In the District Court of Appeal Second District of Florida

CASE NO. 2D12-2013

(Lower Tribunal Case No. 08-018284-CI- 19)

ERNEST C. HASSELL AND TERI DITRRICH-}IASSELL, Appellants,

RESIDENTIAL CREDIT SOLUTIONS, INC.,

Appellee,

INITIAL BRIEF OF APPELLANTS

Respectfully Submitted,

Michael P. Fuino, Esq. Counsel for Appellants Matthew D. Weidner, P.A. 7229 Central Ave. St. Petersburg, FL 337 05 Telephone: (727) 894-3 159 Facsimile : (7 27 ) 89 4-29 53 mfu ino@mattweidnerlaw. com FBN:84191

Matthew D. Weidner, Esq. Counsel for Appellants Matthew D. Weidner, P.A. 7229 Central Ave. St. Petersburg, FL 33705 Telephone: (727) 894-3 159 Facsimile: (7 27) 894-29 53 wel attweidnerlaw.com

FBN: 185957

TI{E TRIAL COURT COMMITTED REVERSAL ERROR WHEN IT GRANTED RCS A FINAL JIIDGMENT OF FORECLOST]RE WHERE
RCS FAILED TO PROVE ITS STANDING TO SLIE............................8

a. As an agent acting for an undisclosed principal, RCS was required to present some evidence that the principal acquiesced to its

actions.........

................8

b.

Because the promissory note is not negotiable, RCS's mere possession alone did not confer onto it standing to sue...............................13

The promissory note contains instructions and undertakings otherthanthe payment of money...... ...........14
Integrating the terms of the mortgage into enforcement of the promissory note destroys any negotiability the note might

11,

have...........
c.

......................19

Assuming, arguendo, that the promissory note is negotiable, RCS was not the holder because the note was constructively delivered to its

undisclosedprincipal.......
II

...............21
... . ...24

THE TRIAI COURT COMMITTED REVERSAL ERROR WHEN IT

SUSTAINED RCS' S OBJECTION TO THE AS SIGNMENT.
....

a. The assignment tended to disprove a material fact

that AHMSI "possessed" the note at the inception of the action. .,....... ............25

b. The probative value of the assignment outweighed any argument againstintroduction.., ...........,........26

c. Refusing to admit the relevant assignment was not a

harmless

III.

T}IE TzuAL COURT COMMITTED REVERSAL ERROR WHEN IT OVERRULED HOMEOWNERS' OBJECTION TO T}M AHMSI WITNESS'S TESTIMONY REGARDING POSSESSION OF THE NOTE......... ................28

a.

The witness admitted she had no personal knowledge that AHMSI had possession of the note prior to the inception of the lawsuit. . . . . .. .....29

b. Because the witness's "business records" were not introduced into

evidence, the records were inadmissible and unauthenticated hearsay

statements.....
c. Permitting
required

..........29

the testimony was not a harmless error because RCS was to prove under Feltus that the blank endorsement was effectuated prior to the lawsuit being ..........31

filed....

Certificate of Service...............

??

11

TABLEOFAT]'THORITMS
CASES American Bank ofthe South v. Rothenberg, 598 So. 2d289 (Fla.5th DCA 1992)...............

.. 15-16, 18

Bolin v. State, 736 So.2dl160 (Fla.

1999).....

.............30

Country Place Cmty. Ass'nv. J.P. Morgan Mortg. Acquisition Corp., 51 So. 3d 1176 (Fla. 2d DCA 2010) .............. .......;......,...........................25

Cullimore v. Barnett Bank of Jacksonville,, 386 So. 2d 894 @la. lst DCA 1980)................ Damico v. Lundberg, 379 So, 2d964 (Fla.2d DCA 1979)

.............30

...............

...............28

Elston/Leetsdale, LLC v. Cl(Capital Asset Management, LLC, 37 Fla.L. Weekly D785b (Fla. 4th DCA April 4, 2012)..........................................,9-10

FCD Dev., LLC v. S. Fla. Sports Comm., Inc., 37 So. 3d 905 (Fla. 4th DCA 2010)..............
Feltus v. U.S. Bank National Association, 80 So. 3d 375 (Fla. 2d DCA 2012)...............

...................6

............3r-32

Fla. Inst. for Neurological Rehab., Inc. v. Marshall, 943 So. 2d976 (Fla.2d DCA 2006)..............
GMAC v. Honest Air Conditioning & Heating, Inc., 933 So. 2d,34 (Fla.2dDCA 2006)...............

...............28

......15-16, 18

Holly Hills Acres, Ltd. v. Charter Bank of Gainesville, 314 So. 2d209 (Fla.2d DCA 1975)...............

...............2r

111

In re Commitment of DeBolt, 19 So. 3d 335 (Fla. 2d,DCA 2009)............... JeffRay Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA

.................28

1990)...............

..............25

Kumar Corp. v. Nopal Lines, Ltd., 4625o.2d1178 (Fla.3dDCA 1985)...............

Lawyers Title Insurance Company, Inc. v. Novastar Mortgage, Inc., 862 So. 2d 793 (Fla.4th DCA 2003) ............... Mason v. Flowers, 9I F1a.224, 107 So. 334 (Fla.

......11-12

.............

zJ

1926)................

............. 16

Perry v. Fairbanks, 888 So.2d727 (Fla.5thDCA

2004)...............
2005)....

........13,18

Progressive Exp. v. McGrath Chiropractic, 913 So. 2d 1281(Fla. 2d DCA

..................25-26

Richardsonv. State, 875 So. 2d 673 (Fla. lst DCA

2004)...............

..............30

Riggs v. Aurora Loan Services, LLC,, 36 So.3d 932 (Fla.4th DCA

2010)...............

.....13, 18, 19

Taylor v. Deutsche Bank National Trust Company, 44 So. 3d 618 (Fla. 5th DCA 2010)............... Thompsonv. State, 705 So.2d1046 (Fla.4*rDCA

....13,18,22

1998)...............

......30-31

1V

Westport Recovery Corp. v. Midas, 954 So. 2d750 Gla.4th DCA

2007)...............

................6

WM Specialty Mortg., LLC v. Salomon, 874 So. 2d 680 @la. 4th DCA

2004)...............

..............20

STATUTES AND RIJLES

Fla. Stat.

$90.403

...'...26-27

Fla. Stat.

