186 A.3d 1060
R.I.2018Background
- In 2007 Sovereign Bank loaned $1,000,000 to 385 South Main Street, LLC; after a short sale Sovereign received about $700,000 and defendants executed a $200,000 promissory note (2010) for the deficiency.
- Sovereign lost the original $200,000 note and delivered to assignee SMS an allonge and a lost-note affidavit; Sovereign assigned the note to SMS in 2011.
- SMS sued defendants in 2016 for breach of the promissory note seeking principal, interest, fees, costs, and attorneys’ fees.
- Defendants moved for summary judgment, arguing SMS cannot enforce a lost instrument under R.I. UCC § 6A-3-309(a) because SMS was not in possession of the note when it was lost.
- SMS argued (1) defendants were estopped from asserting the lost-note defense because the note required defendants to issue a replacement note upon receipt of a lender’s affidavit, and (2) § 6A-3-203(b) vested enforcement rights in SMS as transferee.
- The Superior Court granted defendants’ summary judgment, concluding § 6A-3-309(a) (specific to lost instruments) controlled over § 6A-3-203(b) and precluded SMS from enforcing the note or its replacement-note provision; this decision was appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an assignee (SMS) may enforce a lost promissory note under R.I. UCC § 6A-3-309(a) | SMS: Transfer vested enforcement rights in SMS under § 6A-3-203(b); SMS can enforce the note | Defs: § 6A-3-309(a) requires the enforcing person to have had possession at time of loss; SMS never possessed the note | Held: § 6A-3-309(a) controls; SMS cannot enforce the lost note because it lacked possession when loss occurred |
| Whether defendants are estopped from asserting the lost-note defense because they failed to issue a replacement note as required by the note | SMS: Note obligates defendants to issue replacement upon lender’s affidavit; their failure to do so estops them from asserting loss | Defs: Enforceability of replacement provision is itself subject to § 6A-3-309; SMS cannot selectively enforce provisions when it lacks enforcement rights | Held: SMS cannot enforce the replacement-note provision because § 6A-3-309 bars its enforcement rights as a nonpossessor assignee |
| Whether § 6A-3-203(b) (transfer vests enforcement rights) supersedes § 6A-3-309(a) (lost instruments) | SMS: § 6A-3-203(b) vests transferee with transferor’s rights so SMS can enforce | Defs: § 6A-3-309(a) is a specific statute addressing lost instruments and thus controls over the general transfer provision | Held: Specific statute § 6A-3-309(a) governs and overrides general § 6A-3-203(b) in lost-instrument cases |
| Whether Rhode Island should apply the UCC’s 2002 amendment to § 3-309 that would permit assignees to enforce lost instruments | SMS: (implicit) public policy supports enforcement by transferees; legislative amendment advisable | Defs: Rhode Island has not adopted the 2002 amendment; courts must apply the statute as enacted | Held: Court follows existing Rhode Island statute; remedy (if any) lies with the Legislature, not the courts |
Key Cases Cited
- Roadepot, LLC v. Home Depot, U.S.A., Inc., 163 A.3d 513 (R.I. 2017) (standard of review for cross-motions for summary judgment)
- 5750 Post Road Medical Offices, LLC v. East Greenwich Fire District, 138 A.3d 163 (R.I. 2016) (summary-judgment standard and appellate review)
- South County Post & Beam, Inc. v. McMahon, 116 A.3d 204 (R.I. 2015) (specific statutory provisions control over general ones)
- Lehigh Cement Co. v. Quinn, 173 A.3d 1272 (R.I. 2017) (statutory interpretation: plain-meaning rule)
- Dennis Joslin Co., LLC v. Robinson Broadcasting Corp., 977 F. Supp. 491 (D.D.C. 1997) (assignee of a lost note could not enforce it when not in possession; influenced later UCC amendment)