JPMORGAN CHASE & CO., INC. and WELLS FARGO BANK NATIONAL ASSOCIATION vs. CARLO CASARANO, as Trustee of the Ford Realty Trust, MARY Y. ODOMS-HARRIS, formerly known as MARY E. WELLS, and CITY OF BOSTON

Plaintiff JPMorgan Chase & Co., Inc. (“JPMorgan”) filed its unverified Complaint on April 3, 2007, seeking (1) a declaratory judgment pursuant to G. L. c. 231A as to a) the validity and enforceability of a mortgage and note (the Crosby Mortgage and the Crosby Note, as hereinafter defined) on property located at 39 Maxwell Avenue, Dorchester, Massachusetts (“Locus”), and b) equitable subrogation of the Crosby Mortgage to a mortgage on Locus which JPMorgan holds by assignment; and (2) to quiet title to Locus pursuant to G. L. c. 240, § 6. [Note 1] Defendant City of Boston (“City”) filed its Answer on May 22, 2007. [Note 2] Defendant Carlo Casarano, Trustee of the Ford Realty Trust (“Casarano”), filed his Answer and Jury Claim on May 29, 2007. [Note 3] On July 2, 2007, Defendant Mary Y. Odoms-Harris (“Odoms-Harris”) filed her Answer and Cross-Claim against Casarano, seeking declaratory judgment relative to the Crosby Mortgage and Crosby Note and quiet title relative to Locus, and alleging breach of contract, breach of implied covenant of good faith and fair dealing, infliction of emotional distress, and a violation of G. L. c. 93A. [Note 4] A case management conference was held on July 20, 2007. Casarano filed his Answer to Cross-Claim and Jury Demand on July 26, 2007.

Casarano filed his Motion for Partial Summary Judgment (relative to the issue of equitable subrogation) on March 16, 2009, together with supporting memorandum and Statement of Undisputed Material Facts. On the same day, Plaintiffs filed their Motion for Summary Judgment (relative to payment and negotiability of the Crosby Note, as hereinafter defined), together with supporting memorandum, Statement of Undisputed Material Facts, Appendix containing excerpts from the depositions of Odoms-Harris, Carlo Casarano, and David Fulmer, and Declaration of Robert E. McLaughlin. Jr. Casarano filed his Opposition to Plaintiffs’ Motion for Summary Judgment on April 16, 2009, together with supporting memorandum, Appendix, and Affidavits of Alan H. King, Esq. (“King”) and Carlo Casarano. On the same day Plaintiffs filed their Opposition to Casarano’s Motion for Partial Summary Judgment, together with Statement of Additional Undisputed Material Facts, Supplemental Appendix, and Affidavit of Odoms-Harris. On April 30, 2009, Plaintiffs filed their Reply Brief and Motion to Strike Affidavit of Alan H. King, Esq. Casarano filed his Opposition to the Motion to Strike on September 17, 2009. A hearing was held on all motions on September 18, 2009, at which time all motions were taken under advisement. [Note 5]

Summary judgment is appropriate where there are no genuine issues of material fact and where the summary judgment record entitles the moving party to judgment as a matter of law. See Cassesso v. Comm’r of Corr., 390 Mass. 419 , 422 (1983); Cmty. Nat'l Bank v. Dawes, 369 Mass. 550 , 553 (1976); Mass. R. Civ. P. 56(c).

This court finds that the following facts are not in dispute:

1. By deed dated May 20, 1990, Mary E. Wells (now Odoms-Harris) purchased Locus from Kevin A. Crosby and Conny Y. Crosby (the “Crosbys”) for $140,000. The deed was recorded with the Suffolk County Registry of Deeds (the “Registry”) on March 26, 1991, at Book 16763, Page 39. [Note 6] Odoms-Harris granted a first mortgage (the “First Eastern Mortgage”) for $108,000 to First Eastern Mortgage Corporation by document dated March 21, 1991, and recorded with the Registry on March 26, 1991, at Book 16763, Page 40.

