the next case on the calendar is arnold the first citizens national bank to please the court my name is greg society i'm an attorney with a clear eye and i'm appearing on behalf of michael arnold special counsel to michael arnall the chapter eleven trustee for cornerstone homes and in the section the trustee six a declaratory judgment that the bank's claims are unsecured the bank's claims are based upon certain purported assignments of mortgages although the assignments of mortgages contain language assigning the mortgage together with the bond or obligations described in the mortgage the underlying notes  negotiable instruments that were not endorsed to or ever delivered to the bank so the question is can you have a delivery in on delivery of the aid of the underlying instruments to have a nice exactly one hand  course that raises the question of what actually is assigned there was something there purported to be assigned and what rights were assigned was it the right to enforce was it the right to just obtain the adopted two or three and two or three seems to make it clear that instrument is transferred when it's delivered by a person other than the issuer for purpose of giving it to the person receiving delivery the right to enforce the instrument but that is not what tool one says in fact it was written i think it says in two or three it's says that it two or three is based on in the official comment adopted i know that but would you argue here that this is just a clarification and that in fact delivery was required but it just wasn't you know it wasn't it wasn't spelled out into a line and that position is accepted would leave the ass in need the ability to and to enforce but that also there could be a whole interview course in the notes themselves who would then have a note and then it could be endorsed and they could also go in and force the notes and then you'd have double double liability and that's the argument in favor of that's why the i think why the other states have gone the way they've gone to make that make that clear and to deal with that policy issue your honor revised article three and that section three two or three does add a definition of transfer to make it clear that delivery is requirement that delivery requirement is embedded in current article three for new york in the original article three it was also invented and it goes ordered to pay and no other promises and that as i understand these individual notes they provide for default where the borrower fails to do anything he's obligated to do under the mortgage and the mortgage contains all sorts of promises so is it clear that th mortgages that seem to be incorporated into these news i would have to look at the language specifically in the notes to address that issue in terms of what happens to these notes and the original lenders are paid off right by the consolidated what happens here is there used to be a lot of people who held individual notes with individual properties individual mortgages after these puzzles me you know maybe there's a problem if the notes get negotiated to someone else but the original lenders those in the words the banks don't need those notes because the bank presumably has some other promise to pay doesn't it from the the only reason they need the notes is to block the need to get them and rip them up they don't want them to get negotiated to the bank instruments or has actually no right to enforce a negotiable instrument or less you have possession of it and that is the missing what the banks don't want to do to enforce those nodes the banks just want to get them and rip them up so nobody else can come it it's be able to my order now under the first as a holder of the no under three a one i am entitled to as a holder to enforce it i can discharge it i could consolidate it i can do anything with a no because i'm told now if for whatever reason is part of a business transaction i'd like to transfer the snow to judge walker i can endorse you know and deliver possession of the note to judge walker judge walker has all the to judge walker's part of the transaction well as we have discussed on the three to a line judge walker would receive whatever rights i had and no judge walker's not a holder because it wasn't negotiated to him but under three to a morning to have whatever rights i had that would mean judge walker have to explain why he's in possession of though it would be subject to any defenses because you wouldn't be a holder and to course and as we previously discussed if it if it hadn't been indorsed and you were given value of judge walker walker not the million dollar promise or no but i give him a written assignment of the no now what right says judge walker received well under the fundamental principle of society can't have any better right seeing sign or if judge walker has received my million dollar note he has no rights to do anything with it the only rights that i had were derived from my possession of it i didn't have any right without possession of that help to enforce  consolidated discharge or to do anything with it so it's similar if i were to assigned two tickets to hamilton to judge walker if i can give you the tickets you're not going to get in without   and and you also granted him a separate mortgage forget the individual ness you also granted have a separate mortgage with respect to that transaction and this doesn't it just doesn't appear to me to be at least from the flow of money a situation in which the individual notes or doing any work other than possibly avoiding the mortgage record ation tax that the banks loaned you money that were separate mortgage agreements separate loan agreements why do we have to worry about  obligation there it's not a new obligation it's not a separate independent obligation they're consolidating my million dollar note with other notes