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MARCH 2016
 
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IN THIS ISSUE
 
Recent Cases
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Upcoming Program of Note
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CommLaw Update

Editors:

Sunna Choi
O'Melveny & Myers LLP
schoi@omm.com

Susan R. Goldfarb
Proskauer Rose LLP sgoldfarb@proskauer.com


 
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Recent Cases
 
This Update focuses on several commercial law cases of interest.

Brown v. Washington State

In Brown v. Washington State Department of Commerce, 184 Wn.2d 509 (2015), a case addressing the rights of Washington homeowners to access mediation with their lenders under the Foreclosure Fairness Act, the Washington Supreme Court held that the actual holder of a promissory note was the “beneficiary”, rather than the owner of the promissory note, for purposes of determining whether an exemption from a foreclosure mediation program was applicable. The mortgage note was owned by Freddie Mac, but M&T Bank was the loan servicer and actual holder of the note. The Court found that the actual holder of the note is the “person entitled to enforce” the note and modify the loan under UCC Article 3 of the Uniform Commercial Code, and thus, concluded that M&T Bank was the “person entitled to enforce” the note.

 
Standard Bank v Hughes (In re Estate of Nardoni).

In Standard Bank v Hughes (In re Estate of Nardoni), 2014 IL App (1st) 131075 (Ill. App. Ct. 2015), the court reviewed two claims relating to guaranties made by a deceased.  Under the first claim, the deceased signed a guaranty for a loan and delivered certain stock certificates to Standard Bank to secure his obligations under the guaranty.  The Bank placed the certificates in a vault and, after default, for three years, the Bank refused to either sell the stock or permit the debtor to sell the stock to pay off the secured obligation.  The Bank claimed that it was entitled to keep the collateral in its possession until the loan was fully satisfied.  The court found that the Bank’s treatment of the collateral was commercially unreasonable.  Further, the Bank’s failure to dispose of the collateral in a commercially reasonable manner operated to discharge the guarantor from its guaranty of the loan.

Under the second claim, the Bank claimed that a guarantee the deceased entered into to guarantee two notes was effective to guarantee a new note entered into after the death of the guarantor, where the proceeds of the new note were used to pay off the prior two notes.  The court found that the parties intended the new note to be a “novation” of the prior two notes, rather than a consolidation of the prior two notes, and therefore the guarantee for the prior two notes was extinguished when the novation occurred.  Because the new note was an “entirely new loan” used to “payoff” the earlier notes and there was to be no further liability for the earlier notes, the guarantees of the earlier notes were similarly extinguished

 

Inwood Nat'l Bank v. Wells Fargo Bank, N.A.

In Inwood Nat'l Bank v. Wells Fargo Bank, N.A., 463 S.W.3d 228 (Tex. Ct. App. 2015), the Texas court of appeals held that a renewal and extension of a promissory note was not a "novation" and therefore was not a "future advance" for purposes of UCC § 9-323 (b). The debtor's security agreement included a clause providing that all "future advances" made by the bank to the debtor would be secured by a certain investment account. A third party bank subsequently initiated a garnishment proceeding against the debtor and applied for a post-judgment writ of garnishment as to the investment account. The third party bank argued its interest was prior with respect to an alleged "future advance" when the promissory note was renewed and extended. The court concluded the new promissory note, which expressly stated that it was not a novation, was not an 'advance' within the meaning of UCC § 9-323(b) because no additional funds were loaned and no additional burdens were placed on the collateral. As a result, the original secured party's perfected security interest in the investment account had priority over the competing judgment lien even though the promissory note was renewed and extended more than 45 days after the third party bank became a lien creditor.

 
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Upcoming Program of Note
 

Letter of Credit Overview—Giving Credit Where Credit Is Due
Tuesday, March 29, 2016
Registration and Lunch: 11:30 am–12:00 pm
Program: 12:00–1:00 pm
Los Angeles County Bar Association, 1055 West 7th Street, 27th Floor, Los Angeles, CA 90017

Speakers: Richard W. Esterkin, Morgan, Lewis & Bockius LLP, Tom McCurnin, Barton, Klugman & Oetting, and Maria Sountas-Argiropoulos, Klee, Tuchin, Bogdanoff and Stern LLP

1 Hour General CLE Credit


Please provide any comments or proposed content to Sunna Choi (schoi@omm.com) or Susan R. Goldfarb (sgoldfarb@proskauer.com)


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