2. On March 21, 1991, Odoms-Harris granted a second mortgage (the “Crosby Mortgage”) to Kevin Crosby (“Kevin”) by document recorded with the Registry on July 22, 1991, at Book 16952, Page 68. [Note 7] The Crosby Mortgage stated that it secured a note (the “Crosby Note”) in the amount of $15,443.00 at ten percent interest, per year. Monthly payments of $100 were required under the Crosby Note. The Crosby Note is not a part of the summary judgment record.

3. On November 26, 1992, Kevin assigned the Crosby Mortgage to Casarano by document recorded with the Registry on January 11, 1993, at Book 17980, Page 44 (the “Crosby Assignment”). [Note 8], [Note 9] The Crosby Note was not referenced in the Crosby Assignment. David Fulmer (“Fulmer”), the attorney for Casarano, gave deposition testimony that he received the original of the Crosby Note as a part of the assignment. Some payments were made by Odoms-Harris to Casarano under the Crosby Note. [Note 10]

4. By document dated July 14, 1998, and recorded with the Registry at Book 22765, Page 326, Odoms-Harris granted a mortgage to Ameriquest Mortgage Company (the “Ameriquest Mortgage”) in the amount of $121,500. [Note 11] The proceeds of this financing were used to pay off and discharge the First Eastern Mortgage.

5. By document dated June 28, 1999, Odoms-Harris granted a mortgage to Contimortgage Corporation (the “Contimortgage Mortgage”) in the amount of $136,850, which was recorded with the Registry at Book 23952, Page 306. The proceeds of this financing were used to pay off and discharge the Ameriquest Mortgage.

6. By document dated September 26, 2000, Odoms-Harris granted a mortgage to Equicredit (the “Equicredit Mortgage”) in the amount of $191,000, which was recorded with the Registry at Book 25417, Page 116. The proceeds of this financing were used to pay off and discharge the Contimortgage Mortgage.

7. By document dated December 19, 2001, Odoms-Harris granted a mortgage to Household Finance Corporation (the “Household Finance Mortgage”) in the amount of $266,629, which was recorded with the Registry at Book 27705, Page 104. The proceeds of this financing were used to pay off and discharge the Equicredit Mortgage.

8. By document dated September 5, 2002, Odoms-Harris granted a mortgage to Mortgage Amenities Corp. (the “Mortgage Amenities Mortgage”) in the amount of $292,500.00, which was recorded with the Registry on September 10, 2002, at Book 29320, Page 36. The proceeds of this financing were used to pay off and discharge the Household Finance Mortgage.

9. On September 24, 2004, Odoms-Harris granted a mortgage (the “Fremont Mortgage”) to Mortgage Electronic Registration Systems, Inc. as nominee for Fremont Investment & Loan (“Fremont”) in the amount of $323,000 which was recorded with the Registry on October 1, 2004, at Book 35596, Page 3. The proceeds of this financing were used to pay off and discharge the Mortgage Amenities Mortgage. A discharge of the Mortgage Amenities Mortgage, dated April 12, 2005, was recorded with the Registry on April 21, 2006, at Book 36901, Page 244.

10. By document dated May 21, 2008, the Fremont Mortgage was assigned to JPMorgan, and the assignment was recorded with the Registry on July 9, 2008, at Book 43779, Page 284.

11. By document dated May 21, 2008, JPMorgan assigned the Fremont Mortgage to Wells Fargo, and the assignment was recorded with the Registry on July 9, 2008, at Book 43779, Page 285. [Note 12]

**********************

I must first address Plaintiffs’ Motion to Strike the Affidavit of Alan H. King, Esq. Plaintiffs argue that the Affidavit, relating to the sale of Locus by the Crosbys to Odoms-Harris, is not on personal knowledge and is speculative. King, however, was the attorney for Kevin in the sale of Locus and had personal knowledge of the events, set forth facts that would be admissible, and was competent to testify as to the events. Moreover, the Affidavit of King was corroborated by the Affidavit of Carlo Casarano, which has not been challenged, and the deposition testimony of Carlo Casarano, as to the fact that the Crosby Note has not been paid off. As a result of the foregoing, Plaintiffs’ Motion to Strike the Affidavit of Alan H. King, Esq. is DENIED.

