Investors Bank v. Javier Torres (082239) (Bergen County & Statewide)

SYLLABUS

This syllabus is not part of the Court’s opinion. It has been prepared by the Office of the

Clerk for the convenience of the reader. It has been neither reviewed nor approved by the

Court. In the interest of brevity, portions of an opinion may not have been summarized.

Investors Bank v. Javier Torres (A-55-18) (082239)

Argued October 23, 2019 -- Decided July 1, 2020

PATTERSON, J., writing for the Court.

Defendant Javier Torres signed a promissory note (Note) secured by a

residential mortgage (Mortgage). Torres defaulted on the Note. CitiMortgage, Inc.,

then discovered that it had lost the original Note but had retained a digital copy

setting forth its terms. CitiMortgage assigned the Mortgage and its interest in the

Note to plaintiff Investors Bank (Investors). In this appeal, the Court considers

whether Investors can enforce the Note.

The Note, which Torres signed in 2005, memorialized his agreement that the

lender was authorized to transfer the Note. Torres defaulted on the Note in 2010,

and CitiMortgage filed a foreclosure action. While that action was pending,

CitiMortgage discovered that it no longer possessed the original Note. Ultimately, it

voluntarily dismissed its foreclosure action without prejudice.

In 2013, a CitiMortgage representative executed a Lost Note Affidavit

representing that the Note was not found despite a “thorough and diligent search”

and that CitiMortgage was the “the lawful owner of the note,” and had not

“cancelled, altered, assigned or hypothecated the note.” CitiMortgage attached a

digital copy of the Note to its Affidavit and represented that, after the copy was

made, the Note had been “properly endorsed.”

In 2014, CitiMortgage served on Torres a Notice of Default and Intention to

Foreclose; it then assigned to Investors “all beneficial interest under” the Mortgage,

thus conveying its right to enforce the Note and Mortgage to Investors. Investors

then filed this foreclosure action. Defendants challenged Investors’ right to enforce

the Note, based on the loss of the original.

The trial court granted summary judgment in Investors’ favor and required

Investors to provide indemnification “should another party attempt to enforce the

lost note.” The Appellate Division affirmed, interpreting N.J.S.A. 12A:3-309 and

invoking the equitable doctrine of unjust enrichment. See 457 N.J. Super. 53, 56,

59, 62 (App. Div. 2018). The Court granted certification. 236 N.J. 594 (2019).

1

HELD: Relying on two statutes addressing assignments, N.J.S.A. 2A:25-1 and

N.J.S.A. 46:9-9, as well as common-law assignment principles, the Court holds that

Investors had the right as an assignee of the Mortgage and transferee of the Note to

enforce the Note. The Court construes N.J.S.A. 12A:3-309 to address the rights of

CitiMortgage as the possessor of a note or other instrument at the time that the

instrument is lost, but not to supplant New Jersey assignment statutes and common

law in the setting of this appeal or to preclude an assignee in Investors’ position

from asserting its rights according to the Note’s terms. Read together, those three

statutes clearly authorized the assignment and entitled Investors to enforce its

assigned Mortgage and transferred Note. The Court does not rely on the equitable

principle of unjust enrichment invoked by the Appellate Division.

1. In N.J.S.A. 2A:25-1 and N.J.S.A. 46:9-9, which date from the nineteenth century,

the Legislature expressed a strong policy favoring the assignment of an array of

contractual rights. Case law underscores that rights arising by contract are generally

assignable, subject to exceptions for anti-assignment contractual language, statutes

prohibiting the assignment of certain categories of contractual rights, and other

expressions of public policy against the assignment of specific interests. Courts

applying N.J.S.A. 46:9-9 to assignments of mortgages require that an assignee

seeking standing to foreclose present an authenticated assignment indicating that it

was assigned the note before it filed the original complaint. (pp. 14-18)

2. When it enacted New Jersey’s version of the UCC in 1995, the Legislature stated

that “[u]nless displaced by the particular provisions of the Uniform Commercial

Code, the principles of law and equity . . . supplement its provisions.” N.J.S.A.

12A:1-103(b). The Legislature adopted the Comment of the UCC drafters

explaining that the UCC “was drafted against the backdrop of existing bodies of

law,” which “supplement” but “may not be used to supplant” the UCC’s provisions.

Accordingly, to the extent that N.J.S.A. 2A:25-1, N.J.S.A. 46:9-9, and common-law

assignment principles are not inconsistent with the UCC’s text or aims, New

Jersey’s statutory and case law favoring assignments apply to the transfer of rights

that gave rise to this appeal. (pp. 18-19)

3. The Court reviews N.J.S.A. 12A:3-309, which prescribes the conditions under

which a lost instrument may be enforced. The Comment to that section cautions

courts to ensure “that the defendant will be adequately protected against a claim to

the instrument by a holder that may appear at some later time.” The Comment also

clarifies that the section addresses the rights of a party that was entitled to enforce

the negotiable instrument at the moment it disappeared, not those of a party assigned

the right to enforce the instrument at a later stage. After a court interpreted the

District of Columbia’s version of UCC section 3-309 to allow only the person who

was in possession of the instrument when it was lost to enforce that instrument, the

drafters of the model UCC amended section 3-309 in 2002 to make clear that the

2

provision was not intended to bar a transferee from seeking to enforce a negotiable

instrument merely because the transferee did not possess the instrument at the

moment it was lost. The New Jersey Legislature did not alter N.J.S.A. 12A:3-309 to

conform to the 2002 amendment to UCC section 3-309. (pp. 19-24)

4. Here, had CitiMortgage not assigned the Mortgage to Investors, N.J.S.A. 12A:3-

309 would have entitled it to enforce the Note. And there is no suggestion -- let

alone clear evidence -- that the Legislature intended the provision to displace New

Jersey’s statutes and common law on assignments, or to nullify assignments of

mortgages that are valid and enforceable under that law. The Court declines to draw

an inference that by not amending N.J.S.A. 12A:3-309 following the 2002

amendment to UCC section 3-309 the Legislature rejected the proposition that a

transferee of a lost negotiable instrument may enforce the lost note if it acquired

ownership from a person entitled to enforce the instrument at the time it was lost.