$671.103 $673.1041(1)

..........23

Fla. Stat.

...14?15,16,19,21

Fla. Stat.

$673.3011

.........22

OTIIERAUTHORTTES

D. Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market,and What to Do About it,37 Pepp.L.Piv,737,754 (2010)...........................

13

vl

PRELIMINARY STATEMENT

All

references

in this brief to the record on appeal are designated by the

symbol "R" followed by the page range

[R. l. All references to the trial

[T._].

transcript are designated by the symbol "T" followed by the page range

v11

INTRODUCTION Whether an agent acting on behalf

introduce some scintilla

of an undisclosed

principal must

of

evidence that

it

has the authority

to act when

specifically challenged by a pany against whom that agent seeks to act is a central
theme articulated

in this appeal from a final judgment of foreclosure

entered in

favor of Residential Credit Solutions, Inc. ("RCS") and against Ernest C. Hassell
and Teri Ditrrich-Hassell (collective "Homeowners"). This court has jurisdiction

to hear this question, and the other questions posed, pursuant to Fla. R. App.
e.03o(bx1xA).

P.

While this Court has recently been faced with numerous foreclosure appeals regarding ,,standing to sue" in the recent past, this appeal places the following narrow issues regarding standing before the Court: (1) whether a "servicern' of a
mortgage loan is required to present some evidence of its undisclosed principal's

ratification of its act of suing at a trial on the matter; (2) whether the promissory
note at issue is a negotiable instrument and therefore standing may be acquired
through mere possession ofthe note aione; and (3) assuming the note is negotiable,

whether the promissory note has been constructively deiivered to a "servicer's"

undisclosed principal who thereby becomes the holder of the instrument.

Additionally, this appeal asks this Court to review two evidentiary rulings
made by the court below at

trial,

First, Homeowners appeal the trial court's

decision to sustain RCS's objection to the admission of an assigrment of mortgage

("assignment"). This assignment tended to disprove a material fact RCS was

required to prove up at trial: that its standing to sue was created prior to the filing of the lawsuit. Also, Homeowners appeal the trial court's decision to ovemrle their

objection to a witness's testimony regarding when RCS's standing to sue could have accrued. Because the witness's testimony was made from her review of "business records" rather than her personal knowledge, RCS was required to
introduce the records prior to the witness's testimony. Since RCS failed to do this,
the witness's statements were inadmissible and unauthenticated hearsay.

STATEMENT OF'THE CASE AND FACTS

In the initial complaint frled by America Home Mortgage Servicing, Inc.

("AHMSI"), AHMSI pled for both foreclosure of Homeowners' mortgage and to
"re-establish" the promissory note which the mortgage secwed. [R.

1]. Notably

for purposes ofthis appeal, no copy ofthe note was attached to the complaint and
no mention was made that AHMSI was prosecuting this action on behalf of anyone

but itself.

Also relevant to the issues presented in this appeal, AHMSI filed

an

assignment which professed to transfer the mortgage from the original lender to it.

[R. 579-580]. However, the assignment "post-dated" the lawsuit in that the date of
the assignment clearly oocurred after AHMSI filed its initial complaint.

AHMSI also filed

and included what

an amended complaint which deleted the "lost note" count

it alleged was a copy of the original promissory note. [R.

attached

39-

681. The copy of the note

endorsement." [R.

to this pleading contained a

"blank

38]. As a result, this complaint was materially different than the

original complaint in that it was the first pleading where the "blankly endorsed"
note appeared. The pleading, however, failed to identif, who AHMSI had brought

the action on behalf of or even how

party's behalf.

it could bring the action

on that undisclosed

After filing the amended complaint, AHMSI thereafter sought to substitute

RCS as party-plaintiff claiming that there had been a "transfer of interest." [R. 165-1681. Like AHMSI's initial and amended complaints, however, this motion
failed to identify on whose behalf RCS was prosecuting the action for, or how RCS obtained the ability to prosecute the action. The motion was granted by the trial

court. [R. 169-170].

Homeowners' second amended answer raised the following affirmative
defenses which are gennane on appeal: (1) that RCS lacked standing 2391; (2) that RCS was not authorized 2401;

to sue, [R.

to sue in another party's name, [R. 239The

md (3) that the promissory note was not negotiable,!P..238-2391. trial.

[R. 289-290].

matter was thereafter set for

At the trial, RCS presented the testimony of its corporate representative and
the corporate representative of

AHMSI. The AHMSI witness admitted that it

had

brought this action on behalfofanother entity by claiming to be the "servicer"

the promissory note and mortgage by offering the following testimony:

of

Q. (By Mr. Gache) So Ms. Ibarra, the loan which is the subject of this lawsuit which is a loan made to Emest C. Hassell and Teri DittrichHassell, do you know whether AHMSI at one point in time was the loan sewicer for this particular loan?

A. Yes.

lT.32l. (Bold

emphasis added).r

The witness also testified that the o'servicing" of the debt was transferred
from AHMSI to another "servicer" (presumably RCS) sometime after the inception

of the action. [T. 33]. At no time during the trial did RCS present any testimony

or evidence that the undisclosed party which AHMSI and RCS were "servicing"
the mortgage and note for had authorized either party to bring the action in the undisclosed principal's
witness testified that

name. In fact, under

cross-examination, the AHMSI

it

had been servicing the mortgage pursuant to some written

contract that the witness had not even

read. [T. 63].

RCS's counsel attempted to procure testimony from the AHMSI witness

whether AHMSI was in possession of the original note endorsed in blank in July,

I RCS's corporate representative also testified at the kial that RCS was also only the "servicer" of the promissory note and mortgage. ['1. 771.
4

2008. [T. 34]. Homeowners' counsel objected that the witress lacked the requisite
foundation to testifu. [T. 34]. After inquiry by the trial court, the witness testified

that her testimony regarding when AHMSI was allegedly in possession of the
original note was entirely based upon a review ofher "business records" which had not yet been entered into evidence. [T. 34]. Homeowners thereafter objected to
the testimony on the grounds that the "business record" referred to by the witness

had not been entered into evidence. [T. 34-35]. The trial court overruled this objection and allowed the witness to testiff that AHMSI was in possession of the original promissory note endorsed in blank on July, 2008. [T. 35].
Later, Homeowners attempted to introduce into evidence a certified copy

of

the assignment. lT. 133-134; R. 579-5801. Homeowners argued that

the

assignment tended to show that RCS's predecessor AHMSI did not have standing

at the inception of the action. [T. 135]. RCS objected on relevancy grounds,
arguing that the assignment was irrelevant to when AHMSI gained possession the note. [T.

of

135].

