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SMS Financial XXV, LLC v. Corsetti

Supreme Court of Rhode Island

June 21, 2018

SMS Financial XXV, LLC
v.
David Corsetti et al.

          Superior Court Providence County No. PC 16-298 Michael A. Silverstin Associate Justice

          For Plaintiff: Robert Fine, Esq. Richard J. Land, Esq.

          For Defendants: John O. Mancini, Esq., Nicholas J. Goodier, Esq., Michael L. Mineau, Esq.

          Present: Suttell, C.J., Goldberg, Flaherty, Robinson, and Indeglia, JJ.

          OPINION

          Paul A. Suttell, Chief Justice

         The plaintiff, SMS Financial XXV, LLC (plaintiff or SMS), appeals from a Superior Court judgment denying its motion for summary judgment and granting the cross-motion for summary judgment brought by the defendants, David Corsetti (Corsetti) and 385 South Main Street, LLC (collectively defendants). This case came before the Supreme Court pursuant to an order directing the parties to appear and show cause why the issues raised in this appeal should not be summarily decided. After considering the parties' written and oral submissions and reviewing the record, we conclude that cause has not been shown and that this case may be decided without further briefing or argument. For the reasons set forth in this opinion, we affirm the judgment of the Superior Court.

         I

         Facts and Procedural History

         Corsetti was the principal of 385 South Main Street, LLC, which owned property located at 385 South Main Street, Providence (the property). In 2007, Sovereign Bank loaned $1 million to defendants in exchange for a promissory note secured by a mortgage on the property. The defendants failed to make payments on the note and defaulted. Thereafter, Sovereign Bank proceeded with a short sale of the property and received approximately $700, 000 from the sale. After the sale, on September 2, 2010, defendants issued to Sovereign Bank a promissory note in the amount of $200, 000 (the note) for the deficiency on the original note. On June 23, 2011, Sovereign Bank assigned its interest in the note to SMS. Sovereign Bank had lost the note, however, so it instead delivered to SMS an allonge and a lost note affidavit.[1] The lost note affidavit was sworn to by a Senior Vice President of Sovereign Bank and stated that Sovereign Bank was unable to locate the original note and had "made a due and diligent search for the [n]ote but ha[d] not found" it.

         On January 22, 2016, SMS brought suit against defendants in Superior Court for defendants' alleged breach of the terms of the note. SMS sought judgment against Corsetti and 385 South Main Street, LLC, jointly and severally, for the payment of the note's $200, 000 principal amount, interest totaling $189, 600 plus accruing interest, late fees, costs, and attorneys' fees. The defendants raised multiple affirmative defenses in their answer, including estoppel, release, waiver, laches, unclean hands, and failure to mitigate damages. On July 25, 2016, SMS moved for summary judgment against defendants on the ground that there was no genuine issue of material fact with respect to defendants' breach of the note.

         The defendants objected to SMS's motion for summary judgment and filed a cross-motion for summary judgment, asserting that SMS "is unable to enforce or collect upon" the note because the note was lost. Specifically, defendants referenced G.L. 1956 § 6A-3-309(a) of Rhode Island's enactment of the Uniform Commercial Code (Rhode Island UCC), which governs the enforcement of lost, destroyed, or stolen instruments, and provides that:

"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, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process."

         The defendants asserted that SMS was not entitled to enforce the note against them because the note was lost while in Sovereign Bank's possession, the note had never been located, and SMS never had possession of the note.

         On November 17, 2016, a justice of the Superior Court heard the parties on the cross-motions for summary judgment. SMS asserted that defendants were estopped from arguing that SMS could not enforce the note because it was lost. Specifically, SMS referenced a provision in the note that stated:

"Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of this Note or any other Security Instrument which is not of public record, the undersigned will issue, in lieu thereof, a replacement Note or other security document in the same principal amount thereof and otherwise of like tenor."

         SMS contended that the provision obligated defendants to issue a replacement note, and that, given their failure to do so, defendants were estopped from raising the lost note as a defense. When the hearing justice inquired as to whether demand for a replacement note was made upon defendants, SMS acknowledged that ...


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