Construing N.J.S.A. 12A:3-309 to preclude the enforcement of an assigned right to a

lost note because the assignee is not the party that lost the note would not simply

contravene N.J.S.A. 2A:25-1, N.J.S.A. 46:9-9, and case law on assignments; it

would also generate results that are arbitrary, unworkable, and unfair. In short,

N.J.S.A. 12A:3-309 does not nullify Investors’ rights as the assignee of the

Mortgage and transferee of the lost Note. Instead, N.J.S.A. 2A:25-1, N.J.S.A. 46:9-

9, and common-law assignment principles govern Investors’ rights as

CitiMortgage’s assignee and the transferee of the lost Note. (pp. 25-27)

5. The Court briefly addresses the challenge to the trial court’s consideration of the

Lost Note Affidavit. The Affidavit was signed by a CitiMortgage representative

before a notary public and was properly authenticated under N.J.R.E. 901.

Moreover, the Affidavit was properly considered by the trial court because it

qualifies as a business record under N.J.R.E. 803(c)(6). (pp. 28-31)

6. The summary judgment record fully supports the determination that Investors had

the right to enforce the Note notwithstanding the loss of the original. There is no

dispute that CitiMortgage had the right to enforce the Note under N.J.S.A. 12A:3-

309 when it assigned the Mortgage and transferred the Note to Investors. Under

N.J.S.A. 2A:25-1, N.J.S.A. 46:9-9, and the case law applying those statutes, the

assignment was valid, and by its terms Investors acquired the right to enforce the

lost Note. Finally, the trial court protected Torres from the threat from liability to

multiple claimants by requiring Investors to indemnify Torres if a third party were to

attempt to enforce the lost Note. (pp. 31-32)

The judgment of the Appellate Division is AFFIRMED AS MODIFIED.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, FERNANDEZ-

VINA, SOLOMON, and TIMPONE join in JUSTICE PATTERSON’s opinion.

3

SUPREME COURT OF NEW JERSEY

A-55 September Term 2018

082239

Investors Bank,

Plaintiff-Respondent,

v.

Javier Torres,

Defendant-Appellant,

and

Mrs. Javier Torres, his wife,

and Dora M. Dillman,

Defendants.

On certification to the Superior Court,

Appellate Division, whose opinion is reported at

457 N.J. Super. 53 (App. Div. 2018).

Argued Decided

October 23, 2019 July 1, 2020

Adam Deutsch argued the cause for appellant (Northeast

Law Group, attorneys; Adam Deutsch, on the briefs).

Joshua N. Howley argued the cause for respondent (Sills

Cummis & Gross, attorneys; Joshua N. Howley, of

counsel and on the briefs, and Matthew L. Lippert, on the

briefs).

1

Renee Cadmus argued the cause for amicus curiae Legal

Services of New Jersey (Legal Services of New Jersey,

attorneys; Melville D. Miller, Dawn K. Miller, Maryann

Flanigan, and Robert Casagrand, on the brief).

Linda E. Fisher argued the cause for amicus curiae Seton

Hall Law School Center for Social Justice (Seton Hall

Law School Center for Social Justice, attorneys; Linda E.

Fisher and Margaret L. Jurow, on the brief).

Joseph Lubertazzi argued the cause for amicus curiae

New Jersey Business & Industry Association (McCarter

& English, attorneys; Joseph Lubertazzi, Steven

Beckelman, David R. Kott, and Scott M. Weingart, of

counsel and on the brief).

JUSTICE PATTERSON delivered the opinion of the Court.

In 2005, defendant Javier Torres signed a promissory note (Note) and

executed a residential mortgage (Mortgage) with his wife, defendant Dora M.

Dillman. Several years later, Torres defaulted on his obligations under the

Note. The entity that had possessed the Note, CitiMortgage, Inc.

(CitiMortgage), then discovered that it had lost the original Note but had

retained a digital copy setting forth its terms. CitiMortgage assigned the

Mortgage and its interest in the Note to plaintiff Investors Bank (Investors).

Investors filed this foreclosure action. Relying on a provision of the

Uniform Commercial Code (UCC) adopted in New Jersey, N.J.S.A. 12A:3-

309, defendants challenged Investors’ right to enforce the Note, based on the

2

loss of the original. The trial court rejected that challenge, granted summary

judgment in Investors’ favor, and ordered Investors to indemnify defendants

against any liability in the event that another party were to produce the original

Note and attempt to enforce it against Torres.

Defendants appealed the trial court’s grant of summary judgment. The

Appellate Division declined to interpret N.J.S.A. 12A:3-309 to bar Investors

from enforcing the lost Note. Citing New Jersey law recognizing the validity

of assignments such as the one at issue here and the equitable principle of

unjust enrichment, the Appellate Division affirmed the trial court’s judgment.

Investors Bank v. Torres, 457 N.J. Super. 53, 57-66 (App. Div. 2018).

We affirm as modified the Appellate Division’s judgment. Relying on

two statutes addressing assignments, N.J.S.A. 2A:25-1 and N.J.S.A. 46:9-9, as

well as common-law assignment principles, we hold that Investors had the

right as an assignee of the Mortgage and transferee of the Note to enforce the

Note. We construe N.J.S.A. 12A:3-309 to address the rights of CitiMortgage

as the possessor of a note or other instrument at the time that the instrument is

lost, but not to supplant New Jersey assignment statutes and common law in

the setting of this appeal or to preclude an assignee in Investors’ position from

asserting its rights according to the Note’s terms. Read together, N.J.S.A.

12A:3-309, N.J.S.A. 2A:25-1, and N.J.S.A. 46:9-9 clearly authorized the

3

assignment and entitled Investors to enforce its assigned Mortgage and

transferred Note. We do not rely on the equitable principle of unjust

enrichment invoked by the Appellate Division. See Investors Bank, 457 N.J.

Super. at 62-63.

We conclude that the trial court was presented with competent evidence

that CitiMortgage had possessed the Note but misplaced it, that there was no

genuine issue of material fact as to Investors’ right to enforce the Note, and

that the trial court adequately protected Torres from the threat of double

liability. We therefore hold that the trial court properly granted summary

judgment in Investors’ favor and entered a judgment of foreclosure.

I.

A.

