instrument is full of other signatures.

If the endorsement is not Authenticated, per the Federal Rules of Evidence  901(a), then it may not be allowed into evidence. Here comes the question of “authentication”. What is it?

1. Is it Notarized? How can it be dated without an official Notary Seal?

2. Is there evidence of forgery? Squiggles, photocopy marks, cut and pasted?

3. Is the signing authority including a Power of Attorney?

4. Is the signing authority using a “Limited Signing Authority”?

The list goes on…keep asking these questions in your Discovery. Most rules of Discovery do not limit the amount of questions or the number of requests you may be able to make to the other party. The more questions that go unanswered, the more solid you build your defense and cement your argument. Do not expect the Judge to do this for you, or expect the Court to side with you out of pity…they never feel bad for a commoner.

Bearer Paper, the new Parlor Trick and the Holder in Due Course.

*Disclaimer: The following essay is not to be construed as legal advice, consult an attorney for that stuff.

What is Bearer Paper and why is this relevant to the foreclosure defense of borrowers in distress and on the verge of homelessness?

Bearer Paper is the ingenious method that bankers and their cohort Council have developed to enrich the players involved in the Securitized mortgage game. When is comes to Note Endorsement, it used to be very easy to determine who the real party Holding the Note is at the time of filing a Complaint for Foreclosure. Order Paper was often used when transferring ownership of the Promissory Note, hence the language, “Pay to the order of Cuntrywide Racketeers, without recourse.” stamped on the back of a negotiated instrument. When this endorsement is presented on the back of a Note or in an allonge accompanying it, along with a Mortgage or Deed of Trust, which is the mechanism by which a Loan is secured by real estate.

Bearer Paper is indorsed like this, “Payable to the order of ” That’s it. There is no party receiving this instrument, in Due Course. What does Due Course mean? The Holder in Due Course means that a party who follows the UCC Sec. 3 will have Affirmative Defenses as a NEW CREDITOR not responsible for any misrepresentation or deceit in the origination to the Borrower. there must be a party accepting this negotiable instrument For Value, they paid for it, in Good Faith, which means the Note has not been “dishonored”.

The Jury is out, on whether a party must be Holder in Due Course, to assert its right as a Holder in a foreclosure complaint, but it goes without saying, being a Holder in Due Course, is where the Foreclosing Party wants to be, as it brings with it many affirmative defenses against a wronged homeowner.

No matter from what side of the argument you may lie, it is evident that endorsing a Note in Blank, is the easiest way to enforce a Note that may have been passed around “like a whiskey bottle at a frat party”. Endorsing the Note in Blank, allows anyone who brings forth a Complaint of Foreclosure to purport they are the Real Party in Interest.

The more I study the UCC, the more it appears that the Bearer Paper tactic is just a clever parlor trick, another slight of hand convoluting the original intent of the UCC law. It is clear that a Blank Endorsement was meant only for cashier’s checks endorsed by writing the name only of the drawer, to make it easier for the draft to pass through the elaborate bank clearing houses.

It is not ethical, for a Promissory Note, attached to a Mortgage Deed of Trust, to be endorsed in Blank and scanned into an “Electronic Registry Systems” for anyone with a title to “servicing rights” and a membership code, to pass themselves off as a Holder in Due Course or a Holder of Bearer Paper. It is not morally not ethically nor lawfully sound jurisprudence, it is a blatant disregard for the Court’s Civil Procedure. A charade, a trick, a game of poker, where the gambling pro is allowed to bluff with a photocopy of the Ace up his sleeve.

“PROVE THE DEBT” defense tactics

*Disclaimer: This article is for entertainment, it is not intended to be legal advice, consult an attorney.

Instead of using the popular “Produce the Note” defense, homeowners should be championing a “Prove the Debt” defense. The Note is just one part of enforcement of a mortgage security instrument. Many attorneys for Pretender Lenders will try to claim to possess the Note endorsed in blank and then Claim to Hold Bearer paper. Bearer paper can be properly held by “possession alone” and if not challenged, a Judge will likely allow such a claim. However, there are many factors to challenge: 1. How did it come to the possession of Plaintiff? Ask for notaries and certifications. 2. ALWAYS DEMAND A POWER OF ATTORNEY. Nothing is REAL without a Power of Attorney. 3. Assignments and a chain of title are a right under Due Process. If there is a flaw in the Chain of Title then there is a MAJOR PROBLEM as seen in recent Mass. cases. DO NOT ACCEPT ASSIGNMENTS for face value. There is common language on the face of most “Mortgage Assignments” that claim NO Representation. ANY MORTGAGE ASSIGNMENT WITHOUT A POWER OF ATTORNEY IS A NULLITY. (Tawil v. Finkelstein Bruckman Wohl & Rothman, 223AD2d, 52,53 [1d Dept 1996] See also Judge Shack of NY 4. Challenge ALL Agents and their authority. No endorsement that is in Blank and without certification or notary witness and POA should be acceptable. 5. Do not allow the Plaintiff’s Counsel to REPRESENT the Plaintiff without a Power of Attorney. Until this is established, they are just an average Joe off the street. Treat them as such. A Promissory Note cannot be passed around “like a whiskey bottle at a Frat party” even indorsed in Blank, without proper consideration paid, and proof that a Mortgage assumption and debt was transfered.

We all know that over 90% of mortgages were securitized and the Notes are all likely in possession of a Document Custodian and NOT IN THE POSSESSION of the Plaintiff Pretender Lender Attorney. Yet, they will lie to the Court and provide “true copies” to the Court and purport they are good as gold. OBJECTION!

A copy is a copy, and without all proper evidence, NOT HEARSAY, but actual evidence from a competent fact witness, these documents are not valid PROOF that you have defaulted, that the Plaintiff is the Real Party in Interest, Fact: at least one another entity has title to your Mortgage and/or Note, unless your mortgage was originated by a local bank.

However, if you come in day 1(or show up on your Court date without previous submitted pleadings) and try to explain this complicated banking scheme to a veteran Judge…he will simply dismiss it. BUT if you carefully craft your pleadings and request very strong discovery in the form of Interogatories and Admissions and ask for Job history affidavits……THE PRETENDER WILL IGNORE these requests. This is their admission to the Court by their own acquiescence to the FACTS, that they are presenting a Fraud on the Court. Give the Pretender enough rope to hang themselves. There is No Silver bullet ….but there is a lot of rope.

Ding Dong MERS is Dead, the wicked MERS is Dead….

by Martin Macisso

The private company who claims to be a “Nominee” for over 60 million mortgages in America has been leveled by 2 recent Supreme Court Decisions who cited in their orders, that MERS has no agency status as a Nominee.

Please see:

http://livinglies.wordpress.com/2009/09/30/arkansas-supreme-court-denies-mers-legal-standing/

The laymen terms for this: “MERS is a strawman, a legal fiction, and cannot foreclose and/or transfer the a Promissory Note and/or mortgage from one company to the other.

The legal ramifications to these decisions are staggering to the Corporatocracy that runs our world, and the dictatorial manner in which Wall Street bankers have run this country into the ground.

If you are in foreclosure or about to default, please consult with a Housing Counselor or attorney who can cite from these cases and include them in your defense!