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Pribus v Bush

Pribus v Bush

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Another great ruling from the 80's showing that an improper Allonge is insufficient to allege Rights to Enforce.
Another great ruling from the 80's showing that an improper Allonge is insufficient to allege Rights to Enforce.

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Published by: Mortgage Compliance Investigators on Apr 25, 2013
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 Pribus
v. Bush
Court of Appeal of California, Fourth Appellate District, Division TwoMay 12, 1981Civ. No. 23473
Reporter:
118 Cal. App. 3d 1003; 173 Cal. Rptr.Serv. (Callaghan) 599HELEN A.
PRIBUS 
, Plaintiff and Respondent,v. PHILIP L. BUSH, Defendant and Appellant
Prior History: [***1]
Superior Court of Or-ange County, No. 314923, Philip Edgar Schwab, Jr., Judge.
Disposition:
AFFIRMED.
Core Terms
indorsement, allonge, promissory note,negotiable instrument, holder in due course,space, law merchant, trust deed, holder 
Case Summary
Procedural Posture
Defendant appealed a judgment of the Superior Court of Orange County (California) enjoin-
ing the foreclosure of a trust deed on plain-
tiff’s house and ordering the cancellation of a
 promissory note signed by plaintiff.
Overview
Defendant, after an unsuccessful effort to col-
lect on a promissory note, filed a

 Notice of 
Breach and Default and of Election to Cause
Sale of Real Property Under Deed of Trust.

Plaintiff responded by seeking a cancellation of instrument, declaratory relief, and injunction.The trial court enjoined the foreclosure of a trust
deed on plaintiff’s house and ordered the can
-747; 1981 Cal. App. LEXIS 1724; 31 U.C.C. Rep.cellation of the promissory note signed by plain-tiff. The court affirmed, holding that the assign-
ment by allonge of plaintiff’s promissory
 note by third party to defendant was ineffec-tive as an indorsement, since there was suffi-
cient space on the note itself for the indorse-
ment. There having been no indorsement of 
the note, defendant was not a holder in due
course and, therefore, took the note subject to thedefenses that plaintiff had against third party.
Outcome
The court affirmed, holding that the assign-
ment by allonge of plaintiff’s promissory
note by third party to defendant was ineffective as anindorsement, and therefore, defendant was not
a holder in due course and took the note sub-
 ject to the defenses that plaintiff had againstthird party.
LexisNexis® Headnotes
Commercial Law (UCC) > Negotiable Instruments(Article 3) > Dishonor & Presentment > General Over-viewCommercial Law (UCC) > ... > Enforce-ment > Holders in Due Course > General OverviewCommercial Law (UCC) > ... > Enforcement > Hold-ers in Due Course > RequirementsCommercial Law (UCC) > ... > Definitions & Gen-eral Provisions > Definitions > Holders in Due Course
 HN1
See
Cal. Uniform Commercial Code § 
3302(1)
.
Commercial Law (UCC) > General Provisions (Ar-Charles Cox
 
Page 2 of 7118 Cal. App. 3d 1003, *1003; 173 Cal. Rptr.ticle 1) > General ProvisionsCommercial Law (UCC) > ... > Enforce-ment > Holders in Due Course > General OverviewContracts Law > ... > Types of Parties > Holders in DueCourse > General OverviewContracts Law > ... > Types of Parties > Holders inDue Course > RequirementsContracts Law
> ...
> Negotiable Instru-
ments > Indorsements > General OverviewContracts Law > ... > Negotiable Instruments > Indorse-ments > Qualified Indorsements
 HN2
A holder is a person who is in possessionof an instrument issued or indorsed to him.
Cal. Uniform Commercial Code § 1201(20)
.
Commercial Law (UCC) > Negotiable Instruments (Ar-ticle 3) > Indorsements, Negotiations & Trans-fers > Indorsements
 HN3
See
Cal. Uniform Commercial Code § 3202(2)
.
Commercial Law (UCC) > General Provisions (Ar-ticle 1)Commercial Law (UCC) > General Provisions (Ar-ticle 1) > General ProvisionsCommercial Law (UCC) > ... > General Provi-sions > Policies & Purposes > General OverviewCommercial Law (UCC) > ... > General Provi-
sions > Policies & Purposes > Supplemental Prin-
ciples of Law
 HN4
See
Cal. Uniform Commercial Code § 1103
.
Commercial Law (UCC) > Negotiable Instruments (Ar-ticle 3) > Indorsements, Negotiations & Trans-fers > IndorsementsContracts Law > Types of Commercial Transac-tions > Negotiable Instruments > General OverviewContracts Law > ... > Negotiable Instruments > Indorse-ments > General Overview
 HN5
The law merchant permits the use of an al-longe only when there is no longer room onthe negotiable instrument itself to write an in-dorsement.
Commercial Law (UCC) > Negotiable Instruments (Ar-ticle 3) > Indorsements, Negotiations & Trans-fers > IndorsementsContracts Law
> ...
> Negotiable Instru-
ments > Indorsements > General Overview
 HN6 
The general rule is that an instrumentcould be indorsed only by writing on the instru-
747, **747; 1981 Cal. App. LEXIS 1724, ***1
ment itself, but that an exception to the rule al-lows the use of an attached paper when the back of the instrument is so covered as to make itnecessary.
Headnotes/Syllabus
SummaryCALIFORNIA OFFICIAL REPORTS SUM-MARY
The maker of a promissory note that had beenassigned by the payees to an assignee by a pa- per stapled to the note as an allonge brought anaction for cancellation of the note and an in- junction against foreclosure under the deed of trust on her house securing the note. The maker commenced the action after the assignee had
filed a