On October 28, 2005, defendant Javier Torres signed the Note. He

promised to pay $650,000 plus interest to the order of the lender identified in

the Note as AMRO Mortgage Group, Inc. (ABN). The Note confirmed

Torres’s understanding that ABN was authorized to transfer the Note and

memorialized his agreement that ABN “or anyone who takes this Note by

transfer and who is entitled to receive payments under this Note” would be

considered the “Note Holder.” The Note was secured by the October 28, 2005

Mortgage on defendants’ residential property in Woodcliff Lake, New Jersey.

4

ABN subsequently merged into CitiMortgage, which succeeded to its

interest in the Note executed by Torres and the Mortgage executed by both

defendants.

On September 15, 2008, CitiMortgage and defendants entered into a loan

modification agreement which lowered the interest rate on the loan and

extended the maturity date on the Note by three years.

On February 1, 2010, Torres defaulted on the Note.

B.

CitiMortgage filed a foreclosure action against defendants on November

8, 2010. While that action was pending, CitiMortgage discovered that it no

longer possessed the original Note. Nonetheless, CitiMortgage moved for

summary judgment.

The trial court granted in part and denied in part CitiMortgage’s

summary judgment motion. The court stated that there was a disputed issue of

material fact as to CitiMortgage’s assertion “that it acquired possession of the

Note and Mortgage on September 7, 2007 and that it remains in possession of

same.” The court scheduled a summary hearing to resolve that question.

CitiMortgage then voluntarily dismissed its foreclosure action without

prejudice.

5

On October 22, 2013, a CitiMortgage representative executed a Lost

Note Affidavit. The affiant stated that after the Note was executed by Torres

and delivered to CitiMortgage, “the original Note was misplaced, lost or

destroyed.” He further represented that the Note was not found despite a

“thorough and diligent search” during which CitiMortgage “[s]earched loan

files and imaged documents.” The affiant asserted in the Lost Note Affidavit

that CitiMortgage was the “the lawful owner of the note,” and had not

“cancelled, altered, assigned or hypothecated the note.”

CitiMortgage attached a digital copy of the Note without endorsements

to its Affidavit and represented that after the copy was made, the Note had

been “properly endorsed.” The digital copy set forth the terms of the Note.

C.

On September 2, 2014, in accordance with the Fair Foreclosure Act,

N.J.S.A. 2A:50-56, CitiMortgage served on Torres a Notice of Default and

Intention to Foreclose (NOI). On the NOI, CitiMortgage listed itself as the

loan servicer, and listed Investors as the lender.

On November 20, 2014, CitiMortgage assigned to Investors “all

beneficial interest under” the Mortgage, thus conveying its right to enforce the

Note and Mortgage to Investors. The assignment provided that “[t]he transfer

of the mortgage and accompanying rights was effective at the time the loan

6

was sold and consideration passed to [Investors].” The assignment was

recorded in the Bergen County Clerk’s Office.

Investors then filed this foreclosure action in the Chancery Division.

Defendants filed an answer, asserting as an affirmative defense that Investors

“cannot enforce the note because it is neither a possessor of the note, a holder

in due course, or a non-holder with a right to enforce.”

After the parties conducted discovery, Investors moved for summary

judgment pursuant to Rules 4:46-1 and 4:46-2. Investors submitted to the trial

court the Lost Note Affidavit and the digital copy of the Note. To support the

admissibility of those documents as business records under N.J.R.E. 803(c)(6),

Investors submitted a certification by a CitiMortgage executive with

responsibility for document control. The certification stated that

CitiMortgage’s business records that are maintained for the purpose of

servicing mortgage loans were “made at or near the time by, or from

information provided by, persons with knowledge of the activity and

transactions reflected in such records”; that the records were “kept in the

course of business activity conducted regularly” by CitiMortgage; and that it

was the “regular practice of [CitiMortgage’s] mortgage servicing business to

make [those] records.”

7

In the certification, CitiMortgage’s representative acknowledged that

Investors did not have the original Note and referred the court to the Lost Note

Affidavit for an explanation of the missing Note. CitiMortgage’s

representative asserted that, despite the loss of the original Note, Investors had

standing to enforce the Note pursuant to N.J.S.A. 12A:3-309.

Defendants opposed Investors’ summary judgment motion. They

contested Investors’ standing based primarily on the fact that Investors did not

have the original Note. They also asserted that the NOI served by

CitiMortgage in advance of the foreclosure action was defective because the

NOI prematurely designated Investors as the lender two months before

CitiMortgage assigned the Mortgage to Investors.

The trial court granted Investors’ summary judgment motion. The court

reasoned that a plaintiff in a foreclosure action must demonstrate either

possession of the note or a valid assignment of the mortgage predating the

filing of the foreclosure complaint; in its view, Investors had proven that it was

assigned the mortgage two months before it filed its action. Without expressly

ruling on the admissibility of the documents, the court acknowledged that

Investors had provided a Lost Note Affidavit and a digital copy of the Note. It

stated that “the Office of Foreclosure will address the lost note when

[Investors] files for final judgment.”

8

The trial court, however, agreed with defendants that CitiMortgage had

prematurely listed Investors as the lender on its NOI prior to CitiMortgage’s

assignment of the mortgage to Investors. It therefore barred Investors from

filing for final judgment for sixty days.

After the expiration of the sixty-day period prescribed by the trial court,

Investors filed an application for final judgment with the Office of

Foreclosure. Defendants renewed their objection to foreclosure based on their

argument that Investors was not a holder of the Note under N.J.S.A. 12A:3-

309. The Office of Foreclosure remanded that dispute to the trial court for

resolution.

The trial court rejected defendants’ argument. The court held that

Investors had proven the terms of the Note by producing the digital copy of

that instrument, and that the assignment established Investors’ right to enforce

the Note. The court required Investors to indemnify defendants “should

another party attempt to enforce the lost note.”

The trial court remanded the matter to the Office of Foreclosure. Final

judgment was entered in Investors’ favor on January 25, 2017.

D.

Defendants appealed the final judgment of foreclosure.

9

Rejecting the interpretation of N.J.S.A. 12A:3-309 urged by defendants,

the Appellate Division declined to construe that provision to bar a party that is

the assignee of a mortgage and the transferee of a lost note from enforcing

those instruments. Investors Bank, 457 N.J. Super. at 58-60. The court held

that “a person who was both in possession of a note and entitled to enforce it

when the loss occurred may enforce that note and may transfer that right to

another” and “a subsequent transferee need only prove ‘the terms of the

instrument and the person’s right to enforce the instrument’ as required by

[N.J.S.A. 12A:3-309(b)].” Id. at 60.

