Lambert v. Barker
In Lambert v. Barker, 232 Va. 21, 348 S.E.2d 214 (Va. 1986), in 1978, the Barkers executed a negotiable instrument promissory note (B-PN) in favor of Davis, secured by a deed of trust on real estate. Davis conveyed the B-PN to Lambert. This B-PN, indorsed in blank by Davis, was in the possession of Lambert.
Davis and Lambert agreed that the monthly payments on the B-PN would be payable to Davis while any prepayment was payable to Lambert. The Barkers conveyed the property to Beloff, who conveyed it to the Harwoods who agreed to pay the B-PN. When the Harwoods conveyed the property to the Buggs, Davis falsely asserted at closing that he was the note holder but that the B-PN was lost.
The balance due on the B-PN was paid to Davis. Thereafter, Lambert sued the Barkers and the Harwoods to recover the amount for the balance due on the B-PN.
The trial court ruled that Lambert had failed her duty to give notice to both the Barkers and the Harwoods of the pledge of the B-PN. On appeal, the Barkers contended that payment to Davis discharged their liability as makers of the B-PN.
The Supreme Court of Virginia disagreed with the Barkers. It noted that:
"the right of a party to payment . . . depends upon his status as a holder. A holder is one who is in possession of an instrument issued or indorsed to him or his order, to bearer, or in blank. Payment or satisfaction discharges the liability only if made to the holder of the instrument. Because payment in satisfaction of the instrument must be made to a party in possession in order to discharge the payor's liability, no notice is required for the protection of the payor. Rather, the payor may protect himself by demanding production of the instrument and refusing payment to any party not in possession unless in an action on the obligation the owner proves his ownership.
Payment to an authorized agent of the holder will also satisfy the requirement of payment to the holder, resulting in discharge. But the burden of proving an agency relationship rests on the party claiming payment as a defense." Id. at 24-25, 348 S.E.2d at 216.