26 Hoosier Banker January 2015 COMPLIANCE CONNECTION Question: We are attempting to collect a debt from one of our customers. We have an electronic image of the promissory note, but are unable to locate the original promissory note. Is the debt enforceable in Indiana without the original promissory note? Answer: Notwithstanding the bank’s inability to produce the original promissory note, the debt is enforceable in Indiana, provided that the certain statutory requirements are satisfied by the bank. The Indiana Supreme Court has previously considered this issue in which a mortgagee sought recovery of the balance due on a mortgage, but was unable to produce the original written promissory note.1 In holding that the mortgagee did not have to produce the original promissory note, the court relied upon Indiana Code § 26-1-3.1-309,2 which now provides in relevant part: A. A person not in possession of an instrument is entitled to enforce the instrument if: 1. The person seeking to enforce the instrument: a. was entitled to enforce the instrument when loss of possession occurred; or b. has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred. 2. The loss of possession was not the result of a transfer by the person or a lawful seizure; and 3. The person cannot reasonably obtain possession of the instrument, because: the instrument was destroyed; its whereabouts cannot be determined; or it is in the wrongful possession of an unknown person, or of a person who cannot be found or is not amenable to service of process. B. A person seeking reinforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, IC 26-1-3.1-308 applies to the case, as if the person seeking enforcement had produced the instrument. Applying Indiana Code § 26-1-3.1309 to your bank’s situation, in order to enforce the debt, the bank must prove the terms of the instrument (i.e., the principal amount due, interest rate and the term) and its right to enforce the promissory note. Any doubt or uncertainty as to the amount of the debt will be resolved against the bank.3 Additionally the bank must prove that: • It was entitled to enforce the promissory note at the time that it was lost, or it acquired ownership of the instrument from a person who was so entitled; • It did not transfer the promissory note to another person (i.e., the bank did not sell the promissory note to another person); and • It cannot locate or obtain the promissory note. Notwithstanding the protections of Indiana Code § 26-1-3.1-309, the original promissory note is the best evidence of the debt. If, after a diligent search, the bank is unable to locate the original promissory note, we recommend that it seek the advice of counsel to confirm that the imaged promissory note and any other available documentation is sufficient to satisfy the statutory requirements to enforce the debt in the bank’s specific circumstances. t This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. 1 Yanoff v. Muncy, 688 N.E.2d 1259 (Ind. 1997). 2 Ind. Code § 26-1-3.1-309(a)(1) was slightly amended and expanded in 2009. 3 Yanoff, 688 N.E.2d at 1263 (citing Bowen v. Ratcliff, 140 Ind. 393, 398, 39 N.E. 860, 862 (1895)). aBout ComplianCe ConneCtion In order to address compliance inquiries from members, IBA provides Compliance Connection, an assistance program offering advice on Indiana-specific compliance questions. If the matter requires legal advice, IBA Compliance Connection will refer the bank to a law firm. The material in this issue was prepared by Larry C. Tomlin, partner with Krieg DeVault LLP, Indianapolis, and IBA compliance consultant. Submit Compliance Connection questions to IBA’s Amber R. Van Til at avantil@ indianabankers.org. Amplify is a public relations and grassroots tool designed to help rebuild the image of banking. Developed by the American Bankers Association, Amplify is available to all bankers, both ABA members and nonmembers, free of charge. For more information, visit amplifybankers.com, or contact Laura Wilson the Indiana Bankers Association at 317-917-8047, email: lwilson@indianabankers.org. t Amplify Your Outreach
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