A Third Party That Acquires An Unendorsed Note Has Standing To Enforce That Note Though Not Technically A Holder Of The Note. Valley Nat'l Bank v. Marcano, 174 Conn. App. 206 (2017).
The personal guarantor (the “Guarantor”) of a $250,000 business line of credit, made available to his company (the “Borrower”) by Park Avenue Bank (Valley National) (the “Original Bank”), executed a personal guaranty securing the Borrower’s obligations to the Original Bank under the promissory note evidencing the obligations (the “Note”). Over time, the Original Bank ran into financial trouble, resulting in the Federal Deposit Insurance Corporation’s (“FDIC”) seizure of the Original Bank’s assets. Valley National Bank, the Original Bank’s successor in interest, (the “Successor Bank”) purchased all of the Original Bank’s assets from the FDIC and memorialized the transaction in a purchase and assumption agreement. The Successor Bank then sued the Guarantor to enforce the debt outstanding and unpaid under the Note. Ruling in favor of the Successor Bank, the trial court found that the Successor Bank had established a proper chain of title regarding its ownership of the Note that was personally guaranteed by the Guarantor. Accordingly, the trial court held that the Successor Bank had standing to bring an action to enforce the Guarantor’s payment obligation under the Note.
The Guarantor appealed the trial court’s decision, arguing that the Successor Bank lacked standing to bring an action against him because, among other reasons, the Note was not indorsed. The court disagreed. Specifically, under Connecticut law, a party may enforce a promissory note pursuant to the Uniform Commercial Code if that party is the holder of the promissory note or a non-holder who has the rights of a holder (typically achieved by the transfer of the promissory note by a party other than the issuer to third party for the purpose of giving that third party the right to enforce the promissory note). Therefore, under Connecticut law, an unendorsed note transferred to a third party is enforceable by such third party, despite it technically not being a holder of the note, so long as such third party acquires the right to enforce the note via the intentional transfer of such right by the transferor.
Here, the court found that the purchase and assumption agreement executed by the FDIC evidenced such intent, given that the Successor Bank received from the FDIC “all right, title and interest” to all of the Original Bank’s assets. Accordingly, when the FDIC transferred all of the Original Bank’s assets to the Successor Bank, the Successor Bank became a non-holder in possession of the note with the same rights of a holder, even though the note was not specifically endorsed.