The trial court sustained RCS's objection and ruled that the

assignment was inadmissible on relevancy grounds. [T. 135-136].

At the close of evidence, and without any testimony or evidence that RCS's
undisclosed principal that it had authorized AHMSI or RSC to sue in its name, the

trial court entered a final judgment in favor of RCS. lT. 175; R. 574-5781. This
appeal follows.

STANDARD OF'REVIEW
"Whether a party is the proper party with standing to bring an action is a
question of law to be reviewed de novo." FCD Dev., LLC v. S. Fla. Sports Comm.,

Inc.,37 So. 3d 905, 909 (Fla. 4th DCA 2010) (quotingWestport Recovery Corp.

v.

Midas,954 So.2d 750, 752 (Fla.4th DCA 2007)). However, "atrialjudge's

ruling on the admissibility of evidence will not be disturbed absent an abuse of
discretion." carpenter v. state, 785 So. 2d 1182,
120

(Fla. 200 1).

SI]MMARY OF ARGUMENT
Reversal error was committed by the trial court when

it

entered

a final

judgment in favor of RCS without RCS proving it had standing to sue as "servicer"

of the note and mortgage. RCS failed to present any evidence that its undisclosed principal either joined in or ratified its conduct as required by established Florida
case

law. Additionally, RCS's mere possession of the promissory note "endorsed

in blank" did not confer standing to sue onto it because the note is non-negotiable
since: (1) the note contains instructions and undertakings other than the payment

of

money; and (2) incorporating the terms of the mortgage into the note under the doctrine of "the mortgage follows the note" destroys any negotiability the note

might have. Additionally, even assuming the promissory note was negotiable, RCS was not the "holder" of the note because the note was constructively
delivered to RCS's undisclosed principal.

Moreover, the trial court committed reversal error when it sustained RCS's objection to the introduction of the assignment. The assignment was relevant
because it tended to disprove a material fact to this action: that RCS's predecessor,

AHMSI, had possession of the note prior to the filing of the lawsuit. Additionally,

the assignment's probative value greatly outweighed any danger of unfair

prejudice, confusion
presentation

of

issues, misleading

of the fact-finder, or needless

trial court's error was also
not

of

cumulative evidence. The

"harmless" because

it is reasonably probable that Homeowners

would have

obtained a more favorable outcome without the error.

Finally, the trial court committed reversal error when

it

ovemrled

Homeowners' objection to the AHMSI witress's testimony regarding AHMSI's

alleged possession of the note in July, 2008. The witness's testimony was based

entirely upon certain "business records" which were not entered into evidence.
Because the records were

not entered into evidence prior to the

witness's

testimony, her statements regarding the contents of the records were inadmissible.

This error was also not harmless because, assuming that the note is negotiable,
RCS was required to prove that the blank endorsement was effectuated prior to
inception of the action. As this testimony was the only evidence offered by RCS to

prove up this material fact, Homeowners would have certainly obtained a more
favorable outcome absent the error.

ARGI]MENT

rv.

THE TRIAL COI]RT COMMITTED REVERSAL ERROR WIIEN IT GRANTED RCS A FINAL JUDGMENT OF F'ORECLOSURE WIIERE RCS FAILED TO PROVE ITS STANDING TO SUE
Because RCS (and

its predecessor AHMSI) prosecuted this action in

representative capacity as 'oservicer" of the note and mortgage, it was required to prove at trial that an agency relationship existed between itself and the party whom

it was suing on behalf of, In other words, in order for RCS to have a sufficient
stake in the outcome of the litigation,
on behalf of its undisclosed principal

it had to prove that it was authorized to act

As a threshold matter, this required RCS to prove that an agency relationship

existed between itself and the entity which

it

was servicing the mortgage for.

Additionally, because the promissory note is not a negotiable instrument, mere

"possession" ofthe note endorsed in blank could not confer onto RCS standing and

the status of the real party in interest. Finally, even if the promissory note was
negotiable, RCS was still required to prove up its agency relationship because the
note was delivered to RCS's undisclosed principal.

Therefore, it was a reversal error to grarLt a final judgment of foreclosure in favor of RCS where no evidence of an agency relationship was established at trial.

a. As an agent acting

undisclosed principal' RCS was required to present some evidence that the principal acquiesced to its actions
8

for an

As the purported "servicer" of the note and mortgage, RCS was not the party

to whom the debt was owed. See e.g.24 C.F.R. $3500.2(b) (defining the act of
"servicing" under the Real Estate Settlement Procedures Act as "receiving any
scheduled periodic payments

from a borrower pursuant to the terms of

any

mortgage loan...and making the payments to the owner of the Ioan

or other
loan

third parties...pursuant to the terms of the mortgage servicing

documents or servicing contract.") (Bold emphasis added). Rather, RCS was the
agent for the party it was "servicing" the loan on behalf of and could only foreclose

the mortgage

if its principal

granted

it authority to act. The question

then tums to

what burden of proof RCS was required to present at triai in order to establish this. This issue was recently addressed by the Fourth District Court of Appeal in a

slightly different context.

In

Elston/Leetsdale,

LLC v. CWCapital Asset

Management, LLC,37 Fla. L. Weekly D785b (Fla. 4th DCA April 4,2012),CW, a

servicer of a note and mortgage executed by Elston, sued Elston for foreclosure
even though the mortgage and note were owned by a "securitized

trust." Id. CW

then moved for, and was granted, an order to show cause why fuIl payments should

not be made during the pendency of the action. 1d. Elston thereafter appealed,
arguing that the "trial court erred by ordering it to make payments to CW because

CW failed to properly allege standing." 1d.

On appeal, the Fourth District agreed with Elston and reversed the trial
court's order. The Court began with the premise that "[i]n securitization cases, a
servicer may be considered a party in interest to legal action as long as the trustee

joins or ratifies its action." 1d. Noting that CW relied on nothing more than its
own allegations and sworn statements in support of its contention that it could sue on behalf of the trust, the Fourth District concluded that same was "insufficient
evidence to prove that it is authorized to sue on the trust's behalf." 1d.

