Connolly v. Potts

WELLS, Judge. The issues presented in this appeal relate to the burden upon a party seeking to foreclose under the terms of a deed of trust securing payment of a promissory note to establish that he is the holder of the note. A party seeking to go forward with foreclosure under a power of sale must establish, inter alia, by competent evidence, the existence of a valid debt of which he is the holder. G.S. 45-21.16(d), In re Foreclosure of Burgess, 47 N.C. App. 599, 267 S.E. 2d 915 (1980). The Uniform Commercial Code, G.S. 25-1-201(20) defines a “holder” to be “a person who is in possession of ... . an instrument . . . issued or indorsed to him or to his order . . . .” See Hotel Corp. v. Taylor and Fletcher v. Foremans, Inc., 301 N.C. 200, 271 S.E. 2d 54 (1980). It is the fact of possession which is significant in determining whether a person is a [303] holder, and the absence of possession defeats that status. See Liles v. Myers, 38 N.C. App. 525, 248 S.E. 2d 385 (1978). See also 1 Anderson, Uniform Commercial Code § 1-201: 105 through 116. The trial court’s finding of the existence of a valid debt was not determinative of petitioner’s right to foreclose. In the case now before us, petitioners were not able to show the trial court that they were in possession of the note which the mortgage secured. The note was not introduced into evidence, and petitioner Frank A. Moody’s testimony showed that at the time of trial, the note was in the possession of a third party, as found by the trial court. Petitioner cites Furst v. Loftin, 29 N.C. App. 248, 224 S.E. 2d 641 (1976) for the proposition that where a mortgagee’s note has been pledged to another to secure a debt smaller than the debt securing the deed of trust sought to be foreclosed, the mortgagee has such an interest as will entitle him to foreclose the mortgage. To the extent that Furst may represent a holding that possession at trial is not necessary to establish that the mortgagee is the holder of the instrument that constitutes the debt which the mortgage secures, Furst is expressly overruled. Judge Freeman’s order appears to indicate that he was under the misapprehension that petitioner’s status as a holder at the time of the institution of the action was controlling. The matter being before Judge Freeman de novo, the evidence at trial was determinative of the question. It is clear that on the evidence, Judge Freeman reached the correct result. For the reasons stated, the judgment of the trial court is Affirmed. Judges Johnson and Phillips concur.