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In re Walker

United States Bankruptcy Court for the Eastern District of Pennsylvania
466 B.R. 271 (Bankr. E.D. Pa. 2012)


Facts

Janice Walker (plaintiff) owned residential property in Exton, Pennsylvania. In August 2005, Walker entered into a mortgage-loan transaction with Allied Mortgage Group and executed a $248,000 note. The note provided that Walker would repay the loan by making monthly payments of $1,567.53 for 30 years. The note also stated that Walker could prepay the principal at any time but was required to give the noteholder written notice of the prepayment. In March 2010, Walker filed a petition for Chapter 13 bankruptcy. The Bank of New York Mellon (BNYM), trustee of a mortgage-backed securities trust, filed a proof of claim in the bankruptcy action for $264,855.72 based on the note. Walker objected to the proof of claim, arguing, among other things, that the trust did not have an enforceable interest in the note because the note was not a negotiable instrument. Walker asserted that for a note to be a negotiable instrument under Article 3 of Pennsylvania’s Uniform Commercial Code (UCC), the note must not impose any obligation on the debtor other than the payment of money. Walker contended that the note did not meet this negotiability requirement because the note imposed a nonmonetary obligation on Walker to notify the noteholder of her prepayment of the principal.

Rule of Law

Issue

Holding and Reasoning (Frank, J.)

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