It is entirely unclear whether Homeowners note and mortgage had been

"securitized" because RCS failed to offer any evidence or testimony at the trial
as

to the identification of the entity which it was servicing the debt on behalf of.
Nevertheless, the testimony at

trial did establish that: (1) AHMSI initiated this

action as "servicer"

lT.

321;

(2) all AHMSI transferred to RCS were these

servicing rights [T. 32f; arfl therefore (3) RCS only "serviced" the note and
mortgage [T.771. As a result, to the extent that the note and mortgage have been securitized, RCS failed to present any evidence whatsoever that it was authorized to sue on behalf of the trust.

Even

if

the note and mortgage was not securitized, case law is clear that

RCS was required to present evidence that it was authorized to bring the action

if it

was maintaining the case on behalf of anyond other than

itself. In Juega v.

Davidson,8 So. 3d 488 (Fla. 3d DCA 2009), the Third District reversed an order of

10

dismissal for lack of standing because it found that the plaintiff was an agent who

had been granted full authority to act for the real party in interest. Id. at 488. However, in Juegra, the real party in interest filed an affidavit averring that the

plaintiff was pwsuing the litigation on its behalf and ratified all actions taken by
the plaintiff since the inception of the action.

Id. at489. On the basis of this

affidavit, the Third District held that "the facts...establish that the agent, Juegra,
has standing."

Likewise, inKumar Corp. v. Nopal Lines, Ltd.,462 So.2d 1178 (Fla.3d

DCA 1985), Kumar

sued Nopal to recover damages for the loss of certain cargo.

Id. at 1180. Nopal argued that under an applicable Florida statute, "the risk of
loss or damage to the goods passed to Nava, the buyer, and that, therefore, since

Kumar could not have suffered the loss, it had no standing to sue." Id. rt1181. While Kumar conceded that Nopal's argument regarding damages was technically
correct,

it

contended that it brought suit on Nava's behalf and filed two affidavits

signed by Nava that ratified and endorsed Kumar's actions.

Id. at ll81-82. The

trial court rejected Kumar's arguments and granted summary judgment in favor of
Nopal contending that since the risk of loss had passed to Nava, Kumar had no
standing to bring the cIaim. Id. aL 1182.

On appeal the Third District reversed, holding that "Kumar, by virtue of

having bome the loss in Nava's stead, had standing to sue...as Nava's agent, its

11

action having been later ratified by Nava,"

Id.

(Bold emphasis added). The

Kumar court explained that standing is either having, or representing one who has,

a "sufficient stake in an otherwise justiciable

resolution of that controversy."

controversy

to

obtain judicial

Id. Additionally,

the Court reasoned that because

Fla. R. Civ. P. 1.210(a) permits an action to be prosecuted in the name of someone other than, but acting for, the real party in interest, "where a plaintiff is either the
real party in interest or maintaining the action on behalfofthe real party in interest,

its action cannot be terminated on that ground that it lacks standing." Id. at 1183. Thus, the Court concluded, "Nava's aflidavits unequivocally show that Nava

ratified and endorsed Kumarts action in bringing suit on Navats behalf."

at 1185. (Bold emphasis added).

Id,

At the trial below,

however, RCS failed to procure even a scintilla of

evidence that its undisclosed principal ratified and endorsed RCS's (and AHMSI's)

action in bringing suit on its behalf. In fact, when questioned regarding how

AHMSI "serviced" the note and mortgage, the AHMSI witness merely replied that the company serviced through a servicing conkact which the witness had not
even

read. [T. 63]. Even more astonishingly, RCS's own counsel

represented to

the hial court that it was unable to either elicit testimony from RCS's principal or introduce the servicing agreement which might permit RCS to bring the action on
its principal's behalf. [T. 66].

12

Therefore, because there was absolutely no evidence introduced at the trial

that RCS's principal joined in or ratiflred its act of suing in the principal's name,
RCS failed to prove it had standing to sue.

b. Because the promissory note is not negotiabler RCSts mere

possession alone did not confer onto

it standing to sue

RCS

will

probably assert that its possession

of the promissory

note

"endorsed" in blank confened onto

Riggs v. Aurora Loan Services,

it

standing

to foreclose the mortgage citing

LLC, 36 So.3d 932 (Fla' 4th DCA 2010) and its

progeny. While Rlggs and other appellate decisions seem to suggest that all
mortgage promissory notes are negotiable instruments, see e.g. Taylor v' Deutsche

Bank National Trust Company, 44 So.3d 618, 622 (FIa.5th DCA 2010) (providing

that "a promissory note is a negotiable instrument"); Perry v. Fairbanlcs, 888 So'

2d 727, 727 (Fla. 5th DCA 2004) (stating that "[a] promissory note is clearly a
negotiable instrument within the definition of section 673.1041(1)'), negotiability
appeaxs

to be an issue which is never preserved for

appeal

by

defending

homeowners in the trial court.

In fact, there are only forty-two

cases decided over the past twenty years

in

the entire United States in which a decision was "reached on the merits" regarding

the negotiability of a mortgage note. Dale A. Whitman, How Negotiability Has Fouled [Jp the Secondary Mortgage Market, and What to Do About it,37 Pepp.L.

13

Rv. 737,754 (2010). Even more shocking, in only two of those forty-two cases
did "the court provide a thorough analysis ofthe negotiability ofthe

totelt' Id.
note's

Nevertheless, Homeowners have preserved

the issue of the

negotiability through questioning negotiability in their affirmative defenses [R.

238-2391 and their counsel's argument at

trial [T. 103-104]. Consequently, "the

rights of the parties must be determined by the character of the promissory note." American Bank of the South v. Rothenberg,598 So. 2d 289, 291 (Fla. 5th DCA

1992). The character of the promissory note at issue below is non-negotiable

because: (1)

it

contains instructions and undertakings other than the payment

of

money; and (2) incorporating the terms of the mortgage into the note because "the
mortgage follows the note" destroys any negotiability the promissory note might

have. Because the note is non-negotiable, RCS's mere possession of it could not
confer standing to foreclose the mortgage. I

The

promissory

note contains instructions

and

undertakings other than the payment of money

Since the law ofnegotiability has been codified by the Florida legislature in

Fla. Stat. $673, et seq.,the analysis begins with the plain language of the statute.
Section 673.1041(1), Florida Statutes, provides the defrnition

ofa negotiable

instrument and begins by asserting that an instrument is negotiable

if it is "an

unconditional promise or order to pay a fixed amount of money, with or without

t4

interest or other charges described

in the promise or order." In addition,

the

instrument must also meet the three following prerequisites:

a. First, the instrument must be "payable to bearer or to order

issued or first comes into possession of a

at the time

it

rs

holder."

