Taking Assignment of Lost Promissory Notes

In Georgia, it is risky to take an assignment of a lost promissory note. If the promissory notes was in the assignor’s possession when it was lost, the assignee may not have the right to enforce it.

A promissory note is a negotiable instrument, and therefore the UCC (§ 3-309), codified in Georgia as OCGA § 11-3-309, applies.  In relevant part, that provision states: “A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred…”

No Georgia case has addressed whether an assignee of a lost note can enforce it.  But the leading case on the issue, which was decided under a statute identical to Georgia’s, held that a plaintiff suing on a note “must have been both in possession of the note when it was lost and entitled to enforce the note when it was lost.” Dennis Joslin Co. v. Robinson Broadcasting Corp., 977 F. Supp. 491, 495 (D.D.C. 1997). While a minority of other jurisdictions have found that the assignee can enforce the lost note, a majority of courts have followed Dennis Joslin Co.

In response to the Dennis Joslin Co. case, the UCC was amended to provide an assignee the right to enforce the lost note. UCC §3-309(a) as amended provides: “A person not in possession of an instrument is entitled to enforce the instrument if (i) the person seeking to enforce the instrument: (A) was entitled to enforce the instrument when lost 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.”

The official UCC comment for this provision explains that the provision was amended to reject the result in Dennis Joslin Co. According to the comment, an assignee of a lost instrument only has to prove that the assignor was entitled to enforce it at the time it was lost.

However, OCGA §11-3-309 has not been amended to reflect the Uniform Code amendment.  And, as noted above, there are no Georgia or Eleventh Circuit cases addressing the issue. Therefore, it is likely that the assignee of the lost note would not be entitled to enforce it in Georgia.