In re the Foreclosure of the Property of Johnson

MARTIN, Judge. The issues presented in this appeal pertain to the burden upon a party seeking to foreclose under a deed of trust securing payment of a promissory note to establish the existence of a valid [487] debt of which he is the holder. We hold that petitioners have failed to carry this burden. Petitioners contend the trial court erred in finding in its order that the petitioners had failed to show the existence of a promissory note with any terms sufficient to cause a foreclosure in this proceeding. A party seeking to go forward with foreclosure under a deed of trust securing payment of a promissory note 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 (1980). The Uniform Commercial Code defines a “holder” as “a person who is in possession of ... an instrument . . . issued or endorsed to him or to his order . . . .” G.S. 25-1-201(20); see also Hotel Corp. v. Taylor and Fletcher v. Foremans, Inc., 301 N.C. 200, 271 S.E. 2d 54 (1980). Possession is significant in determining whether a person is a holder, and the absence of possession defeats that status. See In re Foreclosure of Connolly v. Potts, 63 N.C. App. 547, 306 S.E. 2d 123 (1983); 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. Applying these basic tenets to the case sub judice, petitioners were required to sustain the burden of proof as to the existence of a valid debt, at the time of trial, of which they were the holders. Petitioners offered into evidence a copy of a deed of trust, which was signed by Jonathan Johnson and which recited the existence of a note; however, petitioners did not offer the note into evidence, nor were they able to show the trial court that they were in possession of the note which the deed of trust secured. Petitioners argue that this evidence before the court demonstrated that the note was lost or destroyed under G.S. 25-3-804 so as to excuse its production and permit secondary evidence of its contents. However, G.S. 25-3-804 by its very terms requires “due proof of ownership, the facts which prevent his production of the instrument and its terms.” It is necessary to prove the due execution of the instrument, its delivery, as well as its loss or destruction before secondary evidence of its contents may be shown. See Downing v. Dickson, 224 N.C. 455, 31 S.E. 2d 378 (1944). The evidence offered by petitioners in this case fails to sustain their burden of proof. The record is devoid of any evidence [488] concerning due proof of ownership of the note, its execution, its delivery, or its loss or destruction. This failure is fatal to petitioners’ action and renders correct the trial judge’s order precluding a foreclosure pursuant to the power of sale under the deed of trust. Petitioners next assert that the trial court erred by sustaining respondent’s objection, preventing Estelle C. Johnson from testifying as to what reason Jonathan Johnson would be paying $4,000.00 to Inez Johnson other than in regard to the transaction involving Johnson’s Produce Market. Respondent objected and when the objection was sustained, petitioners excepted but made no offer of proof. This exception is without merit since the exclusion of evidence will not be reviewed on appeal unless the record sufficiently shows what the evidence would have been. Gibbs v. Light Co., 268 N.C. 186, 150 S.E. 2d 207 (1966); Carter v. Carr, 68 N.C. App. 23, 314 S.E. 2d 281 (1984). Petitioners next assign as error the trial court’s refusal to allow into evidence copies of checks apparently bearing the signature of Jonathan Johnson and made payable to Inez Johnson, the widow of one of the heirs of Davis Johnson and a petitioner herein in the amount of $4,000.00, and another check in the amount of $1,200.00 apparently bearing the signature of Jonathan Johnson and made payable to James M. Johnson, another heir of Davis Johnson and petitioner in this action. The exhibits were intended to provide proof that the checks were payment to heirs of Davis Johnson, or his successors in interest, for the alleged sale of Johnson’s Produce Market. We agree with petitioners that these exhibits were collateral to the basic issue in the case; however, we are restrained from saying their exclusion from the evidence was prejudicial. Before the issue of payment of the alleged debt could be reached, petitioners possessed the burden of proving the existence of a present debt of which they were the holder with terms sufficient to cause a foreclosure. Having failed to carry this burden, exclusion of the two copies of checks bearing the signature of Jonathan Johnson did not constitute prejudicial error. Petitioners finally contend the trial court committed prejudicial error in affirming the conclusions of law of the Chatham County Clerk of Superior Court. Upon examination of the facts [489] and conclusions, we are of the opinion and so hold that the trial court correctly applied the facts that he found in affirming the Clerk of Superior Court’s conclusions of law. Accordingly, the order of the trial judge is Affirmed. Judges BECTON and JOHNSON concur.