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Wilshire Credit Corporation v. Ferguson

A-6298-00T5 (N.J. Super. App. Div. 2002) (Unpublished)

NOTES; NEGOTIABILITY— A settlement agreement requiring payment of monies, even on a monthly basis until a fixed date, is not a negotiable instrument if it contains promises beyond merely ones of payment or those expressly permitted under the UCC.

A borrower defaulted on a series of mortgage loans. It reached a global settlement with the bank and agreed to pay the foreclosure deficiency over a period of ten years. The borrower made only one payment. Shortly after that payment, the bank was taken over by the RTC. The borrower contacted RTC about where to send a payment and was told: “Don’t do anything until you hear from us.” Four years later, the buyer was advised that the debt obligation was assigned to a private investor. The borrower did not resume payments and the holder of the note declared a default, accelerated the debt, and brought a collection action. It only had a copy of the agreement, not the original. The Court held that the deficiency settlement agreement constituted “a negotiable instrument within the meaning of Article 3 of the Uniform Commercial Code.” That statute provides that a person not in possession of an instrument is still entitled to enforce the instrument “if the person was in possession of the instrument and entitled to enforce it when lawful possession occurred, the loss of possession was not the result of a transfer by the person or lawful seizure, and the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, ... .” Consequently, if the borrower was correct in characterizing the deficiency settlement agreement as “a negotiable instrument,” then the factual issues raised by the requirements of the cited portion of the Uniform Commercial Code would have precluded summary judgment against the borrower. Unfortunately, for the borrower, neither the lower court nor the Appellate Division agreed with its characterization.

A negotiable instrument within the meaning of Article 3 is: “an 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: (1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction by the person promising or ordering payment… .” In concluding that the deficiency agreement was not an Article 3 negotiable instrument, the lower court noted that it “clearly contain[ed] more than a mere promise to pay money.” In addition to agreeing to pay a certain sum “and to allowing continuance of the foreclosures on the real property collateral that secured the underlying notes, both of which would be encompassed in [an exception to the Uniform Commercial Code that would have preserved negotiability], the [borrower] agreed to acceptance of credits, both from [the] collateral and other personal and real properties.” Consequently, it was “not just a note for payment due by a certain date. It reflect[ed] the terms of the parties’ global settlement of the [ ] various debts and the foreclosure and collection actions instituted in connection therewith, and reflect[ed] various credits given against the underlying debt.” Consequently, the Court was satisfied that it was not a negotiable instrument that, “under the UCC, requires either production of the original instrument or satisfaction of [another section of the Uniform Commercial Code].” The borrower also alleged that collection was barred by the statute of limitations. Unfortunately for the borrower, the Court recognized that there was a definite date by which the entire sum was to be paid and consequently, it was not a promise to pay on demand. It was “an obligation to pay a debt within a definite time.” Even though it provided for monthly payments, the borrowers had agreed to “pay all amounts owed under this Deficiency Note and Agreement” no later than a certain date. Consequently, the collection action was timely filed.

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