Notes, Indorsements, Allonges, and the Pitfalls You Need to Know About (Part II)

Part II – The Very French-Sounding “Allonge”

Allonge. That’s a weird-sounding word to most Americans, but note investors are familiar with the term and generally know what an allonge is used for.  However, many note investors, attorneys, and judges are sometimes unfamiliar with the limitations and pitfalls connected with the incorrect use or treatment of allonges.

From Black’s Law Dictionary, “allonge (a-lawnzh). [French allonger “to lengthen”] -- A slip
of paper sometimes attached to a negotiable instrument for the purpose of receiving further
indorsements when the original paper is filled with indorsements.

I’m told there is a similar word in ballet – allongé – which means an elongated line with one arm stretched front and the other back.  So, it makes sense.  An allonge is simply done to elongate a line.  Applied to notes, an allonge is the addition of a page or piece of paper to add space to indorse a note to another party.[1]

There is a lot to cover here from basics to common pitfalls, and this information is very important, because allonges require note investors to pay very close attention during collateral review. We understand the purpose of an allonge, now let’s talk about key aspects to look for in determining whether the allonges to your note are proper and valid.

Allonges Must Be Affixed (or “So Firmly Affixed”) to the Note

This is CRITICALLY important, and unfortunately it is not widely known or understood. In order to be valid as a means of negotiation of a note, the allonge must be affixed to the note. If your allonge is not affixed to your note, you will be unable to rely on the allonge as conclusive evidence of your standing to enforce the note.

Most states’ versions of the UCC on this issue read something like this:

“For the purpose of determining whether a signature is made on an instrument, a paper
affixed to the instrument is a part of the instrument.” 
Ohio R.C. § 1303.24;  Tex. Bus. & Com. Code Ann. § 3.204;  Minn.Stat. Ann. § 336.3-204(a).

However, older versions of the UCC required allonges to be “so firmly affixed” to the instrument as to become a part thereof.  Some states (like New York) have held on to that strict stance. New York’s version of the relevant UCC section reads:

“An indorsement must be written by or on behalf of the holder and on the instrument
or on a paper so firmly affixed thereto as to become a part thereof.”
N.Y. U.C.C. Law § 3-202 (McKinney).

I don’t practice in New York, but recent case law indicates that New York continues to very strictly enforce the requirement and will offer no presumption in favor of a plaintiff that an exhibit copy of a note with allonges following suggests those allonges are firmly affixed.  In two recent New York cases the court held that the plaintiffs could not prevail at summary judgment because they did not put on sufficient affirmative evidence that the allonges were firmly affixed to the relevant notes prior to commencing the foreclosure actions.[2]

Allonges Should Also LOOK Like They Are Affixed (i.e., Stapled, Maybe Taped, but not Merely Clipped) and Should Always Appear in the Right Order.

When handling your allonges, especially upon receiving your note collateral, take care with how you manage, organize, and maintain your allonges.  There are particular modes of attack that defaulted borrowers’ attorneys may use, and certain things a court may look for, when it comes to whether an allonge is affixed.  The best way to explain this is through case examples…

Ohio has some useful case law that note investors should be aware of. First, one case turned on the lack of staple marks on the allonge.  In Yemma v. Leber Real Es., Ltd., the court stated that “the Note, attached at Exhibit A-1 to the Lissoy affidavit, does not have the allonge attached or affixed to it. Instead, a copy of the allonge was provided separate and apart from the Note at Exhibit A-7 to the Lissoy affidavit. Further, the copy of the Note (stamped “original”) bears staple marks, but the copy of the allonge does not.”
Yemma v. Leber Real Est., Ltd., 2022-Ohio-3289, ¶ 35, 197 N.E.3d 596, 602, appeal not allowed, 2023-Ohio-86, ¶ 35, 168 Ohio St. 3d 1529, 200 N.E.3d 1159.

In Yemma, there were staple marks on the note but NOT on the allonge – so, the Court determined that the allonge was not part of the Note…therefore, no foreclosure for the investor plaintiff, but worse still the homeowner defendant won on a counterclaim for declaratory judgment that the investor plaintiff lacked standing to enforce the note.

A second case is HSBC Bank USA v. Thompson, which dealt with various questions about how “affixed” an allonge must be, what happens when multiple versions of a note (with and without allonges) are part of evidence, and whether an allonge could be detached and reattached.  In Thompson, there were multiple affidavits made part of the case record that included different versions of the note.  The note was the same, but one affidavit had an exhibit of the note with no allonges attached. A later affidavit had an exhibit of the note with allonges “attached.” However, the attached allonges were in the wrong order. The differing versions of the note in the affidavits created a lot of questions.  Eventually, the court acknowledged,

“It is possible that the allonges in the case before us were stapled to the note at one time and were separated for photocopying. But unlike the alleged creditor in Watson, HSBC offered no evidence to that effect. Furthermore, assuming for the sake of argument that the allonges were properly “affixed,” the order of the allonges does not permit HSBC to claim that it is the possessor of a note made payable to bearer or endorsed in blank.”
HSBC Bank USA v. Thompson, 2010-Ohio-4158, ¶¶ 67-68, citing Sw. Resol. Corp. v. Watson, 964 S.W.2d 262, 263 (Tex. 1997) (looking to the comments of the new, relevant UCC section, the Supreme Court of Texas, therefore, concluded that a stapled allonge is “firmly affixed” to an instrument.”)

So, what are the key takeaways?

First, know that allonges are a useful tool to create extra space for indorsements. But make sure you pay close attention to the treatment of the allonges, and remember these three rules:

1.       Once you have an allonge, it should be physically affixed to the note.

2.       It should only be detached for photocopying but should be reattached promptly. (*Paperclips are probably not sufficient to affix an allonge.)

3.       Pay attention to different scans and versions of your note and its allonges – and make sure all scans, copies, and versions of the note and its allonges remain in the same order.

Sloppy handling of allonges can lead to disaster in a foreclosure case. So, be careful (or as the French might say, “faire attention”)!

In the third and final part of this 3-part blog series “Notes, Indorsements, Allonges, and the Pitfalls You Need to Know About” we’ll discuss the the difference between a Note and a HELOC, and how it affects transfer and foreclosure.

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[1] Interestingly, under the former UCC § 3-202 all indorsements had to be on the actual instrument unless there was no space, and only then could an allonge be used.  The new UCC § 3-202 changed that.

[2] See U.S. Bank Nat'l Ass'n v. Moulton, 179 A.D.3d 734, 737–38, 116 N.Y.S.3d 86, 90 (2020).