673. 1 0a 1( 1 )(a);

b.

Second, the instrument must be "payable on demand or at a definite time'"

$673.10a1(1)(b); and

c. Third, the instrument must 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." $673. 10a1(lXc).

In GMAC v, Honest Air Conditioning & Heating, lnc.,933

So. 2d 34 (Fla.

2d DCA 2006) this Court heid that "the trial court erred in finding that the [retail

installment sales contract] ("RISC") was a negotiable instrument.* Id. at 35.

There, this Court found that the contract at issue contained various instructions and

undertakings on both the person order and promising payment to do some act other

than the payment of money, including: (1) an instruction onto the debtor to not
remove the vehicle from the United States; (2) afi instruction onto the debtor to reimburse advances made by the creditor in payment of repair or storage bills; and

(3) an instruction onto the creditor to dispose of the collateral in certain ways
following repossession. Id. at
37

Most notably for our purposes here, this Court

15

found tlrat the RISC in Honest Air required the debtor to pay fees for late payment or dishonored checks.
1d.

Ultimately, rhe Honest Air Court concluded that these obligations "bring the
RISC within the exclusionary language of section 673.10a1(1)(c), which provides that a negotiable instrument 'does not state any other undertakings' in addition to
the payment of money."

Id.

The Court reasoned that this must be so because "[a]

negotiable instrument should be 'simple, certain, unconditional, and subject to no

contingencies. As some writers have said, it must be a courier without luggage."'

Id. (citing Mason v. Flowers, gl F\a. 224, 1 07 So. 334, 335 (Fla. 1926)).
The promissory note at issue below, like the RISC
negotiable because

it

Honest 'Air, is non'

it contains a series of instructions

and undertakings other than

the payment of money. First, the note contains a provision obligating

Homeowners to pay a fee for late payment received by the lender. [R. 76 in clause

7(A) of the promissory notel. A late payment fee was a condition in the RISC in
Honest Air that this Court held rendered the RISC non-negotiable. Honest

Air,933

So.2dat37.

Additionally, the promissory note contains these other conditions or

instructions other than the payment of money:

16

a. The instruction that each payment paid by Homeowners will

be applied first

to interest and then to principal. [R. 76 in clause 3(A) of the promissory

notel;

b. The instruction that the adjustable rate of interest be tied to the average of
interbank offered rates for one month U.S. dollar-denominated deposits in
the London market, as published in the Wall Street Joumal. [R. 76 in clause

4@) of the promissory notel;

The instruction that during the "initial period" the "minimum required
monthly payment" will be less than the amount of interest that accrues on

the principal and that for each month the borrower pays this "monthly
minimum" the lender will subtract the amount of monthly payment from the amount of interest that accrues. [R. 76 in clause 4(E) of the promissory
notel;

d.

The instruction that the lender must deliver or mail to Homeowners a written

notice of any changes in the interest rate or the amount of the Homeora'ners'

monthly payment before the effective date of any change. [R. 76 in clause

4(I) of the promissory notel;

e. The instruction that Homeowners notice the lender in writing if they intend

to "prepay" any portion of the principal. [R. 76 in

promissory note];

clause

5 of

the

17

f. The instruction that

if

a 'olaw'' is "finally interpreted" so that the interest or

other loan charges collected by the lender exceeds the maximum permitted,
then any such charge shall be reduced by the amount necessary and any sum

actually paid by Homeowners shall be refunded by the lender. [R. 76 in

clause 6 of the promissory note];

g.

The instruction that the lender might give Homeowners notice that the lender

intends to accelerate all sums due

if

Homeowners are in default. [R. 76 in

clause 7 of the promissory note]; and

h.

The instruction that any notice which must be given to Homeowners by the lender, or to the lender by the Homeowners, must be in
clause 8 of the promissory note].

writing. [R. 76 in

At trial, RCS's

counsel argued that a promissory note was somehow

inherently different than an agreement to repay an automobile loan. [T. 111-112].

Indeed, quoting Riggs, the trial court found that the note was a negotiable

instrument. [T. 120]. However, both the trial court's analysis below, and the
appellate decisions

in

Rlggs, Taylor, and Perry,

all lack the analysis of

To assert generally that
a

$673.1041(lxc) done by this Court in Honest

Air.

promissory note is a negotiable instrument because Riggs, Taylor, and

so, or to make a blanket argument that Honest

Pety

say

Air

does

not apply to promissory

notes because those instruments are fundamentally different than RlSCs, promotes

18

form over substance and emasculates $673.1041(1)(c). This the Court should not
do

When conducting a thorough analysis of the note at issue it is clear that the instrument contains instructions and undertakings other than the payment of money

on both the person ordering payment and the person promising

Therefore, the promissory note

payrnent.
are

is non-negotiable, Riggs and its progeny

inapposite, and RCS cannot claim that its mere possession of the note endorsed in blank conferred onto it standing to sue.

II

Integrating the terms of the mortgage into enforcement of the promissory note destroys any negotiability the note might have
was negotiable, arguing that the negotiation

Even

if the promissory note

of

the note permits foreclosure of the mortgage destroys any negotiability the note might have in the first place. This is because in so arguing, the proponent would

be suggesting that the terms of the mortgage have been imbedded into the note
(since the argument would be that the negotiation of the note transfers with it enforcement powers over the terms

of the mortgage). Given that there

are

countless instructions and undertakings other than the payment of money located in

the mortgage, integrating the terms of the mortgage would bring the promissory
note within the exclusionary language of $673.10a1(1)(c).

19

The basis for this potential af,gument is the doctrine that "the mortgage follows the note" prominently explained in the seminal case of Johns v. Gillian,
184 So. 140 (Fla. 1938). There, the Florida Supreme Court held

it has frequently been held that a mortgage is but an incident to the debt, the payment of which it secures, and its ownership follows the assignment of the debt. If the note or other debt secured by a mortgage
be transferred without any formal assignment of the mortgage, or even a delivery of it, the mortgage in equity passes as an incident to the

debt, unless there be some plain and clear agreement to the contrary, that be the intention of the parties.

if

Id. al 143.