Plaintiffs argue that the Fremont Mortgage has priority over the Crosby Mortgage because the Crosby Note has been paid off, because the Crosby Note is not a negotiable instrument, and because of the doctrine of equitable subrogation based on unjust enrichment. Casarano argues that the Crosby Note has not been paid off, that there is no need for the Crosby Note to be a negotiable instrument, and that equitable subrogation is not applicable. I shall examine each of these arguments in turn.

I. Equitable Subrogation.

Plaintiffs’ primary argument is that the Fremont Mortgage has priority over the Crosby Mortgage. In such context, Plaintiffs argue that, assuming the Crosby Note is valid and enforceable, the Crosby Mortgage is subordinate to the Fremont Mortgage, as they are protected by the doctrine of equitable subrogation, which provides that “the new mortgage given by a mortgagor, who used the proceeds of the new mortgage to extinguish an earlier mortgage, may receive the same priority once given to the earlier mortgage.” East Boston Savings v. Ogan, 428 Mass. 327 , 330 (1998). [Note 13] In Ogan, the SJC explains the basis for equitable subrogation as follows:

The question whether to apply subrogation depends on a balance of the interests of the competing mortgagees because “[t]he right to subrogation rests upon equity.” The court guards against the unjust enrichment of either party by granting to the later mortgagee the priority status intended by the parties to that transaction, only so long as the interests of the intervening mortgagee are not prejudiced (citations omitted).

Ogan requires that the follow factors be present for equitable subrogation:

Before equitable subrogation applies, a court must determine: ‘(1) the subrogee made the payment to protect his or her interest, (2) the subrogee did not act as a volunteer, (3) the subrogee was not primarily liable for the debt paid, (4) the subrogee paid off the entire encumbrance, and (5) subrogation would not work any injustice to the rights of the junior lienholder.

428 Mass. at 330. See also Wells Fargo Bank N.A. v. National Lumber Co., 76 Mass. App. Ct. 1 , 5-7 (2009).

Casarano argues that Massachusetts is a “race notice” state and that the first holder of an interest of record without actual or constructive notice of a superior title claim prevails over subsequent recordings. Casarano points out that the First Eastern Mortgage was paid off in 1998, leaving the Crosby Mortgage as a prior lien of record. He appears to argue that if there is refinancing, the concept of equitable subrogation does not apply. Plaintiffs, however, point out that Ogan clearly states that “[e]quitable subrogation is an exception to the basic principle that determines priority among mortgages, ‘first in time is first in right.’” 428 Mass. at 329. Plaintiffs argue that the Crosby Mortgage was clearly a second mortgage and that each time the first mortgage was paid off and refinanced by a new first mortgage, all parties knew that the Crosby Mortgage remained a second mortgage. Without equitable subrogation, Plaintiffs contend, the second mortgagee receives a windfall and the first mortgagee is unfairly prejudiced by its loss of priority. Plaintiffs also claim that this equitable concept holds irrespective of the fact that there is more than one refinance in the chain of title.

The factors discussed in Ogen are present in the case at bar. Fremont paid off the Mortgage Amenities Mortgage to protect its own interest in its mortgage, Fremont did not act as a volunteer (i.e. they had an interest of their own to protect), Fremont was not primarily liable for the Mortgage Amenities Mortgage, Fremont paid off the entire Mortgage Amenities Mortgage, and subrogation would not work an injustice to the holder of the Crosby Mortgage because at the time of the assignment to Casarano, the First Eastern Mortgage was the first mortgage of record. In addition, there is no basis for Casarano’s argument of unnecessary delay in bringing this action, because the delay did not induce a change in the position of Casarano. Finally, this court is not convinced that the fact that Odoms-Harris refinanced several times between the Ameriquest Mortgage and the Fremont Mortgage destroys Plaintiffs’ claim for subrogation. After all, equitable subrogation is but one right held by courts as part of their “broad power over mortgages.” Ogan, 428 Mass. at 328. It is a general rule, grounded in equity, that has been applied to mortgages given as part of a refinancing, Provident Coop. Bank v. James Talcott, Inc., 358 Mass. 180 , 188 (1970), as well as mortgages given as part of a sale. Ogan, 428 Mass. at 329. [Note 14] However, Plaintiffs’ subrogation is limited to “the rights, remedies, or security enjoyed by the original creditor, . . .” National Lumber Co., 76 Mass. App. at 5 (citing Ogan, 428 Mass. at 328-29). In the case at bar, the rights of the original creditor, whose priority Plaintiffs seek, are found in the First Eastern Mortgage. It would be against the interests of equity to subrogate Plaintiffs to first priority in the full amount of the Mortgage Amenities Mortgage given that the Mortgage Amenities Mortgage was recorded well after the Crosby Mortgage. As such, Plaintiffs’ right to first priority extends only to the amount of the First Eastern Mortgage that was paid off by the Ameriquest Mortgage’s proceeds.

