Daniel W Correia

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
DANIEL CORREIA, 	No. 11-10984
Debtor(s).
______________________________________/
Memorandum on Objection to Claim
_________________
On August 17, 2005, debtor Daniel Correia borrowed $481,525.00 from Northern Pacific
Mortgage Corporation secured by a deed of trust to his residence at 2055 Autumn Walk Drive, Santa
Rosa, California. Northern Pacific Mortgage transferred the note to American Home Mortgage.
American Home Mortgage transferred the note to U.S. Bank, which filed a proof of claim in this case.
Correia objects to the claim, on grounds that the note is not negotiable.
The note is a Fannie Mae Uniform Instrument Adjustable Rate Residential Mortgage Note.
Relying on two ancient California cases, Correia argues that under these cases the note is not a
negotiable instrument because it does not contain an unconditional promise to pay. Since the note is
not negotiable, Correia argues, “the court should find that Bank has no legal or contractual right or
interest in this loan and has committed fraud upon this court.”
The court begins by noting that almost all notes secured by real property in California are
negotiable. 4 California Real Estate Law and Practice, Secured Transactions § 110.01, p. 110-4.
The issue was subject to debate early in the last century. See Anno., “Negotiability of Note as
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Entered on Docket
March 08, 2012
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 11-10984 Doc# 36 Filed: 03/08/12 Entered: 03/08/12 16:46:14 Page 1 of 3

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Affected by Provision Therein, or in Mortgage Securing the Same for Payments of Taxes, Assessments
or Insurance,” 45 A.L.R. 1074 (1926). However, all modern cases the court can find reject the
argument that such provisions in a mortgage destroy negotiability of the note. See, e.g., In re
Apponline.Com, Inc., 321 B.R. 614 (E.D.N.Y. 2003), aff’d 128 Fed.Appx. 171 (2nd Cir. 2004).
Modern California law provides that notes secured by real property are not rendered non-
negotiable because they provide for a variable rate of interest. Cal.Com. Code § 3104(a). “This
language, added during the 1990 revisions, embraces variable rate notes.” 2 White & Summers,
Uniform Commercial Code (5th Ed.), § 17-4, p. 176. Nor are they rendered non-negotiable due to
reference to a deed of trust for a statement of rights with respect to collateral, prepayment or
acceleration. Cal.Com. Code § 3106(b); Witty v. Clinch, 207 Cal. 779, 785 (1929); Hayward Lumber
7 Inv. Co. v. Naslund, 125 Cal.App. 34, 40 (1932). 1
However, even if the note here was not negotiable, Correia does not explain how this entitles
him to have the claim disallowed. 	The hoary case Correia relies upon, Central Savings Bank of
Oakland v, Coulter, 72 Cal.App. 78 (1925), held that a note maker was liable on his note. The note
maker had defended on the grounds that the note was a negotiable instrument and could not be
enforceable against him. Both the trial court and the appellate court rejected his argument and held
him liable on the note. Correia has not cited any case where the maker of a note has escaped liability
by a finding that his note was not negotiable. 	A note is transferred when it is delivered by a person
other than its issuer for the purpose of giving to the recipient the right to enforce it. 4 California Real
Estate Law and Practice, Secured Transactions § 110.30. “Transfer of an instrument, whether or not
the transfer is a negotiation, vests in the transferee, the transferor’s right to enforce the instrument . . .
.” Id. 	If the note were non-negotiable, that might give Correia the right to raise any defenses to
enforcement that he had against the original lender, but he has not raised any such defenses. His
1Witty and Hayward Lumber were decided under old Civil Code § 3265, which was replaced
by Com. Code § 3104.
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Case: 11-10984 Doc# 36 Filed: 03/08/12 Entered: 03/08/12 16:46:14 Page 2 of 3

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assertion that non-negotiability by itself constitutes a bar to enforcement of the note makes no sense to
the court.
For the foregoing reasons, the court finds that the note is negotiable. Further, the court finds
that even if the note were non-negotiable U.S. Bank would still have an allowable claim. The court
will accordingly overrule Correia’s objection. Counsel for U.S. Bank shall submit an appropriate form
of order.
Dated: March 8, 2012
SAlan Jaroslovsky
U.S. Bankruptcy Judge
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Case: 11-10984 Doc# 36 Filed: 03/08/12 Entered: 03/08/12 16:46:14 Page 3 of 3