The Equity Bank v. Gonsalves
In The Equity Bank v. Gonsalves, 44 Conn. Supp. 464, 691 A.2d 1143 (Conn. Super. Ct. 1996), on May 29, 1987, Gonsalves executed a negotiable instrument promissory note (G-PN) in favor of Laurora in the amount of $ 150,000, secured by a mortgage on property in the town of Wethersfield.
On September 21, 1993, Laurora assigned the G-PN and the mortgage to the bank as collateral security for a loan made by the bank to Laurora. The assignment was recorded in the Wethersfield land records. The bank never informed Gonsalves of the assignment or made any demand on Gonsalves for payments after the assignment. Gonsalves continued to pay monthly payments to Laurora. On May 27, 1994, Gonsalves paid Laurora the balance due on the G-PN.
Laurora executed a release of the mortgage and the release was recorded in the Wethersfield land records, but Gonsalves neither asked for nor did Laurora turn over the original G-PN.
The bank asserted its right to payment by commencing a foreclosure action in October 1995. The bank was not able to produce the original G-PN. It presumed it was lost. The court concluded, in relevant part, as follows:
"The rule as to the payment and discharge of negotiable instruments is that payment of the bill or note must be made to the rightful holder or his authorized agent. It is payment in due course which discharges an instrument . . . and one of the elements of payment in due course is payment to the holder of the instrument, that is, to the payee or indorsee of the instrument who is in possession of it, or the bearer thereof."
As for negotiable instruments, notice to the maker of the transfer of the note is not required. The reason given is that the maker can protect himself by demanding production of the instrument and refusing to pay a party not in possession of it. Id. at 467, 691 A.2d 1145-46 .
The Superior Court of Connecticut also opined that:
To this court that reason does not make sense as to a mortgage note payable monthly. A mortgagor cannot be expected every month he makes a payment to ask a mortgagee bank to prove its possession of the note. Moreover, if the mortgagor pays monthly to the mortgagee a self-amortizing mortgage note to the date of maturity, should not payment in full in that manner fail to be a complete defense to an action by an assignee of the mortgagee who never gave notice of the assignment?
Despite the good sense and fairness of allowing such a defense, the rule appears to be "the maker of a negotiable note secured by a mortgagee cannot discharge his liability by payment to one not the holder . . . and a mortgagor is not justified as against an assignee of the mortgage in making payments to a mortgagee who does not have possession of the instrument. . . ."
Foreclosure is an equitable action, however, and a court can consider all the equities in deciding whether to enter a foreclosure. In the present case, the court would be inclined on that ground to decide for Gonsalves, but a consideration of all the equities gives rise to questions of fact. Consequently, the court must deny Gonsalves' motion for summary judgment.