OneWest Bank, FSB v. Jose Nunez

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
ONEWEST BANK, FSB,
Appellant,
v.
JOSE NUNEZ, et al.,
Appellee.
No. 4D13-4817
[March 2, 2016]
Appeal from the Circuit Court for the Seventeenth Judicial Circuit,
Broward County; Kathleen Ireland, Senior Judge; L.T. Case No.
CACE09068142.
Kimberly S. Mello and Jonathan S. Tannen of Greenberg Traurig, P.A.,
Tampa, and Michele L. Stocker of Greenberg Traurig, P.A., Fort
Lauderdale, for appellant.
Shaun E. Rice of De Armas, Millich & Rice, P.L., Miami, for appellee.
WARNER, J.
OneWest Bank appeals the involuntary dismissal of its foreclosure
action. The court entered the dismissal because it found that the
promissory note secured by the mortgage was not a negotiable instrument.
We conclude, however, that the note was negotiable and reverse the
dismissal.
Appellees Jose and Jessica Nunez, and Felipa Delrio, executed an
adjustable rate note to America’s Wholesale Lender, together with a
mortgage. The note and mortgage were assigned several times, the last of
which was to OneWest. The appellees defaulted, and OneWest filed a
complaint to foreclose on the mortgage. The appellees filed an answer and
affirmative defenses, including a claim that OneWest was not entitled to
enforce the promissory note because it was not a negotiable instrument.
They claimed that the note referred to and incorporated provisions of the
mortgage, thus destroying its negotiability.
The promissory note in this case contains language that is standard in
mortgage notes across the country. Specifically, Section 11 of the
promissory note contains the following provision:
In addition to the protections given to the Note Holder under
this Note, a Mortgage, Deed of Trust, or Security Deed (the
“Security Instrument”), dated the same date as this Note,
protects the Note Holder from possible losses that might result
if I do not keep the promises that I make in this Note. That
Security Instrument describes how and under what
conditions I may be required to make immediate payment in
full of all amounts I owe under this Note. Some of these
conditions are described as follows: . . .
The promissory note then includes a provision from the mortgage relating
to transfer of the property, including that the lender may require
immediate payment of all sums secured by the mortgage if the borrower
transfers the property without the lender’s consent. That provision states
that “Lender may invoke any remedies permitted by this Security
Instrument without further notice or demand on Borrower.”
At the foreclosure trial, the court held that the note was not negotiable,
and thus, OneWest, as a purported assignee, could not maintain the
action on the note or the foreclosure action. The court entered an order
involuntarily dismissing the complaint.
Although the parties did not address it, the court erred in concluding
that OneWest could not sustain its cause of action simply because the
assignee possessed a non-negotiable note.
As a general rule, the assignee of a nonnegotiable instrument
takes it with all the rights of the assignor, and subject to all
the equities and defenses of the debtor connected with or
growing out of the obligation that the obligor had against the
assignor at the time of the assignment.
State v. Family Bank of Hallandale, 667 So. 2d 257, 258 (Fla. 1st DCA
1995); see also Holly Hill Acres, Ltd. v. Charter Bank of Gainesville, 314 So.
2d 209, 211 (Fla. 2d DCA 1975); accord Means v. Clardy, 735 S.W.2d 6,
11-12 (Mo. Ct. App. 1987). While it may not be a holder in due course,
and other defenses may apply, an assignee may still have enforcement
rights under the non-negotiable instrument.
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Regardless, the trial court erred in concluding that the note in question
was non-negotiable. Florida has adopted the Uniform Commercial Code,
including its provision on negotiability and enforcement of negotiable
instruments. Under section 673.1041(1), Florida Statutes (2013), the term
“negotiable instrument” means:
[A]n unconditional promise or order to pay a fixed amount of
money, with or without interest or other charges described in
the promise or order, if it:
....
(c) 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 . . .
Section 673.1061, Florida Statutes (2013), defines “unconditional” by
stating those conditions that prevent it from being unconditional:
(1) Except as provided in this section, for the purposes of s.
