Opinion ID: 70764
Heading Depth: 2
Heading Rank: 4

Heading: Propriety of the Assignments

Text: 70 White argues that, even if this court holds that the option to put is not a valid defense to payment of the promissory note, he is not obligated on the note because the assignment of the note was improper. Specifically, he contends that: 71 He executed the promissory notes in favor of Amberwood as part of the purchase price of his limited partnership interest. Cardinal Industries, Amberwood's general partner, took the notes and assigned them to Ameritrust as collateral for the general corporate borrowings of the Cardinal entity, in order to fund Cardinal's corporate cash needs. In doing so, the general partner converted the notes and acted in violation of its fiduciary duties and in violation of the Partnership Agreement, which prohibited the general partner from assigning Mr. White's notes as collateral for a loan, except for a loan to be obtained by the partnership, to be made to the partnership, or on behalf of the partnership. The loan that Cardinal obtained from Ameritrust using the Amberwood notes as collateral did not meet any of these three standards, and Amberwood received nothing in exchange for assignment. There was thus a failure of consideration as to Mr. White's notes, in that Cardinal and Amberwood materially failed to perform, and Mr. White was excused from performance to Amberwood. Mr. White's defense to payment as against Amberwood operates as a defense against Amberwood's assignee, Ameritrust. 23 72 White presented to the district court both evidence and argument to support this defense. The district court did not address the merits of this defense. Rather, the district court assumed, without deciding, that the note was properly assigned, finding a decision on the propriety of the assignment unnecessary given its construction of the put option agreement. 73 We now find a decision on the propriety of the assignment of the note necessary. Because we affirm the district court's decision as to the non-negotiability of the note, Ameritrust took the note subject to any defenses White could assert against Amberwood. White's allegation that Amberwood and Cardinal violated the Partnership Agreement by assigning the note to Ameritrust is a potentially viable defense as against Amberwood and, therefore, as against Ameritrust. The district court understandably did not rule on this potentially viable defense, as it held that the put option agreement relieved White of liability to Ameritrust. Because we reverse the district court's holding as to the put option agreement, we must now ask the district court to rule on White's alternative defense, the alleged impropriety of the assignment of the note. 74 Ameritrust contends that a remand to the district court for a decision on the propriety of the assignment is unnecessary. First, Ameritrust argues that the chain of title issue was decided in In re Cardinal Industries, Inc., Civil Action No. 2-90-62087, slip op. (Bkr.S.D.Oh. June 7, 1990), 24 a bankruptcy court decision in the Cardinal bankruptcy proceedings. Ameritrust repeatedly refers to this unpublished decision as Plaintiff's Exhibit 23. The decision is not Plaintiff's Exhibit 23, and we have been unable to locate a copy of the decision in the extensive record in this case. In any event, Ameritrust concedes that the decision is merely an order granting Ameritrust relief from the automatic stay, and we fail to see how such an order resolves the propriety of the assignment of the note. Second, Ameritrust contends that White has failed to deny the propriety of the assignment of the note. This contention is belied by the record before us. Accordingly, we find it necessary to remand this case for the district court to decide whether the assignment of the promissory note was proper.