As a result, I find that in the event that the Crosby Note and the Crosby Mortgage remain valid and enforceable against Odoms-Harris, the Fremont Mortgage would be subrogated to the position previously occupied by the First Eastern Mortgage Corporation (as such rights are defined in the First Eastern Mortgage) to the extent of the amount of the First Eastern Mortgage that was paid off by the Ameriquest Mortgage. [Note 15]

II. Whether the Crosby Mortgage and the Crosby Note Remain Enforceable.

A. Whether the Crosby Note is a Negotiable Instrument.

Plaintiffs argue that Casarano, as an assignee, cannot enforce the Crosby Note because the Crosby Note is not a negotiable instrument pursuant to G. L. c. 106, § 3-101, et. seq. [Note 16] Casarano argues that the Crosby Note need not be a negotiable instrument because it is a valid contract enforceable according to its terms. As such, this court must first address whether the Crosby Note is a negotiable instrument under the Uniform Commercial Code (the “UCC”). See G. L. c. 106.

The Crosby Note could be considered a “negotiable instrument,” meaning that it is “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order” if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, . . .

G. L. c.106, § 3-104(a).

It is undisputed that the Crosby Note is now lost. [Note 17] It is also undisputed that not all of the terms of the Crosby Note are known. The summary judgment record indicates that the principal amount of the Crosby Note was $15,443, that interest was at the rate of ten percent per annum, and that some payments of $100 per month were made. Significantly, the summary judgment record does not indicate the term of the Crosby Note. All parties with any knowledge of the Crosby Note could not remember whether it was a demand note or a note for a specific term. As such, it is unlikely that it meets the requirements of G. L. c.106, § 3-104, which requires, among other things, that a negotiable instrument must be payable “on demand or at a definite time.” As such, I find that the Crosby Note is not a “negotiable instrument” as such term is defined in G. L. c.106, § 3-104(a).

B. Whether Casarano May Attempt to Enforce the Crosby Note as a Contract. [Note 18]

Regardless of the Crosby Note’s status under the UCC, Casarano argues that he can enforce the Crosby Note as an assigned contract right, and for support of such proposition cites Sibley v. Phelps, 6 Cush. 172 (1850), Blye Int’l Ltd. v. Robinson, 59 Mass. App. Dec. 50 (1976), and Duxbury v. Roberts, 388 Mass. 385 (1983). Plaintiffs assert that Casarano cannot look to contract principals to enforce the Crosby Note as an assignee, and note that the cases relied upon by Casarano do not involve an assignee of a promissory note. As such, this court must address whether Casarano may enforce the a promissory note as an assignee under a contract theory given that such note is not a negotiable instrument under the UCC.

In support of their position, Plaintiffs assert that Casarano offers no material case law for his position that the Crosby Note is an enforceable contract. Instead, Plaintiffs claim that Casarano’s legal support is mere dicta that is inapposite to the case at bar. Given this position, it is noteworthy that Plaintiffs fail to supply this court with any case law in support of their own argument in this regard. While it is true that most of the cases cited by Casarano involve the original holders of notes (versus an assignee as is the case in the instant matter), Plaintiffs fail to distinguish the Supreme Judicial Court’s (the “SJC”) statement in Sibley that “[n]egotiability is not an essential quality of a promissory note.” 60 Mass. at 173. Additionally, a promissory note is a claim for money due under a contract in writing. Redfield v. Abbott Shoe Co., 335 Mass. 208 , 209 (1957). Moreover, the SJC has specifically addressed the validity of a non-negotiable promissory note in context of a contract theory. See McDonald v. Hanahan, 328 Mass. 539 , 540 (1952) (interpreting an instrument as a non-negotiable promissory note). See also Beal Bank v. Eurich, Middlesex Superior Court, Civil Action No. 98-848 (Oct. 23, 2000) (Botsford, J.), aff’d on other grounds 444 Mass. 813 (2005) (stating that the non-negotiable note at issue constitutes a contract and noting that “[a] non-negotiable assignment places a newcomer to the note in exactly the same position as the party from whom it was acquired, as he ‘stands in the shoes of the assignor’ and has no greater or lessor rights against the debtor than did the assignor.”). In light of the above, this court is not convinced that a promissory note is only enforceable by an assignee if it is a negotiable instrument. In other words, Casarano may look to contract principals in his attempt to establish the validity and enforceability of the Crosby Note.

