221 So. 3d 657
Fla. Dist. Ct. App.2017Background
- Borrower (appellee) executed a mortgage note payable to World Savings Bank; note bore a special indorsement on the back: “PAY TO THE ORDER OF FANNIE MAE WITH RECOURSE WORLD. SAVINGS BANK, FSB” signed by an assistant custodian and stamped “Cancelled.”
- World Savings Bank later changed its name to Wachovia and then merged into Wells Fargo; Wells Fargo (appellant) filed foreclosure and had possession of the original note at filing.
- At bench trial Wells Fargo proved borrower’s default and damages; borrower moved for involuntary dismissal on the ground Wells Fargo failed to show Fannie Mae had transferred the note back.
- Trial court granted dismissal, concluding Wells Fargo did not show reacquisition from Fannie Mae; Wells Fargo appealed.
- The appellate court found two realistic scenarios (reacquisition by Wells Fargo or the indorsement was erroneous/nontransfer) under which Wells Fargo could cancel the special indorsement and proceed with foreclosure.
- Court reversed dismissal and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bank needed proof Fannie Mae transferred the note back to enforce it | Borrower: bank failed to show Fannie Mae transferred note back; dismissal proper | Bank: bank possessed original note and could cancel the special indorsement under UCC reacquisition or because indorsement was mistaken | Bank entitled to cancel indorsement; dismissal reversed |
| Whether a former holder can cancel indorsements after reacquisition | Borrower: cancellation without proof of transfer is invalid | Bank: UCC § 673.2071 allows a former holder who reacquires the instrument to cancel subsequent indorsements | Court: § 673.2071 permits cancellation and reacquirer may negotiate if cancellation makes instrument payable to reacquirer |
| Whether an indorsement placed by mistake prevents enforcement | Borrower: indorsement shows Fannie Mae involvement; chain unclear | Bank: if indorsement was never effective (no negotiation/transfer), reacquisition/cancellation still valid | Court: if never transferred, indorsement ineffective and bank could cancel it |
| Whether borrower was prejudiced by lack of Fannie Mae testimony/explanation | Borrower: need for Fannie Mae action to explain indorsement | Bank: original note in evidence; no prejudice shown and risk of duplicate enforcement is minimal | Court: borrower showed no prejudice; original note in evidence prevents later enforcement by Fannie Mae |
Key Cases Cited
- Handley v. Horak, 82 Misc.2d 692, 370 N.Y.S.2d 313 (N.Y. Gen. Term 1975) (former holder may cancel an endorsement before or after delivery; cancellation can nullify an endorsement)
- Los Alamos Credit Union v. Bowling, 108 N.M. 113, 767 P.2d 352 (N.M. 1989) (cancellation, release, or surrender can be ineffective if unauthorized or by mistake)
- Fla. Coast Bank of Broward Cty. v. Monarch Dodge, Inc., 430 So.2d 607 (Fla. 4th DCA 1983) (discussing application of UCC provisions on indorsement liability and recourse)