and you can't do that unless you have possession of it for example here is am i right in understanding that the banks loaned you cornerstone money cornerstone use that money to pay off the individual pnas money not entirely clear to me with respect that it was the same for each transaction either  whether went directly from the attorney to the to the individual wonders whether it flowed through cornerstones attorney or the banks attorney i think i don't know that was the same for each one but you put your i just if i could go back to the consolidated no issue because it's an important issue and it's a reason why the consultative you know it's to unfounded aren't the foundation for any claim that the banks can force if for example i had a note my million dollar no but there was something about the no that put me on notice that there was some fraud real galatea with respect to the no i can't take another one dollar no then create a new consolidated know and somehow plans myself of that problem and then say well in the holder and of course because i have a consolidated no it's majority decision in aurora and the dissenting opinion or were both cited the rule this cullimore rule that either written assignment or physical delivery of the no may be sufficient to transfer the obligation so both both the majority and the dissent cite the same rule now this is in the use you goes to the court of appeals court of appeals doesn't cite that rule so this rule has been cited by numerous cases in the court of appeals doesn't take the opportunity to have a case that says that but your your argument anyway is there is no such case these are just bland recitation of purported rules that aren't supported by any actual unnecessary they don't have to britain assignment hasn't been sufficient when new york it was under the devotional instruments it's not if you look at the terms of plain and unambiguous terms of article three make it clear that it's referring to a physical transfer of an instrument in connection with the with current article three revise article v three clarified that that yes when we did the original article three we meant we meant well that's his name is physical wants a uniform code commissioners but they don't make law they just recommend to the states is there any explanation for why new york has stood alone and are virtually alone in not adopting this clarification and solving our problems not that i'm aware of your  legislature i don't know the answer to that but just to be clear though if the adoption of the revised article three is not necessary to come to the same conclusion that has been in place since prior to the current honor it's really a course of the way the industry works to consolidated mortgages happen all the time they don't typically request the physical delivery of  the notes they just request the assignment there is a new obligation which is a fact that is not in any of the cases that are cited where there was an actual new obligation a note from the debtor to the lenders really trying to do is consolidate the mortgage as you're on a pointed out this is to save mortgage taxes for the borrower but not for the lender because the borrower is always obligated to pay those mortgage taxes so it saves the borrower money to do it this way now the trustees interpretation is this is really an interpretation of transfer in article three of the u c c and the trustees argument as to how that should be construed makes perfect sense in isolation however there are factors that need to be considered by this court in interpretating this one of them as as come up is the fact that new york has not adopted the  hundred which would have required delivery in order to have a transfer that was rejected the other thing rejected way that it was not adopted was not adopted all we know now is it might have been bouncing around but we don't know what that means we know that it's not been not adopted in the twenty seven years since it came up which for philatelic out of bounds that's a lot of bouncing yes judge the other thing displace by the u c c you have to give those of the laws their due in interpreted the u c c well here we don't have just that any negotiable instrument we have a specific negotiable instrument and that's a mortgage no and these mortgage notes are specifically dealt with in new york's real property law and our argument is that you cannot look at the u c c in isolation when you have lost specifically dealing with the mortgage notes so article eight of the new york real property laws in title conveyances and mortgages section two forty nine nine title construction of clauses and co to do it nobody is he's saying you can't transfer it by a site by written assignment he is arguing exactly that judge you're drawing a distinction between assignment and transfer what we're talking about is how to interpret transfer of the u c c and he's saying it's got to be by delivery and it can't be bypassed simply by written assignment and the real property law says it can't be by written assignment and in fact the two fifty eight i didn't get i have section two fifty eight really gives a a a panoply of forms that you can use that that new york state has said these are the except the way to do that at zero is the form that you used for a n you get the assignment and you don't so you can force you have to get the note and get indoors to fix what you what you're on to it is really is a referring to is the exact same scenario which would occur if you got delivery without an endorsement if you got delivery without an endorsement on that u c c what you have is the right to get the endorsement we're not talking about we're talking about written assignment and that's all the collymore and  provide is that it can be by physical delivery or written a sign that the real property law that says it can be done by