See

also WM Specialty Mortg., LLC v. Salomon,874 So. 2d 680, 682

(Fla. 4th DCA 2004). Thus, the argument goes, since the note has been negotiated,
the mortgage passes in equity to the "holdeC' of the note.

The inherent flaw with this argument, howevero is that

it

ignores the

ramifications of integrating the two documents. Specifically, there is no clause in

the promissory note at issue which would permit foreclosure of the security
instrument. Rather, it is clause 22 of the mortgage which permits foreclosure only
upon default and failure to cwe after timely notice. [R. 76].2 Therefore, to argue

that negotiation of the note would transfer "in equity" the mortgage presupposes

Claus" 22 of the mortgage provides, in pertinent part, that "[i]f the default is not cured on or before the date specified in the notice, Lender at is option...may foreclose this Security Instrument." (Bold emphasis added). On the other hand, Clause 7 of the promissory note, entitled "Borrower's Failure to Pay as Required," is silent as to foreclosure of the mortgage.

'

20

that clause 22 of the mortgage is included in the terms of the note when the note is
negotiated.

However, integrating the terms of the mortgage into the note would not only

bring promissory note within the exclusionary language of $673.1041(1)(c), the

note would also no longer be an "unconditional promise" to pay. This is because

the note would be

subj

ect to and govemed by the mortgage, see Fla. Stat.

$673.1061(b), and the rights and obligations with respect to the promise would

likewise be governed by the mortgage, seeFla. Stat. 5673.106I(c). See also Holly

Hills Acres, Ltd. v. Charter Bank of Gainesville, 314 So. 2d 209,211 (FIa. 2dDCA
1975) (providing that "The note having incorporated the terms of the purchase

money mortgage was not negotiable...[because] [t]he note, incorporating by

reference the terms of the mortgage, did not contain the unconditional promise 1o

pay. )
Because incorporating the terms of the mortgage into the negotiation of the

promissory note under the guise that "the mortgage follows the note" annihilates
any negotiability the note might have, mere possession of the original note by RCS

c. Assuming, arguendo, that the promissory note is negotiable, RCS

was not the holder because the note was constructively delivered to its undisclosed principal
Even ignoring arguments I(b)(i) and (iD, RCS still did not have standing to
foreclose the mortgage because the note was delivered to its undisclosed principal.

21

As RCS was not the party whom the note was delivered to,
considered the "holder" ofthe note.

it could not be

A "holder" of a negotiable
possession

instrument

is

defined as "[t]he person in

an

of a negotiable instrument that is payable either to bearer or to

identified person that is the person in possession." Fla. Stat. $671.201(21)(a).3 The key term in this definition is "possession" which is not dehned in either
Florida law or the Uniform Commercial Code from which Florida law flows from' "Possession"

is therefore a fungible term which does not it

necessarily imply

physical custody of the instrument. Rather,

requires that the instrument was

o'negotiated" to the party claiming the right to enforce it.

"Negotiation" of a 'obearer instrument" (i,e. a negotiable promissory note

endorsed

in blank) occurs when there is a "transfer" of possession. Fla.

Stat.

$673.2011(2). A "transfef' occurs when the instrument is "delivered" to a person

for the purpose of giving to the person receiving delivery the right to enforce the instrument. Fla. Stat. $673.2031(1). Florida law clearly recognizes "constructive delivery" as a sufficient form of delivery even where there is no physical delivery

In addition to a "holder" two other "persons" are entitled to enforce a negotiable instrument: (1) a non-holder in possession of the instrument with the rights of a holder; and (2) a person not in possession of the instrument who is entitled to
enforce the instrument pursuant to Fla. Stat. $$673.3091 or 673.41,81(4). Fla. Stat. $673.3011(2) and (3). See also Taylor,44 So.3d at622. However, since RCS claimed to be the "holder" of the note at ffial, $673.301 1(2) and (3) need not be discussed here.
22

of the

instrument

itself.

See e.g. Lawyers Title Insurance Company, Inc. v.

Novastar Mortgage, Inc., 862 So. 2d 793, 798 (Fla. 4th DCA 2003).

Recognizing constructive delivery

is

crucial

in

current times where

promissory notes and the mortgages that secure pa)rynent on same are sold
routinely on the secondary market without the documents ever physically moving.

But even more important is recognizing that Florida's law regarding negotiable
instruments does not displace the law

of agency,

See FIa. Stat. $671.103.

Consequently, the promissory note here was constructively delivered

to RCS's

undisclosed principal (the party to whom the debt was owed). RCS, then, only

"held" the note for the benefit of this party.

Since RCS was nothing more than an agent, it could not be granted "holder"
status

ofthe note because there was no transfer ofpossession to

it.

The transfer

of
or

possession occurred when

the original lender delivered,

constructively

otherwise, the note to RCS's undisclosed principal.

Therefore, because both RCS and its predecessor plaintiff AHMSI were
beholden to their undisclosed principal vis-d-vis a servicing agreement that was

never introduced into evidence, neither party qualifies as the holder of the note.

The law of agency thus required, as argued supra in Argument I(a), that the
principal join in or ratifu their acts. Since this was not done, RCS failed to prove
its standing to sue.

23

THE TRIAL COURT COMMITTED REVERSAL ERROR WHEN IT SUSTAINED RCS'S OBJECTION TO THE ASSIGNMENT
When the trial court sustained RCS's objection

to the assignment on

relevance grounds,

it committed reversal error

because the court refused to admit

evidence which tended to disprove a material

fact. The assignment was a self-

authenticating document since it was a certified copy of an official public record'

Fla. Stat. 590.902(4). Consequently, there was no need for preliminary testimony

to establish that the assignment was what it purported to be.

See C. Ehrhardt, the

Florida Evidence $902.1 (2010 ed.) (providing that "[b]oth courts and

legislature have recognized a number of exceptions to the requirement that counsel

call a witness...to prove that

proffered document is authentic. In these situations,

the document itself discloses sufficient information to be admitted without further

proofofits

genuineness, and is said to be 'self-authenticating."')

