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, appeal dismissed, 301 N.C. 90, --- S.E. 2d --- (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 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 petitioners’ rights to foreclose. The record before us does not make clear whether petitioners were in possession of the note which the mortgage secured. The record on appeal indicates that prior to trial, the parties stipulated as to the existence and proper execution of “the note and deed of trust.” [551] The record further indicates that petitioners “introduced the originals of the note and deed of trust.” But petitioner Frank Moody testified that in February of 1978 petitioners assigned the $260,000.00 note to First Citizens Bank and Trust Company as security for a $12,500.00 loan; that the $12,500.00 note had been paid off at some undetermined time; and “that he and his wife had not gotten back the note for $260,000.00” but that “they had left the big note at the bank, for security purposes.” The findings of fact made by the trial court did not address the question of who had actual possession of the $260,000.00 note. Petitioners cite 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 petitioners’ status as a holder at the time of the institution of the action was controlling. The matter being before Judge Freeman de novo, petitioners’ status at the time of trial was determinative of the question of “holdership.” The evidence, as narrated in the record on appeal, raised questions as to whether petitioners ever regained possession of the $260,000.00 note of 14 October 1975, and whether they actually had possession of that note at the time of trial. The findings of the trial court did not resolve these critical questions. For the reasons stated, the judgment of the trial court must be vacated and the case must be remanded for further proceedings not inconsistent with this opinion. Our opinion reported in 62 N.C. App. 300, 302 S.E. 2d 481 (1983) is hereby withdrawn and is superseded by this opinion. Vacated and remanded. Judges Johnson and Phillips concur.