C. Whether Kevin Assigned the Crosby Note to Casarano.

That said, Casarano may not enforce the Crosby Note as a contract unless he is the holder of such rights. Whether Casarano holds the Crosby Note, and whether he may enforce under its terms, depends on whether it was assigned from Kevin. “Unless assignment is expressly forbidden, a contractual right can be assigned.” Beaconsfield Townhouse Condo. Trust v. Zussman, 49 Mass. App. Ct. 757 , 762 n. 14 (2000). When determining whether an assignment occurred, “[t]he important thing is the act and the evidence of intent; formalities are not material.” Kagan v. Wattendorf & Co., Inc., 294 Mass. 588 , 596 (1936). “A valid assignment may be made by any words or acts which fairly indicate an intention to make the assignee the owner of a claim.” Id.

There is no argument or evidence in the record that the Crosby Note forbade assignment. However, the assignment of the Crosby Mortgage did not specifically reference the Crosby Note. Whether Kevin actually assigned the Crosby Note is complicated given that the Crosby Note was lost. However, Casarano claims that the Crosby Note was assigned to Casarano as evidenced by Casarano and/or his attorney’s (Fulmer) physical possession of the Crosby Note and as indicated by the Affidavits of both King and Casarano, as well as the depositions of Fulmer and Casarano. Furthermore, payments were made by Odoms-Harris to Casarano in 1993 relative to the Crosby Note, supporting its assignment. As evidenced above, the summary judgment record indicates that Kevin intended to assign the Crosby Note to Casarano. Finally, a finding that the Crosby Note was assigned to Casarano is consistent with Kevin’s assignment of the Crosby Mortgage to Casarano, the consideration for which is stated to be the discharge of Casarano’s claims against Kevin. As such I find that the Crosby Note was assigned from Kevin to Casarano.

D. Whether the Crosby Note is a Valid and Enforceable Contract.

As Casarano seeks to enforce the Crosby Note as a contract, he is encumbered with the burden to prove the validity of the agreement. See Canney v. New England Tel. & Tel. Co., 353 Mass. 158 , 164 (1967) (“Where the [legal] existence of a contract is in issue, the burden is on the [party seeking performance].”). Casarano’s burden in this regard consists of demonstrating all components of a valid contract, including an “offer, acceptance, consideration, and terms setting forth the rights and obligations of the parties.” Haverhill v. George Brox, Inc., 47 Mass. App. Ct. 717 , 720 (1999).

The fact that the Crosby Note is missing is not necessarily fatal to Casarano’s cause, as

the original of a written instrument need not be produced if a judge is satisfied that it is lost other than through the serious fault of its proponent. Once a judge is so satisfied, secondary evidence of any sort can be admitted to prove the contents of the lost instrument. This rule is applicable to all lost instruments, including those which may fall within the ambit of the Statute of Frauds.

Capital Bank & Trust Co. v. Richman, 19 Mass. App. Ct. 515 , 520-21 (1985) (citations omitted). There is nothing in the record to indicate that the Crosby Note’s absence is due to the “serious fault” of Casarano. As such, this court may look to secondary evidence to establish the Crosby Note’s provisions. The Crosby Mortgage refers to the Crosby Note’s principal ($15,443) and interest rate (ten percent per year), and monthly payments in the amount of $100 were paid on the Crosby Note. However, as the summary judgment record does not reveal the Crosby Note’s term, the question remains whether such provision is essential in determining the rights and obligations of the parties.

