Guaranty of securitized mortgage can be enforced by holder of note without proof of chain of assignments or proof of separate assignment of the guaranty.

Wells Fargo Bank Minnesota, N.A. v. Rouleau, 2012 VT 19 (Burgess, J.)

Defendant Randy J. Rouleau appeals a decision holding that Wells Fargo Bank Minnesota, N.A., as Trustee for the registered holders of Credit Suisse First Boston Mortgage Security Corp., Commercial Mortgage Pass-Through Certificates, Series 2001-CF2 (Wells Fargo), is entitled to enforce defendant’s personal guaranty of a promissory note secured by mortgages on five mobile home parks. The court concluded that Wells Fargo could enforce the guaranty as the holder of the note under 9A V.S.A. § 3-301(i). Defendant argues that the court erred in ruling that Wells Fargo has standing to enforce the guaranty because Wells Fargo cannot prove the chain of assignments from the original lender to itself and therefore that Wells Fargo, and not some third party, is the assignee of the guaranty. Defendant also argues that the court erred in treating assignment of the note as sufficient to show assignment of the guaranty because the guaranty, in contrast to the note, is a separate contract that must be expressly assigned. Finally, defendant argues that because Wells Fargo lacks standing to enforce the guaranty, the court lacked jurisdiction over the enforcement action. We affirm. Under § 3-301(i), the holder of the note and mortgage can enforce the guaranty. Because the court did not err in finding that Wells Fargo was the holder of the note and mortgage, we hold that Wells Fargo can enforce the guaranty without separate proof of assignment.

The court correctly concluded that “assignment of the note and mortgage results in the assignment of the personal guaranty as a matter of law—even without an express assignment of the guaranty.” Under contract law, “an assignment agreement must clearly reflect an intent to assign the right in question.” Desrochers v. Desrochers, 173 Vt. 312, 316, 795 A.2d 1171, 1174 (2002); see also Restatement (Second) of Contracts § 324 (1981) (providing that assignment of contractual right requires obligee to “manifest an intention to transfer the right to another person”). Personal guaranties are secondary obligations, however, and because of a guaranty’s link to the principal obligation it follows that an obligee’s assignment of the principal obligation is sufficient to manifest the requisite intent to assign the guaranty. We hold that proof of the assignment of a promissory note and mortgage is sufficient as a matter of law to establish assignment of a personal guaranty. Thus whether Wells Fargo was assigned the guaranty in this case depended on whether it was assigned the note and mortgage.

We reject defendant’s main argument that Wells Fargo lacks standing because it a chain of title to show that it was assigned the note and mortgage. The applicable statute provides that a person is entitled to enforce an “instrument” if the person is “the holder of the instrument.” 9A V.S.A. § 3-301(i). “ ‘Holder’ means . . . the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” 9A V.S.A § 1-201(21)(A). To enforce a promissory note or mortgage under § 3-301(i), therefore, a person must be in possession of the instrument at the time that the enforcement action is filed and the instrument must be made payable to the person or to the order of the person. See Kimball, 2011 VT 81, ¶ 14 (outlining standing requirements in home foreclosure context); V.R.C.P. 80.1(b)(1) (plaintiff shall plead in its complaint that the originals are in the possession and control of the plaintiff). We hold that a plaintiff to whom a promissory note or mortgage was not originally issued need not prove chain of title to enforce a personal guaranty of these principal obligations. Rather, a plaintiff in an enforcement action establishes its standing if it is in possession of the original note and mortgage at the time the complaint is filed and the instruments are made payable to the plaintiff.

Defendant does not challenge that Wells Fargo is in possession of the original note and assignment of mortgage, which Wells Fargo produced at trial. The final question, therefore, is whether Wells Fargo made the requisite showing that it had been assigned the note and mortgage prior to the filing of the enforcement action. The evidence on this question came primarily from the testimony of Tommy Floyd, an employ ee of the loan’s special servicer, Berkadia. At trial, Mr. Floyd was the authority on the way the securitization process works generally and, based on his in-court examination of the loan documentshe also testified as to how the securitization process worked in this case. The record in this case supports the finding that Wells Fargo had been assigned the note and the mortgage prior to the filing of the enforcement action.