The assignment also met the evidentiary test for "rslevancy" because it
tended to disprove a material fact proffered by the AHMSI wifiress: that AHMSI
o'possessed"

the note prior to the commencement of the action. Additionally, the

probative value

of the assigrrment greatly outweighed any danger of

unfair

prejudice, confusion

of the

issues, misleading the fact-finder,

or

needless

presentation of cumulative evidence. Finally, excluding the assignment was not a o'harmless" error because

it is reasonably probable that Homeowners would have

obtained a more favorable judgment without the error.

24

Therefore, it was reversal error for the trial court to exclude the assignment.

a. The assignment tended to disprove a material fact - that AHMSI

ttpossessedtt the note at the inception of the acfion

Because the assignment tended to disprove that AHMSI possessed the note

prior to the commencement of the action (and thereby tended to prove that AIIMSI

did not garner standing until after the lawsuit was filed), the assignment was
relevant piece ofevidence which should have been introduced.

Relevant evidence is evidence "tending to prove or disprove

material fact,"

Fla. Stat. $90.401, and "all relevant evidence is admissible, except as provided by

law." Fla. Stat. $90.402. The

material fact sought to be proven by RCS (and

disproven by Homeowners), was that RCS's predecessor AHMSI "possessed" the

note prior to commencement of the action. See Country Place Cmty. Ass'n v. J.P.

Morgan Mortg. Acquisition Corp.,51 So. 3d 1176, 1179 (Fla. 2d DCA 2010)
("Because J.P. Morgan did not own or possess the note and mortgage when it filed

its lawsuit, it lacked standing to maintain the foreclosure action'); JeffRay Corp.
v. Jacobson,566 So. 2d 885, 886 (Fla. 4th

DCA 1990) (holding that a foreclosure

complaint failed to state a cause of action where plaintiffs relied on assignment of mortgage that was dated four months after the lawsuit was

filed).

See also

generally Progressive Exp. v. McGrath Chiropractic, 913 So. 2d 1281, 1285 (Fla.
2d DCA 2005) (providing, that a "plaintiff s lack of standing at the inception of the

25

case is not a defect that may be cured by the acquisition ofstanding after the case

is filed.")

At fial, RCS argued the assignment was irrelevant on its face merely
because "[s]tanding is who held possession of the note on the date of the

flling."

[T. 135]. However,

as explained in Argument

I(c), "possession" is a fungible term

the

that requires the delivery of a negotiable instrument. Assuming that

promissory note was negotiable and that negotiation of the note could transfer "in

equlty'' the terms of the mortgage, the assignment was evidence of a possible "delivery" of those documents to AHMSI.
Thus, because the assignment was dated after the action was frled [T. 579580], it tended to disprove that AHMSI "possessed" the note prior to the inception of the lawsuit.

b. The probative value of the assignment outweighed any argument

against introduction

While RCS failed to argue this below, there was no danger of unfair
prejudice, confusion

of the issues, misleading the fact-finder, or

needless

presentation of cumulative evidence in introducing the assignment.

A trial court's discretion to exclude relevant evidence may be exercised only

if the evidence's "probative value is substantially outweighed by the danger of

unfair prejudice, confusion

of the issues, misleading the jury, or needless

26

presentation of cumulative evidence." Fla. Stat. $90.403. (Bold emphasis added).

As Professor Ehrhardt explains

[i]n undertaking this balancing, the trial judge may consider the need for the particular evidence, the availability of altemative means of proof, and the likelihood that the jury will follow a limiting instruction
by the court. C. Ehrhardt, Florida Evidence $403.1 (2010 ed.).

Not only was there no objection made by RCS at trial that the assignment
should be excluded under $90.403, but none ofthe reasons for exclusions given by the rule were even present. There was no unfair prejudice to RCS, no confusion

of

the issues, no jury to mislead, or any needless presentation of cumulative evidence'

As a result, the probative value of the assignment was not substantially

outweighed by any argument against its introduction.

c. Refusing to admit the relevant assignment was not a

error

harmless

Finally, refusing to admit the assignment was not a harmless error because it
was reasonably probable that Homeowners would have obtained a more favorable judgment without the error.

Florida Statute Section 59.041 provides, in pertinent part, that

of...rejection of evidence. ..unless in the opinion of the court to which application is made after an examination of the entire case it shall appear that the error complained of has resulted in a miscarriage of
justice.

[n]o judgment shall be set aside or reversed...on the ground

27

The test that this Court has articulated

standard is whether

in

determining this ooharmless error"

it is reasonably probable that the party would have obtained a

more favorable result without the error. See In re Commitment of DeBolt, 79 So. 3d 335 (Fla. 2d DCA 2009); Esaw v. Esaw,965 So. 2d 1261(Fla. 2d DCA 2007);

Fla. Inst. for Neurological Rehab., Inc. v. Marshall, 943 So. 2d 976 (Fla. ZdDCA
2006); Damico v. Lundberg, 379 So. 2d,964 (Fla.ZdDCA 1979).

When considering that no note was attached to thd initial complaint which would evidence an "endorsemenf in blank prior to the inception of the action [R.

1], along with RCS's testimony that

effectuated

it had no idea when the endorsed was

[T. 140], it is reasonably probable that the assignment could have

proven that delivery

of the note and mortgage did not occur until after

commencement of the action. As this was a central issue tried before the court below, it was not a harmless error to refuse to admit the relevant assignment.

VI.

THE TRIAL COI]RT COMMITTED REVERSAL ERROR WHEN IT OVERRULED HOMEOWNERS' OBJECTION TO TIIE AHMSI WITNESS'S TESTIMONTY REGARDING POSSESSION OF THE NOTE

The only piece of evidence offered by RCS to prove its standing at the
inception of the action was the AHMSI witness's testimony that AHMSI possessed the promissory note that contained a blank endorsement in July, 2008

[T'

34-35]-

However, this testimony was based on the witness's "business records" and not her personal knowledge. [T.

34].

Because these "records" were not introduced into

28

evidence prior

to the witness's testimony, the witness's testimony

was

unauthenticated and inadmissible reversal error when testimony.

hearsay. Therefore, the trial court committed

it ovemrled Homeowners' objection to the AHMSI witness's

a. The witness admitted

she had no personal knowledge that

AIIMSI

had possession of the note prior to the inception of the lawsuit

The AHMSI witness's testimony clearly established that she had absolutely

no personal knowledge regarding whether AHMSI had possession of the note in July 2008. In fact, RCS's counsel specifically asked "[C]an you look at your records and tell me

if that is an accurate photocopy of the promissory

note that

AHMSI had in its possession in July of 2008." [T. 34]. @old emphasis added). The witness represented to the court that her testimony was based off of her
"business records that [she] pulled in order to prepare for. . .the trial today." [T
341. (Bold emphasis added).