assignment there they're arguing it cannot be done by assignment which would you say when you say it it can be done the transfer of the mortgage obligation of the mortgage i don't know where after that i mean what he's saying is you can't enforce it there's a dick distinction between getting something and being able to enforce it when you after you've after you after after you've gotten and and when you have an assignment then you have some rights that you didn't have before but the question is what others rights that's not what the trustees are going to trust you so i can that that only  upon delivery that you do that but i think that is nice suggesting that you can't enforce unless you have to literally but you can certainly have an assignment and it gives you a right to ownership and that  not delivery without indorsement but an assignment and i believe that the trustees arguing that you can have have a transfer of an obligation by a written assignment and what your father's describing assignment normie the traditional  would play and we have to have some some some place here and you're signing might not be might be might give you the right to do something but whether or not you could enforce that right might depend upon  enforce the mortgage absolutely well i'm going to give the if that is so absolute with the section real popular section two fifty eight provides that the use of the following forms of instruments for the conveyance of mortgage of real property is lawful right so if you're relying on to fifty eight you're saying that to fifty eight allows the assignment of the mortgage now the bank has their own note right  that the bank doesn't need the notes of the original lenders to demonstrate the indebtedness cornerstone that's correct the bank has an assignment of the mortgages and under two fifty eight you seem to be arguing the mortgages are assigned to the bank and those assignments are valid now maybe cornerstone has some kind of problem or maybe the dead or the original creditors have some kind of problem with  but i'm not sure whether that doesn't solve the problem in the bankruptcy which is the bank is asserting that it has a security interest that it's its note cornerstone of as a million dollars is not an unsecured thing it's secured by mortgages which were properly assigned under section two fifty eight is that the argument or that that is one of the arguments that that i make just that we have an independent note and if the  collateral the security instrument wasn't assigned and there's now no argument that that can be assigned and you are you don't need to worry if that argument holds up and it seems to be inconsistent with this proposition that the mortgage can't be enforced unless the debt that created the mortgage goes with it but maybe there's a separate basis for saying the mortgage can be conveyed to fifty eight doesn't say at least that's the part that i was looking at maybe there's something precisely that argument and your own is pointed to the absurd bent that would happen if the trustees argument were adopted that the debtor cornerstone here would believe be relieved in excess of twenty million worth of debt because we the lenders couldn't enforce it and the the old lenders the individual lenders have already been paid on their dead so they would be completely relieved of this in excess of twenty million dollars obligation if  to completely relieved because if they had it would be awkward if they weren't bankrupt you could infer you could go after the original creditors get the notes and come after cornerstone and since they are bankrupt reall is at stake is whether the banks get priority over all the other creditors right i mean that's what we're really talking about here they're not being relieved of anything it's just a question of are the banks going to be first in line because they are secured as opposed to whatever other current whether there is whether there are any mortgages that can be enforced at this point and and if we can't enforce a modest certainly the old lenders can't because they've been paid and and satisfied thank you bank where the debtor money the money was used for some pretty good reason at least most of it to essentially refinance the debt so what we're talking about is standing here versus sins and i believe the other the other two it's there were there was that there was a finance excuse me that was that was combined to create this new you know my view is either of those create standing it doesn't mean that the trustee wouldn't have to for instance to the note but the assignment alone i believe even independently of the u c c allows me to get into the courthouse in front of the judge to try to enforce it and then you know then there can be the argument well since you don't have enough maybe we don't you know we don't know the money and that that could be to deny that can be determined by a trier of fact but i think they're standing here and as long as we have standing and i don't i don't think the the t es position holds because again there is no dispute that the you know the loan was the loans were actually made that hasn't been assigned anybody else and you know the the debtor prior to the bankruptcy made ma limit mistaken about what's really at stake here i didn't think that and maybe i'm wrong that the trustee was disputing that the debt is owed to the banks i thought the question was just are the banks unsecured creditors or are they secured by the mortgages that's there is no there's not i don't think there's dispute that money is owed what what happens is as their argument the implication would be that essentially the the security would be a significant in the broad run of cases but in this case i didn't think anyone was saying that either that you lack standing to try to collect on the debt or that there's anything invalid about the