The Appellate Division viewed its interpretation of the statute to be

consonant with the equitable doctrine of unjust enrichment. Id. at 62-63. It

reasoned that if it were to adopt defendants’ argument, it would deprive

Investors of the benefit of its bargain with CitiMortgage and permit Torres “to

stay in the mortgaged premises and continue to ignore his obligations to pay

principal, interest, taxes and insurance premiums, adding to a debt that already

exceeds $900,000.” Ibid. The Appellate Division further held that the Lost

Note Affidavit was properly authenticated and qualified as a business record

under N.J.R.E. 803(c)(6). Id. at 63-64.

10

Accordingly, the Appellate Division concluded that the trial court had

properly granted Investors’ motion for summary judgment. It affirmed the

judgment of foreclosure. Id. at 57-66.

E.

We granted defendants’ petition for certification. 236 N.J. 594 (2019).

We also granted the motions of Legal Services of New Jersey, Seton Hall Law

Center for Social Justice, and the New Jersey Business and Industry

Association to appear as amici curiae.

II.

A.

Defendants contest the admissibility of the Lost Note Affidavit as a

business record pursuant to N.J.R.E. 803(c)(6). They argue that N.J.S.A.

12A:3-309 plainly bars a party that possessed a lost promissory note before it

was lost from transferring its interests under that note after the loss.

Defendants assert that because Investors was not in possession of the Note

when it was lost, it has no right as an assignee to enforce that Note in its

foreclosure action. They observe that UCC section 3-309 was amended in

2002 to expressly authorize a transferee to enforce a lost instrument if the

transferee “directly or indirectly acquired ownership of the instrument from a

person who was entitled to enforce the instrument when the loss occurred.”

11

They claim that because the New Jersey Legislature did not amend N.J.S.A.

12A:3-309 to incorporate that 2002 amendment, it did not intend that assignees

in Investors’ position be permitted to enforce lost instruments such as the Note

at issue here. Defendants argue that this case does not implicate principles of

unjust enrichment because Investors can extricate itself from its transaction

with CitiMortgage and Torres will be required to pay his debt to CitiMortgage

even if foreclosure is denied.

B.

Investors counters that, under N.J.S.A. 2A:25-1 and the common law,

any contract right is assignable unless its assignment is prohibited by law. It

construes N.J.S.A. 12A:3-309(a) not to limit the use of a Lost Note Affidavit

to the original holder of the instrument or prohibit assignment of a note that

has been lost, and contends that the statute imposes no obstacle to the

assignment in this case. Investors asserts that defendants’ interpretation of the

statute would significantly interfere with the secondary market for mortgages

by allowing only the holder at the time of loss to foreclose on a lost note, thus

precluding any assignment of the mortgage. It argues that the Lost Note

Affidavit was admissible as a business record under N.J.R.E. 803(c)(6).

12

C.

Amicus curiae Legal Services of New Jersey contends that New Jersey’s

statutory scheme for the enforcement of negotiable mortgage notes is premised

on the physical possession of the note, not its ownership. It argues that

N.J.S.A. 12A:3-309 unambiguously authorizes enforcement of a lost note only

by the last party that had a right to enforce the note and actually possessed the

note before it was lost. During oral argument, Legal Services of New Jersey

asserted that under Morris Canal & Banking Co. v. Fisher, 9 N.J. Eq. 667 (E.

& A. 1855), notes are not choses in action that would be assignable under

N.J.S.A. 2A:25-1, but choses in possession.

D.

Amicus curiae Seton Hall Law Center for Social Justice asserts that only

a party that had physical possession of a note when it was lost can enforce that

note. It argues that if we accept its position, our ruling would properly require

lenders to treat documents relating to residential mortgages with care, and

would encourage assignees of lost instruments to modify or adjust the debt so

that borrowers can retain their homes and continue to repay their debt. The

Center for Social Justice asserts that defendants would not receive a windfall if

they were to prevail because they will be expected to make mortgage payments

even if the judgment of foreclosure is reversed.

13

E.

Amicus curiae the New Jersey Business and Industry Association cites

Appellate Division cases holding that a plaintiff in foreclosure may establish

standing either by showing its possession of the note or establishing that it was

assigned the note before it filed the original complaint. It argues that the

Legislature expressed no contrary intent in N.J.S.A. 12A:3-309, which was

intended to protect borrowers from the threat of double liability based on a

single note. It contends that N.J.S.A. 12A:3-309 does not govern assignments

addressed in N.J.S.A. 2A:25-1 and N.J.S.A. 46:9-9 and asserts that New Jersey

assignment law supports Investors’ position in this appeal.

III.

A.

In two statutes dating from the nineteenth century, the Legislature

expressed a strong policy favoring the assignment of an array of contractual

rights. When N.J.S.A. 2A:25-1 was first enacted in 1898, it provided that

[a]ll bills, bonds and other writings, whether sealed or

not, containing any agreement for the payment of

money, and all contracts for the sale and conveyance of

any real estate, . . . and all other choses in action arising

on contracts, shall be assignable at law, and the

assignee or assignees may sue thereon in his, her or

their own names.

[L. 1898, c. 228, § 38.]

14

In its current version, the statute provides in relevant part that

[a]ll contracts for the sale and conveyance of real estate,

all judgments and decrees recovered in any of the courts

of this State or of the United States or in any of the

courts of any other state of the United States and all

choses in action arising on contract shall be assignable,

and the assignee may sue thereon in his own name. In

such an action, the person sued shall be allowed, not

only all set-offs, discounts and defenses he has against

the assignee, but also all set-offs, discounts and

defenses he had against the assignor before notice of

such assignment was given to him.

[N.J.S.A. 2A:25-1.]