It is fundamentalthat"a witness may not testifi to amatte.r unless

evidence

is introduced which is sufficient to support a hnding that the witress has personal knowledge of the matter." Fla. Stat. $90.604. Because the AHMSI witness's testimony was based upon her review

of

"business records," a classic hearsay

exception, it was not based upon personal knowledge.

b.

Because the witnessts ttbusiness recordstt were not introduced into

evidence, the records were inadmissible and unauthenticated

hearsay statements
29

Since the witness's testimony was not based upon her personal knowledge,

the testimony could only have been admissible under an enumerated "hearsay"

exception.

It

appears, based upon the references

to "records" and "business

records" by both RCS's counsel and the AHMSI witness, that the testimony was
meant to come under the hearsay exception for such records, Fla. Stat. 590.803(6).

However, testimony describing the contents of a business record is inadmissible unless the record has previously been introduced under the business records
exception rule. See Richardson v. State,875 So. 2d 673,677 (Fla. lst DCA 2004)

(holding that testimony by an employee, who did not have personal lcrowledge of
the facts recorded, conceming the contents of a business record which had not been
entered into evidence was hearsay); Bolin v. State,736 So.

2d 1160, 1167 (Fla.

1999) (providing that "Oral testimony conceming business records

is

not

admissible under fsection 90.803(6)]"); Cullimore v. Barnett Bank of Jacl<sonville, 386 So. 2d.894,895 (Fla. 1st DCA 1980) (holding that oral testimony concerning

the contents of business records is not admissible unless the record has first been
admitted).

This is because while under the business record exception a record, report,
data,

ot other data compilation is admissible, the exception "does not

authortze

hearsay testimony concerning the contents ofbusiness records which have not been

admitted into evidence.o' Thompson v. State,705 So. 2d 1046, 1048 (Fla. 4th DCA
30

1998). By allowing the AHMSI witness to testifu that her records

AHMSI was in possession of the original note endorsed in blank
as

revealed

of July, 2008,

the trial court permitted the witness to give secretive testimony that was no longer subject to the test

of its credibility by cross-examination. Put another way,

the

witness's testimony could never have been impeached by the record itself because

the record was not introduced. Therefore, the AHMSI witness's testimony that AHMSI possessed the original promissory note, endorsed in blank, in July, 2008 was inadmissible'

c. Permitting the testimony was not a harmless error because RCS

was required to prove tnder Fehus that the blank endorsement was effectuated prior to the lawsuit being filed
The trial court's denial of Homeowners' objection to the AHMSI wifiress
testimony cannot be construed as a "harmless error" because RCS was required to

prove that the endorsement was effectuated prior to the commencement of the
action.

ln Feltus v.

U.S. Bank National Association,80 So. 3d 375 @1a.

ZdDCA

2012), U.S. Bank initiated a foreclosure action but attached to its initial, unverified

complaint a copy

of a promissory note payable to another entity

and which

contained no endorsements.

Id.

Later, U.S. Bank filed what it claimed was the

original promissory note which contained two endorsements, the second of which
was "endorsed in blank." Id. at 376. The trial court granted summary judgment in

31

favor of U.S. Bank, but this Court reversed "because the documents before it did
not establish conclusively that there was no genuine issue of material fact and that U.S. Bank was entitled to foreclose Feltus's mortgage as a matter of law." Id. at
377.

In a very important footnote to its decision, this Court explained that U.S.
Bank "would have needed to prove the endorsement in blank was effectuated
before the lawsuit was

filed." Id.

at n.

2.

This footnote becomes instructive here

because the initial, unverified complaint frled by

AIIMSI was

even more lacking

that the complaint in Feltus as AHMSI's complaint did not even contain a copy

of the note. [R. 1]. The AHMSI witness's testimony was therefore necessary to prove that the
endorsement in blank was effectuated before the action commenced. Since RCS's

entire standing argument was based on this one, crucial piece

(especially

of

evidence is

in light of its objection to the introduction of the assignment), it

reasonably probable that Homeowners' would have obtained a more favorable result without the error. Therefore, by ovemrling Homeowners' objection to the AHMSI witness's testimony, the trial court committed reversal error.

JZ

CONCLUSION
For the reasons and legal authorities set forth hereirq it is respectfirlly submitted that

this Honorable Court should reverse the final judgment of foreclosure entered in RCS's
favor and enter judgment in Homeowners' name or, in the altemative, order a new trial on
the merits.

Dated June

2012. Respectfully Submitted,

Matthew D. Weidner, P.A.

Counsel for Appellants 1229 Central Avenue St. Petersburg, FL 33705 Telephone: (7 27) 894-3159 Facsimile: (7 27) 894-2953

By

eldner, Esq. rida Bar No. 185957

t'fu"*&-(ft '

Michael P. Fuino, Esq.

--

FloridaBarNo. 84191

CERTIFICATE OF SERVICE

TIEREBY CERTIFY that a true and correct copy of the foregoing

has been fumished by U.S. mail on this

ofJune, 2012 to Ron Gacheo

Esq., Shapiro, Fishman,

Tampao

&

Gache, 4630 Woodland Corporate Blvd., Suite 100,

St. Petersburg, FL

FL 33164; Richard B. Badgley, Esq,, P.O. Box2842,

33731; Suntrust Bank, c/o Corporate Creations Network, Inc.

Registered

Agent, 11380 Prosperity Farms Road#221E, Palm Beach Gardens, FL 33410; and

JJ

Ilarbor Isle Homeowners Association, Inc., c/o Raul Bermudez

Agent, 1594 72'd Avenue Northeast, St. Petersburg,FL33702.

Registered

ru,p/4/(.1
Michael P. Fuino, Esq.

->

CERTIFICATE OF COMPLIANCE

The undersigned certifies that this petition complies with the font
requirements set forth in Rule 9,210(a)(2), Fla. R. App. P.

-/4r^1/
Michael P. Fuino, Esq.

34