Can a Lost, Stolen or Destroyed Promissory Note Be Enforced?

February 20, 2019by Brandon Banks

A promissory note is a legal instrument that contains a written promise of one party to pay another party a certain sum of money at a fixed date or determinable date in the future or on demand by the payee. Promissory notes are common in banking, lending and commercial finance transactions.

If a party fails to abide by the terms of a promissory note and if the other party wants to enforce its terms, the party who wants to enforce the promissory note will need to produce the original promissory note. Sometimes, however, a note is lost, destroyed, or stolen. How do you enforce a note in these circumstances? Fortunately, Florida outlines how to enforce a lost, stolen, or destroyed note.

Enforcement Of A Lost, Destroyed, Or Stolen Promissory Note

Under Florida law, the owner of a lost, destroyed, or stolen promissory note can enforce the note if:

  • The party seeking to enforce the instrument was entitled to enforce the instrument when the loss occurred;
  • The loss of possession did not occur as a result of transfer or lawful seizure; and
  • The party seeking to enforce the instrument cannot obtain possession because it was lost, destroyed, or stolen.

Each of these requirements must be met if the owner of a note, not in possession of a note, desires to enforce a note and obtain any benefits under the note. Furthermore, Florida law also requires evidence of “adequate protection,” which a Florida Court of Appeals court recently addressed.

In Delia v. GMAC Mortgage Corporation, homeowner Dennis Delia appealed from a mortgage foreclosure judgment entered in favor of the bank GMAC Mortgage Corporation. Delia claimed that under Florida Law, the bank was not entitled to enforce the lost note.

The Bank filed a complaint seeking to foreclose on Mr. Delia’s property. The bank also sought enforcement of the promissory note to repay a loan, which Mr. Delia executed in connection with the property. At trial, the bank told the court that it lost the loan documents and no longer had possession of the promissory note. To establish the terms of the note, the bank presented testimony to the court “related to the issue of how the loan documents became lost and to the issue of the authenticity of its copies of the loan documents.” The trial court found for the bank and entered judgment in its favor.

Owner Of Note Must Present Evidence Of Adequate Protection

The homeowner, however, appealed the trial court’s decision and argued that the trial court committed reversible error because the bank failed to provide evidence that it had standing to enforce the lost note. Specifically, the homeowner argued that the bank failed to provide any evidence on the issue of “adequate protection.” On appeal, the court agreed with the homeowner’s position.

Under Florida law, the court has discretion to permit the enforcement of a lost note, “unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument.” The appellate court found that the bank failed to present any evidence on the issue of adequate protection. Consequently, the court reversed the foreclosure judgment.

Adequate protection includes a written indemnification agreement, a surety bond, a letter of credit issued by a financial institution, a deposit of cash collateral with the clerk of the court, or other security the court may deem appropriate. The purpose of requiring adequate protection is to protect an obligor under the note from multiple claims of repayment.

Have Questions About Financial Transactions?

The Walsh Banks Law’s experienced banking, lending and commercial finance attorneys can help. We have experience representing businesses and financial institutions in range of financial transactions, including letters of credit, private financing acquisition financing, and asset-based lending.

Contact us today to understand the challenges and risks with any financial transaction.

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