Case law underscores the principle that rights arising by contract are

generally assignable, subject to exceptions for anti-assignment contractual

language, statutes prohibiting the assignment of certain categories of

contractual rights, and other expressions of public policy against the

assignment of specific interests. See Aronsohn v. Mandara, 98 N.J. 92, 99

(1984) (“If the contract contains no prohibition on assignment, such rights may

be assigned in the absence of any public policy reason to the contrary.”);

Somerset Orthopedic Assocs., P.A. v. Horizon Blue Cross & Blue Shield of

N.J., 345 N.J. Super. 410, 415-18 (App. Div. 2001) (noting that although

courts have enforced anti-assignment contractual language in many settings,

“contract rights are generally assignable except where assignment is prohibited

by operation of law or public policy”); Kimball Int’l, Inc. v. Northfield Metal

15

Prods., 334 N.J. Super. 596, 612 (App. Div. 2000) (stating that “[o]ur courts

have broadly construed” N.J.S.A. 2A:25-1 to enforce assignments of choses in

action).1 And, “[i]n the absence of any provision to the contrary, the

1

We acknowledge the contention made by Legal Services of New Jersey

at oral argument that under Morris Canal, 9 N.J. Eq. at 698-700, notes are not

choses in action, but choses in possession, and are thus not assignable pursuant

to N.J.S.A. 2A:25-1. On close examination, we cannot agree with that

contention. Although the Court in Morris Canal held that the bonds in dispute

in that case were negotiable instruments ordinarily conveyed by delivery, id. at

699-700, we do not read that case to stand for the proposition that negotiable

instruments can be conveyed only by delivery.

In Morris Canal, the defendants, the Morris Canal and Banking

Company, executed bonds, made payable to the bearer, and secured by a

mortgage. Id. at 675. The original holder of those bonds sold them to the

plaintiff. Ibid. When the defendants failed to pay the interest due on the

bonds, the plaintiff filed for foreclosure. Id. at 675-76. The Court noted that,

ordinarily, bonds “cannot be assigned so as to give a right of action to the

assignee,” even if payable to the bearer. Id. at 698. A New Jersey statute,

however, authorized the assignment of bonds. Ibid. Further, assignment of the

bonds “may be by a delivery for . . . valuable consideration, without any

writing.” Ibid. (emphasis added). Because the bonds were payable to the

bearer, the Court found that the bonds were negotiable instruments and the

common usage was to pass such bonds by delivery. Id. at 699-700. Therefore,

the plaintiff, as the present possessor of the bonds, held complete title to the

bonds and no assignment in writing was needed. Id. at 700-01.

Although the court in Morris Canal made clear that when a negotiable

instrument is payable to the bearer, delivery is sufficient to grant complete

title, it did not hold that delivery constituted the only method of conveying

such a negotiable instrument, or convert it into a chose in possession. Id. at

698-701. Indeed, cases decided after Morris Canal made clear that under New

Jersey law, promissory notes such as the Note at issue here are considered

choses in action. See, e.g., Erlich v. Mulligan, 104 N.J.L. 375, 378 (E. & A.

1928) (holding that a promissory “note was a chose in action and expressly

16

assignment of a chose in action includes, as incident to the chose, all securities

and liens held by the assignor as collateral to the claim, and all rights

incidental thereto.” Westville Land Co. v. Handle, 112 N.J.L. 447, 457 (Sup.

Ct. 1934).

In N.J.S.A. 46:9-9, first enacted in 1863, the Legislature specifically

addressed the assignability of mortgages on real estate. As currently drafted,

the statute provides that

[a]ll mortgages on real estate in this State, and all

covenants and stipulations therein contained, shall be

assignable at law by writing, whether sealed or not, and

any such assignment shall pass and convey the estate of

the assignor in the mortgaged premises, and the

assignee may sue thereon in his own name, but, in any

such action by the assignee, there shall be allowed all

just set-offs and other defenses against the assignor that

would have been allowed in any action brought by the

assignor and existing before notice of such assignment.

[N.J.S.A. 46:9-9.]

Courts applying N.J.S.A. 46:9-9 to assignments of mortgages require

that an assignee seeking standing to foreclose present “an authenticated

assignment indicating that it was assigned the note before it filed the original

assignable” by statute); Polhemus v. Prudential Realty Corp., 74 N.J.L. 570,

578 (E. & A. 1907) (holding that when a note “passed into the possession of

the Trenton Trust and Safe Deposit Company, as holders for value, before

maturity, it had legal inception as a note, and became a chose in action, with

all the qualities ordinarily incident thereto”). The Note at issue here is a chose

in action subject to assignment under N.J.S.A. 2A:25-1.

17

complaint.” Deutsche Bank Nat’l Tr. Co. v. Mitchell, 422 N.J. Super. 214,

225 (App. Div. 2011); see also Wells Fargo Bank, N.A. v. Ford, 418 N.J.

Super. 592, 600 (App. Div. 2011) (reversing the grant of summary judgment in

favor of Wells Fargo where “the purported assignment of the mortgage, which

an assignee must produce to maintain a foreclosure action, see N.J.S.A. 46:9-9,

was not authenticated in any manner”).

B.

1.

When it enacted New Jersey’s version of the UCC in 1995, see L. 1995,

c. 28, the Legislature prescribed the manner in which courts should reconcile

UCC provisions with other potentially relevant law, such as New Jersey

statutory and case law governing assignments. It stated that “[u]nless

displaced by the particular provisions of the Uniform Commercial Code, the

principles of law and equity . . . supplement its provisions.” N.J.S.A. 12A:1-

103(b). The Legislature adopted the Comment of the UCC drafters, the

American Law Institute and the National Conference of Commissioners on

Uniform State Laws. That comment explained,

[t]he Uniform Commercial Code was drafted against

the backdrop of existing bodies of law, including the

common law and equity, and relies on those bodies of

law to supplement it[s] provisions in many important

ways. At the same time, the Uniform Commercial Code

is the primary source of commercial law rules in areas

18

that it governs, and its rules represent choices made by

its drafters and the enacting legislatures about the

appropriate policies to be furthered in the transactions

it covers. Therefore, while principles of common law

and equity may supplement provisions of the Uniform

Commercial Code, they may not be used to supplant its

provisions, or the purposes and policies those

provisions reflect, unless a specific provision of the

Uniform Commercial Code provides otherwise. In the

absence of such a provision, the Uniform Commercial

Code preempts principles of common law and equity

that are inconsistent with either its provisions or its

purposes and policies.

[N.J.S.A. 12A:1-103 cmt. 2.]

The Legislature adopted the Comment of the UCC drafters, which stated

that “[w]hen the other law relating to a matter within the scope of the [UCC] is

a statute, the principles of subsection (b) remain relevant to the court’s

analysis of the relationship between that statute and the [UCC].” N.J.S.A.