673.1041(1), a promise or order is unconditional unless it
states:
(a) An express condition to payment;
(b) That the promise or order is subject to or governed by
another writing; or
(c) That rights or obligations with respect to the promise or
order are stated in another writing.
A reference to another writing does not of itself make the
promise or order conditional.
(2) A promise or order is not made conditional:
(a) By a reference to another writing for a statement of rights
with respect to collateral, prepayment, or acceleration. . . .
(Emphasis added).
The UCC comments to this section address the inclusion of language
regarding collateral and acceleration, and confirm that the inclusion of
such language does not make the note unconditional:
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Many notes issued in commercial transactions are secured by
collateral, are subject to acceleration in the event of default,
or are subject to prepayment, or acceleration does not prevent
the note from being an instrument if the statement is in the
note itself. See Section 3-104(a)(3) and Section 3-108(b). In
some cases it may be convenient not to include a statement
concerning collateral, prepayment, or acceleration in the note,
but rather to refer to an accompanying loan agreement,
security agreement or mortgage for that statement.
Subsection (b)(i) allows a reference to the appropriate writing
for a statement of these rights. For example, a note would not
be made conditional by the following statement: “This note is
secured by a security interest in collateral described in a
security agreement dated April 1, 1990 between the payee and
maker of this note. Rights and obligations with respect to the
collateral are [stated in] [governed by] the security agreement.”
The bracketed words are alternatives, either of which
complies.
§ 673.1061 cmt. 1, Fla. Stat. (2013). Thus, the mention of the mortgage
instrument as to the collateral rights or rights of acceleration in the
promissory note does not destroy the unconditional nature of the note.
Two cases from other jurisdictions have considered the exact language
contained in the promissory note in this case and concluded that it did
not render the note non-negotiable. In Deutsche Bank National Trust Co.
v. Najar, 8th Dist. Cuyahoga No. 98502, 2013-Ohio-1657, ¶ 54, 2013 WL
1791372 (Ct. App.), the court relied on the UCC comment to the statutory
provision to conclude that “the reference to the mortgage, in Section 11 of
the note, with respect to rights of acceleration does not render the note
nonnegotiable.” The court cited to Mesina v. Citibank, NA, No. ADV 10-
2304 RTL, 2012 WL 2501123 (Bankr. D.N.J. June 27, 2012), which also
dealt with nearly identical language, including the incorporation of the
acceleration on transfer provisions of the mortgage in the note. The
bankruptcy judge found that the provisions were conditions regarding
acceleration, permissible under section 3-106(b) of the UCC and not
destroying negotiability. We agree with the foregoing authority that
Section 11 of the note refers to the mortgage for a “statement of rights with
respect to . . . . acceleration” and thus does not render the note non-
negotiable. § 673.1061(2)(a), Fla. Stat. (2013).
Appellee relies most prominently on Holly Hill Acres, Ltd. v. Charter
Bank of Gainesville, 314 So. 2d 209 (Fla. 2d DCA 1975). There, the bank
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sought to foreclose a note and mortgage given by Holly Hill Acres. Id. The
note contained the following provision:
This note with interest is secured by a mortgage on real estate
. . . and shall be construed and enforced according to the laws
of the State of Florida. The terms of said mortgage are by
this reference made a part hereof.
Id. at 210 (emphasis added). The appellate court in Holly Hill explained
that there is a difference between a mere reference to a note being secured
by a mortgage and stating that “the terms of said mortgage are by this
reference made a part hereof.” Id. at 211. The former merely referred to a
separate agreement, while the latter rendered the note “subject to” the
mortgage, and therefore, non-negotiable. Id. Thus, the note in Holly Hill,
having incorporated the terms of the purchase money mortgage, was not
negotiable. Id. In this case, however, the note referred to the mortgage
but did not make the note subject to the mortgage instrument.
Because the court erred in dismissing the foreclosure proceeding based
upon the non-negotiability of the promissory note, we reverse and remand
for further proceedings.
STEVENSON and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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