Holder of Promissory Notes Payable to Another Must Establish How It Came to Possess Them to Enforce Them

On December 5, 2017, the First Department issued a decision in 26th LS Series Ltd. v. Brooks, 2017 NY Slip Op. 08487, holding that the holder of promissory notes payable to another must establish how it came to possess them in order to enforce them, explaining:

The notes at issue were expressly payable to Ruby, and the record includes no proof that they were endorsed in blank, or to Teleios, or plaintiff. To the extent plaintiff is in possession of the original notes and related documents, it is a nonholder in possession, and, to enforce the notes against defendants, must account for its possession of them by proving the transactions through which it acquired them. Plaintiff asserts on appeal that the notes were endorsed to it after submission of the cross motion, but this cannot be confirmed on the record before us; moreover, plaintiff does not show how such belated endorsement suffices for present purposes.

As a nonholder, it does not matter that plaintiff is in possession of the instruments now, if it cannot show Teleios acquired them from Ruby before selling them to plaintiff. The court properly recognized that plaintiff had not made this showing as a matter of law, given material issues of fact as to whether or when the Ruby/Teleios transaction closed, what if any consideration may have been paid for the notes, and why new notes, payable to Teleios, were apparently not issued.

As these material factual issues concerning plaintiff's chain of title to the instruments preclude summary enforcement of the instruments in plaintiff's favor, they also necessarily preclude plaintiff's summary enforcement of its alleged security interest in the life insurance policies securing those instruments.

(Internal quotations and citations omitted).

Promissory notes are legal documents that can provide the holder strong rights against the maker of the notes. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding the enforcement of a promissory note.