 Notice of Breach and Default and of 
Election to Cause Sale of Real Property Under Deed of Trust,
 
following the assignee’s un
-successful effort to collect on the note. The notewas a replacement for another that had been ex-ecuted by the maker at the request of her son who owed the payees a large sum of money.The original note was never delivered, but the payees induced the maker to execute the replace-ment note for the same amount as the first
note on the payees’ false representation they
would hold the note and make no use of it. Therewas parol evidence that the payees were to be paid any excess collected on the note over andabove a specified amount. Judgment was en-tered ordering cancellation of the note and en- joining the assignee from foreclosing on the
deed of trust. The judgment followed the court’s
determination that the allonge was not effec-tive as an indorsement, that due to the lack of 
an effective indorsement and the fact the pay-
ees retained an interest in the note there had been no negotiation of the note, and that thus theassignee was not a holder in due course and
took the note subject to the maker’s defenses
against the payees of fraudulent inducement andlack of consideration. (Superior Court of Or-ange County, No. 314923, Philip Edgar Schwab,Jr., Judge.)
HeadnotesCALIFORNIA OFFICIAL REPORTS
Charles Cox
 
Page 3 of 7118 Cal. App. 3d 1003, *1003; 173 Cal. Rptr.
HEADNOTES
Classified to California Digest of Official Re- ports, 3d Series
CA(1)
(1)
Commercial Paper § 9 > Transfer and Negotia-
tion > Indorsement > Affixation of Payees’ Signature
onAllonge.
--In an action by the maker of a promissorynote secured by a deed of trust on real prop-erty for cancellation of the note that had been as-signed by allonge and an injunction against
the assignee’s foreclosure under the deed of 
trust, the trial court properly found in support of its judgment granting the requested relief that
the payees’ assignment of the note by allonge
was ineffective as an indorsement, and thatthe assignee thus was not a holder in due courseand took the note subject to the
maker’s de
-fenses against the payees of fraudulent induce-ment and lack of consideration. The assign-ment by allonge was ineffective as anindorsement, where there was sufficient space
on the note itself for the payees’ indorsement.
 
Counsel:
Howser, Gertner & Brown and Da-vid L. Sanner for Defendant and Appellant.Stephen D. Johnson for Plaintiff and Respon-dent.
Judges:
Opinion by Morris, J., with Kaufman,Acting P. J., and Garst, J.,
*
concurring.
Opinion by:
MORRIS
Opinion
[*1005] [**747]
Defendant appeals from a
 judgment enjoining the foreclosure of a trust
deed on plaintiff’s house, and ordering the can
-cellation of a promissory note signed by plain-tiff. Judgment was entered against defendantafter the trial court concluded that he was not aholder in due course.
 Facts
747, **747; 1981 Cal. App. LEXIS 1724, ***1
Charles
Pribus
, the son of Helen
Pribus
(plain-tiff), owed $ 126,500 to Ford and Mary Wil-
liams. At Charles’ request, plaintiff executed a
 promissory note for $ 126,500 and a trust
deed on plaintiff’s house to secure the note,
 both in favor of the Williams. Charles deliv-ered the trust deed to Ford Williams, who caused itto be recorded. The note was never deliv-ered. Ford Williams then induced the plaintiff to execute a second promissory note for $126,500, the subject of this appeal.
[***2]
The trial court made the finding, which is notnow challenged, that this note was executed onthe false representation by Williams that hewould hold the note and would make no use of it. The court also made the uncontroverted find-
ing that plaintiff received no consideration for 
the note.Within a few months, Williams bought fromPhilip Bush (defendant) an option to purchase
Bush’s contractual rights to buy
[**748]
an
apartment complex in Texas. As part of Wil-
liams’ written agreement with defendant Bush,
Williams assigned the trust deed on plain-
tiff’s house to defendant and transferred to de
-fendant the promissory note which Williamshad induced plaintiff to execute. Stapled to thenote was a paper, signed by Ford and MaryWilliams, which stated:

For a valuable consid-eration, the receipt and sufficiency of which ishereby acknowledged, the undersigned do
hereby assign the attached Note to Phillip L.
Bush.
There was sufficient space on thenote itself to write an indorsement in the wordsthat were written on the paper stapled to thenote.After an unsuccessful effort to collect on the promissory note, defendant filed a

 Notice of 
Breach and Default and of Election to Cause
[***3]
Sale of Real Property Under Deedof Trust.
Plaintiff responded by initiating the present action, seeking

cancellation of instru-ment, declaratory relief, and injunction.

[*1006]
Following a trial on the merits, thecourt found for the plaintiff. Although the prom-issory note was a negotiable instrument pay-
*
Assigned by the Chairperson of the Judicial Council.
Charles Cox

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