Promissory note is a negotiable instrument that contains a promise to pay a certain sum of money to a named person, to that person’s order, or to the bearer at a specified time in the future. It must be unconditional, signed by the maker, and delivered to the payee or bearer. They are widely used in the USA but are not common in the UK. A promissory note cannot be reissued, unless the promise is made by a banker and is payable to the bearer, which is unless it is a banknote.
Mortgage loans (as in our case) are often evidenced by a promissory note executed by the borrower in favor of the lender which contains a promise by the borrower to repay the borrowed funds together with interest at the time or times specified in the note. The note usually does not contain all of the various agreements between the parties regarding the loan. Instead, the parties may enter into a separate loan agreement which sets forth representations and warranties from the borrower to the lender, certain covenants to be honored by the borrower, and any events of default that may give the lender the right to accelerate payment of the loan.
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So long as the promissory note is retained by the original lender, the borrower will be entitled to all of the benefits that have been provided to it under the terms of any separate loan agreement. However, if the note is a “negotiable instrument” and is transferred to a third party who is deemed to be a “holder in due course,” the third party will have the right to enforce the payment terms of the note even though the borrower might have a valid defense against the lender under the loan agreement which would entitle the borrower to delay payment.
Therefore, in our case, the son of the private investor who purchased the promissory note initially (assuming that the note was presented to the son with all due legal procedures followed) has all the rights to demand the payment from Wally and has the right to obtain a court order to make Wally sell the house to pay his dent on the promissory note.
As explained earlier, No Fraud National has neither obligations nor rights to the latest bearer of the promissory note because the bank sold it and thus transferred its obligations and rights that were specified in the note. In other words, any special agreements that might have been made between Wally and No Fraud National Bank were lost when the bank sold the promissory note to Investments, Inc on February 15, 2000. Separate loan agreements between the bank (even if it acts as the beneficiary of the first Deed of Trust to the house that Wally bought) ends when the bank transfers (sells) the promissory note to the third part: the only agreement that remains legal and binding in such case is the promissory note itself.
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