Whether the failure of the Crosby Note to include a term is material is a task for this court, as the interpretation of a contract is a matter of law. See Suffolk Constr. Co. v. Lanco Scaffolding Co., 47 Mass. App. Ct. 726 , 729 (1999). The Crosby Note is not invalid simply because the absence of a term muddles the parties’ obligations. See Letts-Parker Grocer Co. v. W. R. Marshall & Co. Inc., 232 Mass. 504 , 505-506 (1919). Rather, the Crosby Note can be enforced “unless it is wholly unintelligible.” Id. Under the facts in the case at bar, Odoms-Harris’ obligations remain reasonably the same regardless of whether the Crosby Note was payable on demand or payable after a certain term. The summary judgment record indicates the Crosby Note’s principal and yearly interest. Moreover, the record reflects that Harris-Odoms has not made a payment toward the Crosby Note since at least 1993, when she made two payments that totaled $300. Given this information, it is reasonable to conclude that the amount Odoms-Harris owes on the note may be calculated.

The absence of the Crosby Note’s term, however, is also relevant in context of a statute of limitations discussion. While neither party briefed this issue, at oral argument Plaintiffs suggested that Casarano’s enforcement of the Note as a contract subjects it to a six-year statute of limitations, an argument to which Casarano responded by claiming that the appropriate standard was the twenty-year statute of limitations applicable to contracts executed under seal. Casarano suggests that the twenty-year limitations period found in G. L. c. 260, § 1 applies to the Crosby Note because of the Crosby Mortgage’s purported status as a contract “under seal.” [Note 19], [Note 20] Compare G. L. c. 260, § 1 (providing for a twenty-year statute of limitations on sealed contracts), with G. L. c. 260, § 2 (providing for a six-year statute of limitations on contracts not under seal). It goes without saying that whether the Crosby Note was signed under seal is unknown because the instrument has been lost. Moreover, Casarano supplies this court with no case law or persuasive rationale justifying a conclusion that a sealed mortgage instrument may impute such statute to the underlying note. As such, this court is not persuaded that the Crosby Note may be considered a sealed instrument (and thus, subject to a twenty-year statute of limitations). In light of the above, I find that Casarano’s contract rights under the Crosby Note are governed by the six-year statute of limitations pursuant to G. L. c. 260, § 2.

Irrespective of the above, regardless of whether the first or second section of G. L. c. 260 applies, both periods are triggered when “the cause of action accrues.” “While the Legislature has established a time limit within which tort actions must be brought, it has left for judicial determination the time when ‘the cause of action accrues.’” Cannon v. Sears, Roebuck & Co., 374 Mass. 739 , 740 (1978). Important to the case at bar is the fact that the Crosby Note called for monthly payments, as “[i]f an obligation is payable in installments, the statute of limitations begins to run against the recovery of each installment from the time it becomes due.” Berezin v. Regency Savings Bank, 234 F.3d 68, 73 (1st Cir. 2000) (citing Clark v. Trumble, 44 Mass. App. Ct. 438 , 445 (1998) (concluding that a promissory note is an installment contract). Thus, the Crosby Note’s contractual statute of limitations began to run at such time as it was due. However, this time cannot be ascertained in the case at bar because the record fails to include the Crosby Note’s term. As Casarano has failed to establish when the Crosby Note was due, which is essential in determining the parties’ rights in context of the statute of limitations, he fails in his burden to prove the terms setting forth the rights and obligations of the parties. [Note 21] In light of the above, I find that the Crosby Note’s failure to include its term is material, without which the Crosby Note is “wholly unintelligible,” and, thus, invalid. [Note 22]

Given that the Crosby Note is unenforceable due to its lack of a material term, I find that Casarano cannot enforce the Crosby Note against Odoms-Harris. As the Crosby Mortgage secures the underlying Crosby Note, and as the Crosby Note is unenforceable, I hereby discharge the Crosby Mortgage. [Note 23]

In light of all the above, I ALLOW Plaintiffs’ Motion for Summary Judgment and DENY Defendants’ Motion for Partial Summary Judgment.

Judgment to enter accordingly.

Alexander H. Sands, III

Justice

Dated: September 16, 2010