12A:1-103 cmt. 3.

Accordingly, to the extent that N.J.S.A. 2A:25-1, N.J.S.A. 46:9-9, and

common-law assignment principles are not inconsistent with the UCC’s text or

aims, New Jersey’s statutory and case law favoring assignments apply to the

transfer of rights that gave rise to this appeal.

2.

To make that determination, we look to N.J.S.A. 12A:3-309’s legislative

goals and the terms of the statute itself.

19

For purposes of Article 3, the Legislature defined a “‘[p]erson entitled to

enforce’ an instrument” as

the holder of the instrument, a nonholder in possession

of the instrument who has the rights of a holder, or a

person not in possession of the instrument who is

entitled to enforce the instrument pursuant to [N.J.S.A.]

12A:3-309 . . . . A person may be a person entitled to

enforce the instrument even though the person is not the

owner of the instrument or is in wrongful possession of

the instrument.

[N.J.S.A. 12A:3-301.]

Thus, under N.J.S.A. 12A:3-301, a person who does not possess the

instrument when that person attempts to enforce it may nonetheless do so if

N.J.S.A. 12A:3-309’s standard is met. That section provides as follows:

a. A person not in possession of an instrument is

entitled to enforce the instrument if the person was in

possession of the instrument and entitled to enforce it

when loss of possession occurred, the loss of possession

was not the result of a transfer by the person or a lawful

seizure, and the person cannot reasonably obtain

possession of the instrument because the instrument

was destroyed, its whereabouts cannot be determined,

or it is in the wrongful possession of an unknown

person or a person that cannot be found or is not

amenable to service of process.

b. A person seeking enforcement of an instrument

under subsection a. of this section must prove the terms

of the instrument and the person’s right to enforce the

instrument. If that proof is made, [N.J.S.A.] 12A:3-308

applies to the case as if the person seeking enforcement

had produced the instrument. The court may not enter

judgment in favor of the person seeking enforcement

20

unless it finds that the person required to pay the

instrument is adequately protected against loss that

might occur by reason of a claim by another person to

enforce the instrument. Adequate protection may be

provided by any reasonable means.

[N.J.S.A. 12A:3-309.]

The drafters of the model UCC expressed concern that a debtor might

confront not only a claim by the party who possessed the instrument when it

was lost and seeks to enforce it, but a subsequent claim by a party that

somehow acquired the original. See U.C.C. § 3-309 cmt. (1990). They

cautioned courts not to enter judgment without ensuring “that the defendant

will be adequately protected against a claim to the instrument by a holder that

may appear at some later time.” Ibid.; accord N.J.S.A. 12A:3-309 (adopting

that comment).

The drafters of UCC section 3-309 also explained that “the rights stated

[in that provision] are those of ‘a person entitled to enforce the instrument’ at

the time of loss rather than those of an ‘owner’ as in former Section 3 -804.”

U.C.C. § 3-309 cmt. (1990). The provision thus addresses the rights of a party

that was entitled to enforce the negotiable instrument at the moment it

disappeared, not those of a party assigned the right to enforce the instrument at

a later stage.

21

In Dennis Joslin Co., LLC v. Robinson Broadcasting Corp., 977 F. Supp.

491, 494-95 (D.D.C. 1997), the court interpreted the District of Columbia’s

version of UCC section 3-309 more restrictively than its drafters’ comments

suggest it was intended. There, the district court viewed D.C. Code section

28:3-309 (1995) to allow only the person who was in possession of the

instrument when it was lost to enforce that instrument, thus barring any claim

by a subsequent assignee. Ibid. The court acknowledged that “there does not

appear to be a logical reason to distinguish between a person who was in

possession at the time of the loss and one who later comes into possession of

the rights to the note.” Id. at 495. It nonetheless read the statute to “mandate[]

that the plaintiff suing on the note must meet two tests, not just one: it must

have been both in possession of the note when it was lost and entitled to

enforce the note when it was lost.” Ibid.2

2

Following Dennis Joslin Co., several courts construed their state’s

version of UCC section 3-309 to require proof of possession at the time that

the note was lost in order to enforce the note. In re Harborhouse of

Gloucester, LLC, 505 B.R. 365, 369-72 (Bankr. D. Mass.), aff’d, 523 B.R. 749

(B.A.P. 1st Cir. 2014); In re Kemp, 440 B.R. 624, 632-33 (Bankr. D.N.J.

2010); Marks v. Braunstein, 439 B.R. 248, 251 (Bankr. D. Mass. 2010);

McCay v. Capital Res. Co., Ltd., 940 S.W.2d 869, 870-71 (Ark. 1997); Seven

Oaks Enters., L.P. v. Devito, 198 A.3d 88, 99-100 (Conn. App. Ct.), appeal

denied, 197 A.3d 893 (Conn. 2018); Emerald Portfolio, LLC v. Outer

Banks/Kinnakeet Assocs., LLC, 790 S.E.2d 721, 725 (N.C. Ct. App. 2016);

U.S. Bank N.A. Tr. v. Jones, 71 N.E.3d 1233, 1239-40 (Ohio Ct. App. 2016);

SMS Fin. XXV, LLC v. Corsetti, 186 A.3d 1060, 1066-67 (R.I. 2018).

22

In the wake of Dennis Joslin Co., the drafters of the model UCC

amended section 3-309 in 2002. Through that amendment, they clarified that a

transferee may enforce a lost promissory note if the transferee “directly or

indirectly acquired ownership of the instrument from a person who was

entitled to enforce the instrument when loss of possession occurred.” See

U.C.C. § 3-309(a)(1)(B) (2002). The drafters also added comments to section

3-309 in 2002. The second comment to that section states in relevant part:

Subsection (a) is intended to reject the result in Dennis

Joslin Co. v. Robinson Broadcasting Corp., 977 F.

Supp. 491 (D.D.C. 1997). A transferee of a lost

instrument need prove only that its transferor was

entitled to enforce, not that the transferee was in

possession at the time the instrument was lost. The

protections of subsection (a) should also be available

when instruments are lost during transit, because

whatever the precise status of ownership at the point of

loss, either the sender or the receiver ordinarily would

Other courts interpreted mirror provisions of UCC section 3-309 to

authorize an assignee to enforce its rights under a note lost prior to the

assignment. In re Caddo Parish-Villas S., Ltd., 250 F.3d 300, 302 (5th Cir.

