Skelton v. Urban Trust Bank
516 B.R. 396
N.D. Tex.2014Background
- John Skelton signed a $1,043,500 promissory note (May 4, 2007) payable to Greenpoint Mortgage Funding, Inc., secured by a Deed of Trust on property in Highland Park, TX. MERS was named nominee in the Deed of Trust but not in the Note.
- MERS assigned the Deed of Trust to MCMCAP (recorded Jan. 21, 2009). No original allonge showing Greenpoint’s indorsement to MCMCAP was produced; an allonge in blank executed by Greenpoint in 2011 and several affidavits were introduced later.
- MCMCAP sold the Note to Urban Trust on July 16–17, 2009 and delivered the Note (with two undated allonges) to Urban Trust, which later lost/destroyed the original and executed a Lost Note Affidavit (Oct. 26, 2009).
- Skelton defaulted on interest payments beginning Aug. 1, 2010; Urban Trust accelerated the loan and scheduled foreclosure for April 5, 2011. State-court litigation and an injunction followed; Skelton then filed Chapter 11 and the case was removed to bankruptcy court.
- Bankruptcy court granted summary judgment for Urban Trust and Cenlar on quiet title, declaratory relief, and fraudulent/negligent misrepresentation claims; final judgment allowed foreclosure. District court reviewed de novo and affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Urban Trust was entitled to enforce the Note despite gaps in the chain of title | Skelton: Urban Trust cannot show a proper chain — no proof Greenpoint indorsed/transferred Note to MCMCAP and no proof MCMCAP’s allonges were affixed, so Urban Trust lacked enforceable indorsement when it lost the Note | Urban Trust: Even without physical possession or perfect indorsements, successive transfers under Tex. Bus. & Com. Code § 3.203 and enforcement under § 3.309 permit a nonpossessor entitled to enforce the instrument to bring suit; affidavits and delivery records establish transfers | Affirmed: Urban Trust was entitled to enforce under § 3.309 because (1) transferee rights were vested via proper transfers, (2) loss occurred after transfer to Urban Trust, and (3) creditor cannot reasonably obtain the original note |
| Whether sequential transfers without formal indorsements defeat enforcement | Skelton: Multiple transfers without proper indorsements create unresolved gaps raising fact issues | Urban Trust: UCC/Tex. Bus. & Com. Code and PEB commentary allow successive § 3.203 transfers to vest enforcement rights even without indorsement on the face of the original note | Affirmed: Sequential transfers can vest enforcement rights without traditional indorsements if transfer evidence shows intent to convey enforcement rights |
| Whether Urban Trust failed § 3.309(a)(1) (was entitled to enforce when loss occurred) | Skelton: Urban Trust lacked valid indorsement as of July 16, 2009, so it wasn’t entitled to enforce when it later lost the note | Urban Trust: Evidence (affidavits, FedEx delivery, allonges, business records) shows MCMCAP had enforcement rights and transferred them to Urban Trust before loss | Affirmed: Evidence established Urban Trust was entitled to enforce when loss occurred; no genuine issue of material fact |
| Whether Skelton justifiably relied on alleged misrepresentations about possession of the original note | Skelton: Relied on Urban Trust’s statements and conduct in refinancing attempts; suffered detriment when refinancing failed | Urban Trust: Skelton received the Lost Note Affidavit in Nov. 2010 (a red flag); refinancing discussions began after that, so reliance was unjustifiable | Affirmed: No justifiable reliance — Lost Note Affidavit put Skelton on notice, barring recovery on fraud and negligent misrepresentation claims |
Key Cases Cited
- Martin v. New Century Mort. Co., 377 S.W.3d 79 (Tex. App. 2012) (elements to recover on promissory note and discussion of chain-of-title issues)
- Leavings v. Mills, 175 S.W.3d 301 (Tex. App. 2004) (transfer of a note may be proved by testimony rather than documentary indorsements)
- Lewis v. Bank of Am. N.A., 343 F.3d 540 (5th Cir. 2003) (justifiable reliance and the ‘red flag’ rule in misrepresentation claims)
- Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913 (Tex. 2010) (justifiable reliance is required for fraud and negligent misrepresentation)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment burdens and shifting of burdens)