debt it's just a question of whether problem was is that banks were not being accountable you know there were political issues there but what was happening in those cases was somebody was either showing up with a mortgage and no no and no nothing else or they were showing up with a mortgage and standing to enforce it i thought i think that either the assignment or or the new note that we have gives us the standing doesn't mean that we win it means it means but it means that up to the point has been has been in a position where they have to argue that out the small small army of cases are all wrongly decided but there is but it's not like that it's unclear how the new york state  and so so mike that's that's my question i had and also i notice that the briefs are all at the end the lower court anyway here saying what i'm what i'm doing is what we're being asked to do yours is predict how the new york court of appeals would decide th these hundred plus cases that cite calling were in calling more itself is there any case in which a court has actually confronted a situation where there was no negotiation and delivery but there was an otherwise effective written assignment and there and then says held up well but according to cali morning according to the new york's version of the u c c the written assignment is itself sufficient you could do it either way that either the assignment or the original note was sufficient there's you know this is the district court decision which is i don't think of in this case which is the first one where somebody put a tremendous amount of thought into how it works and i think you know to brutally paraphrase that district court case they basically said the reason we come out the way we did is because new york state is the only one of the is is unlike forty nine other states in four territories has not adopted this the revised u c c you know as i said i said i think that what each of the banks has is sufficient to have standing anyway you know neither the new the district court i would assume probably didn't agree but i don't i don't think you really have to get to the u c c to determine that we have the right to get in front of a court to attempt to enforce it subject to the defens o provides that in the event of the assignment of an assignment of a mortgage the ass and the can use all means to enforce the mortgage let includes a mortgage foreclosure in a bankruptcy case that means standing in the bankruptcy court as a secured credit or under section five zero six and eighty or one hundred to two of or one of one five and o three and in the consolidation agreement the same language appears there is no defense counter claim or offset to the consolidated note or mortgage  special ground to stand thank you very much unless you have other questions was given to judge walker along with physical possession of the note that would be appropriate though the issue that we have is the issue in collymore where it says that the written assignment alone is sufficient to transfer and that's where i just transferred that's what we're saying you can do but certainly if the assignment accompanies the note that's and that's the way by it as an aside that's the way most of them are done contrary to what counsel it suggested if you look at all of the consolidation agreements that are in the record there's a specific provision that says if you are selling your loan to fannie mae you have to include all the original notes that that's why they're there and that one of those isn't as in the record at eight six twenty three your honor i did look quickly at the at the note here is a question about whether or not it was in english was written because incorporated terms of the mortgage the only term i found was across the full provision which is fairly common it's it's if you default  under the mortgage that is considered a default under the note so i i do believe that those are negotiable instruments but i don't think anything in there changes that there was some discussion about your ago through the most recent decision by the court of appeals in a rural it is well settled in new york that the mortgage always follows the know the reading of of the r p l to suggest that the assignment of mortgage would be sufficient would result in the the note following the assignment of mortgage and that's just not how it any court has ever interpreted that working and in fact just to reaffirm that in aurora most recently the court stated that the law we do not this is an issue where we're challenging the secured status of the claim we're not arguing that there is no liability that's just not we're not saying that we're not going to take that position at some point but that's not the issue that's before the court the issue that's before the courts  whether or not the banks have a secure claims under the under the mortgages counsel it suggested that standing under the gap note the gap mortgage would somehow give them standing it would give them standing to enforce the gap no in the gap mortgage we're not contesting that again this is related to the consolidated note the consolidated mortgage assignment i can't by the assignment itself convey or right to enforce that no two fifty four nine doesn't change that it incorporate it makes someone an attorney in fact for purposes of enforcing no where they have possession of the note that's that's the lawful ways and means and that in fact is demonstrated in the aurora case and that's in that case deutsche bank was the owner of the no and he granted a power of attorney to a roth to enforce the no and the most important part about assignment in and of itself is sufficient to transfer the obligation that may be the holdings of those chords based on collymore and its progeny however and both of those cases the plate of submitted evidence that it was in possession of the