2001); In re Allen, 472 B.R. 559, 566-67 (B.A.P. 9th Cir. 2012); Atl. Nat’l Tr.,

LLC v. McNamee, 984 So. 2d 375, 376-79 (Ala. 2007); YYY Corp. v. Gazda,

761 A.2d 395, 398-401 (N.H. 2000).

In addition, a Pennsylvania court enforced a lost note based on

Pennsylvania’s counterpart to N.J.S.A. 12A:3-203, which addresses the effect

of a transfer of a negotiable instrument by delivery of the instrument. See

Bobby D. Assocs. v. DiMarcantonio, 751 A.2d 673, 676 (Pa. Super. Ct. 2000).

That provision was not raised by the parties to this appeal, nor was it relied on

by either the trial court or the Appellate Division in this case.

23

have been entitled to enforce the instrument during the

course of transit.

[U.C.C. § 3-309 cmt. 2 (2002).]

Specifically addressing the transferee of a lost negotiable instrument for

the first time in section 3-309, the drafters thus made clear that the provision

was not intended to bar a transferee from seeking to enforce a negotiable

instrument merely because the transferee did not possess the instrument at the

moment it was lost. Ibid.

The New Jersey Legislature did not alter the language of N.J.S.A.

12A:3-309 to conform to the 2002 amendment to UCC section 3-309. Our

statute retains the model UCC’s pre-2002 language, which does not address the

rights of transferees.

C.

1.

We construe the statutes at issue in accordance with familiar principles.

A statute’s plain language serves as “the best indicator” of the Legislature’s

intent. DiProspero v. Penn, 183 N.J. 477, 492 (2005). “When the provisions

of a statute are clear and unambiguous, they should be given their literal

significance, unless it is clear from the text and purpose of the statute that such

meaning was not intended.” Turner v. First Union Nat’l Bank, 162 N.J. 75, 84

(1999). When we discern the meaning of the Legislature’s selected words, we

24

may “draw inferences based on the statute’s overall structure and

composition.” State v. S.B., 230 N.J. 62, 68 (2017). If the Legislature’s intent

is clear on the face of the statute, then the “interpretive process is over.”

Richardson v. Bd. of Trs., PFRS, 192 N.J. 189, 195 (2007).

2.

By its plain terms, N.J.S.A. 12A:3-309 governs the rights of a party that

was “entitled to enforce” a lost note or other instrument at the time that it was

lost. See N.J.S.A. 12A:3-309 cmt. (commenting that the “rights stated are

those of ‘a person entitled to enforce the instrument’ at the time of loss”). In

this case, CitiMortgage was the party “in possession of the instrument and

entitled to enforce it when loss of possession occurred.” See N.J.S.A. 12A:3-

309(a). Had CitiMortgage not assigned the Mortgage to Investors, N.J.S.A.

12A:3-309 would have entitled it to enforce the Note against defendants.

The New Jersey version of UCC section 3-309, however, is silent

regarding the rights of an assignee of a mortgage and the transferee of a note

when the original note executed by the mortgagor has been lost. See N.J.S.A.

12A:3-309(a). There is no suggestion -- let alone clear evidence -- that the

Legislature intended the provision to displace New Jersey’s statutes and

common law on assignments, or to nullify assignments of mortgages that are

valid and enforceable under that law. Like the Appellate Division, we decline

25

to read that statute to “preclud[e] enforcement by the assignee of a mortgage

and the transferee of a lost note.” Investors Bank, 457 N.J. Super. at 59.

Defendants observe that the Legislature did not amend N.J.S.A. 12A:3-

309 following the 2002 amendment to UCC section 3-309. They urge us to

infer that the Legislature therefore rejected the proposition clarified in that

amendment, namely that a transferee of a lost negotiable instrument may

enforce the lost note if it acquired ownership from a person entitled to enforce

the instrument at the time it was lost. We decline to draw such an inference.

Legislative inaction is “a weak reed upon which to lean . . . in construing

a statute.” Amerada Hess Corp. v. Dir., Div. of Taxation, 107 N.J. 307, 322

(1987) (quoting 2A Sutherland Statutory Construction § 49.10 (4th ed. 1984));

see also Masse v. Bd. of Trs., PERS, 87 N.J. 252, 264 (1981) (noting that

legislative inaction “demonstrates nothing more than that subsequent

legislatures failed to act”). We consider only the language of N.J.S.A. 12A:3-

309 as enacted in New Jersey and do not view that language to limit the rights

of Investors, as an assignee and transferee under other statutory provisions or

our case law, with respect to assignments.

If we were to construe N.J.S.A. 12A:3-309 as defendants suggest, and

preclude the enforcement of an assigned right to a lost note because the

assignee is not the party that lost the note, our decision would not simply

26

contravene N.J.S.A. 2A:25-1, N.J.S.A. 46:9-9, and our case law on

assignments; it would also generate results that are arbitrary, unworkable, and

unfair. Such an interpretation could bar a foreclosure action --

notwithstanding the defendant’s failure over decades to make mortgage

payments -- simply because a bank employee happens to misplace the original

note that was in the bank’s files. If defendants were to prevail, the loss or

destruction by fire or flood of multiple notes relating to bundled mortgages

would deprive assignees of their bargained-for rights and confer a windfall on

each defaulting mortgagor. We share the Appellate Division’s view that in

this appeal, such an interpretation would produce “an absurd result -- allowing

the defaulted defendant to remain in possession of a house obligation-free.”

Investors Bank, 457 N.J. Super. at 63.

In short, N.J.S.A. 12A:3-309 does not nullify Investors’ rights as the

assignee of the Mortgage and transferee of the lost Note. Instead, N.J.S.A.

2A:25-1, N.J.S.A. 46:9-9, and common-law assignment principles govern

Investors’ rights as CitiMortgage’s assignee and the transferee of the lost Note.

IV.

A.

Against that backdrop, we review the trial court’s entry of summary

judgment in Investors’ favor, applying the standard prescribed by Rule 4:46-

27

2(c). Mem’l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 524 (2012)

(citing Henry v. Dep’t of Human Servs., 204 N.J. 320, 330 (2010)). That Rule

provides that summary judgment should be granted “if the pleadings,

depositions, answers to interrogatories and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to any material fact

challenged and that the moving party is entitled to a judgment or order as a

matter of law.” R. 4:46-2(c).

When summary judgment is premised on a legal conclusion, we review

that decision de novo, giving “no special deference to the legal determinations

of the trial court.” Templo Fuente De Vida Corp. v. Nat’l Union Fire Ins. Co.

of Pittsburgh, 224 N.J. 189, 199 (2016) (citing Manalapan Realty, L.P. v. Twp.

Comm. of Manalapan, 140 N.J. 366, 378 (1995)).

B.

We briefly address the evidentiary issue raised with respect to one aspect

of the summary judgment record. Defendants challenge the trial court’s

consideration of the Lost Note Affidavit and an attached digital copy of the

Note in the summary judgment proceeding, arguing that the Affidavit was

inadmissible because it was unauthenticated and that it did not qualify as a

business record under N.J.R.E. 803(c)(6). See R. 4:46-2 (addressing

submission of affidavits in support of or opposition to summary judgment) ; R.

28

1:6-6 (authorizing courts to hear motions “on affidavits made on personal

knowledge, setting forth only facts which are admissible in evidence to which

the affiant is competent to testify”). We review the trial court’s evidentiary

ruling for abuse of discretion. Hisenaj v. Kuehner, 194 N.J. 6, 12 (2008).

As the Appellate Division properly concluded, the Lost Note Affidavit

was signed by a CitiMortgage representative before a notary public and was

properly authenticated under N.J.R.E. 901. Investors Bank, 457 N.J. Super. at

63. Moreover, the Lost Note Affidavit was properly considered by the trial

court because it qualifies as a business record under N.J.R.E. 803(c)(6). That

Rule prescribes an exception to the hearsay rule for

[a] statement contained in a writing or other record of

acts, events, conditions, and, subject to Rule 808,

opinions or diagnoses, made at or near the time of

observation by a person with actual knowledge or from

information supplied by such a person, if the writing or

other record was made in the regular course of business

and it was the regular practice of that business to make

it, unless the sources of information or the method,

purpose or circumstances of preparation indicate that it

is not trustworthy.

[N.J.R.E. 803(c)(6).]

Defendants raise three arguments as to why the Lost Note Affidavit does

not meet the standard of N.J.R.E. 803(c)(6): the document was prepared by

CitiMortgage, not Investors; it was not clearly drafted at or near the time that

the Note was lost and therefore does not satisfy N.J.R.E. 803(c)(6)’s second

29

factor; and it is not trustworthy, thereby failing to meet the third requirement

of the Rule.

Defendants’ objection to the Affidavit’s admissibility based on the fact

that it was CitiMortgage’s record but is presented by Investors has no merit .

Nothing in N.J.R.E. 803(c)(6) constrains the rule to records created by the

same entity that is the proponent of the evidence at trial. Indeed, parties to

litigation routinely seek the admission of documents created by other parties or

nonparties under N.J.R.E. 803(c)(6).

Nor is the document inadmissible by virtue of the unknown amount of

time that elapsed between CitiMortgage’s discovery that the Note was lost and

the drafting of the Affidavit; the date of that discovery is unclear, and

CitiMortgage’s representative certified that its business records ar e generally

produced “at or near the time” of the event “from information provided by

persons with knowledge of the activity.”

Finally, the Lost Note Affidavit is not inherently untrustworthy as a

document prepared for litigation, as defendants suggest. The Lost Note

Affidavit was prepared more than a year before CitiMortgage assigned the

Mortgage to Investors, and fifteen months before this action was filed.

Moreover, even if we were to subject the Lost Note Affidavit to special

scrutiny as a document prepared in anticipation of or for use in litigation, it

30

withstands such scrutiny. CitiMortgage has no incentive to fabricate a claim

that it lost the original Note and has searched for it, to no avail. There is no

dispute as to the terms of the lost Note; defendants do not contest the accuracy

of the digital copy of the Note setting forth that instrument’s terms .

We therefore concur with the Appellate Division that the trial court did

not abuse its discretion when it considered the Lost Note Affidavit during the

summary judgment proceedings. See Investors Bank, 457 N.J. Super. at 63-

64.

C.

The summary judgment record fully supports the trial court’s

determination that Investors had the right to enforce the Note notwithstanding

the loss of the original. It is uncontested that the terms of the Note were

established by the digital copy submitted to the trial court. There is no dispute

that CitiMortgage had the right to enforce the Note under N.J.S.A. 12A:3-309

when it assigned the Mortgage and transferred the Note to Investors.

CitiMortgage clearly had the authority to assign to Investors the right to

enforce the lost Note.

The summary judgment record also confirms CitiMortgage’s valid

assignment of its rights to Investors. Investors presented to the trial court an

authenticated copy of its recorded assignment, which makes clear the terms of

31

that assignment. See R. 4:64-2(a) (authorizing proof of an assignment in a

foreclosure action in the form of an original or “a legible copy of a recorded or

filed document, certified as a true copy by the recording or filing officer or by

a New Jersey attorney”). There is no genuine issue of material fact as to

whether CitiMortgage intended to assign “the [M]ortgage and accompanying

rights” to Investors. Under N.J.S.A. 2A:25-1, N.J.S.A. 46:9-9, and the case

law applying those statutes, the assignment was valid, and by its terms

Investors acquired the right to enforce the lost Note.

Finally, the trial court achieved N.J.S.A. 12A:3-309’s purpose of

protecting the debtor, Torres, from the threat from liability to multiple

claimants based on the same Note. It required Investors to indemnify Torres

against any liability in the event that a third party were to attempt to enforce

the lost Note.

We thus concur with the Appellate Division that the trial court properly

entered summary judgment pursuant to Rule 4:46-2 in Investors’ favor.

Investors Bank, 457 N.J. Super. at 64-66.3 We conclude that the Appellate

Division properly affirmed the judgment of foreclosure.

3

We do not rely on the doctrine of unjust enrichment in this appeal, as the

Appellate Division did. See Investors Bank, 457 N.J. Super. at 62-63. Our

decision is premised on N.J.S.A. 12A:3-309, N.J.S.A. 2A:25-1, N.J.S.A. 46:9-

9, and New Jersey case law on assignments.

32

V.

The judgment of the Appellate Division is affirmed as modified.

CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN,

FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE

PATTERSON’s opinion.

33