To: Oni Holley From: Chantel C.

Espaillat Re: Mortgage Analysis Group Client Matter #: Date: February 28, 2011 INTEROFFICE MEMO Under what circumstances can a promissory note be dishonored. Under U.C.C. Sec. 3-502 (a) Dishonor of a note is governed by the following rules: o (1) If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on the day of presentment. o (2) If the note is not payable on demand and is payable at or through a bank or the terms of the note require presentment, the note is dishonored if presentment is duly made and the note is not paid on the day it becomes payable or the day of presentment, whichever is later. o (3) If the note is not payable on demand and paragraph (2) does not apply, the note is dishonored if it is not paid on the day it becomes payable. o (e) In any case in which presentment is otherwise required for dishonor under this section and presentment is excused under Section 3-504, dishonor occurs without presentment if the instrument is not duly accepted or paid. Under U.C.C. Sec. 3-501 (a) "Presentment" means a demand made by or on behalf of a person entitled to enforce an instrument (i) to pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank, or (ii) to accept a draft made to the drawee. Under U.C.C. Sec. 3-505 (a) The following are admissible as evidence and create a presumption of dishonor and of any notice of dishonor stated: o (1) a document regular in form as provided in subsection (b) which purports to be a protest; o (2) a purported stamp or writing of the drawee, payor bank, or presenting bank on or accompanying the instrument stating that acceptance or payment has been refused unless reasons for the refusal are stated and the reasons are not consistent with dishonor; o (3) a book or record of the drawee, payor bank, or collecting bank, kept in the usual course of business which shows dishonor, even if there is no evidence of who made the entry. o (b) A protest is a certificate of dishonor made by a United States consul or vice consul, or a notary public or other person authorized to administer oaths by the law of the place where dishonor occurs. It may be made upon information satisfactory to that person. The protest must identify the instrument and certify either that presentment has been made or, if not made, the reason why it was not made, and that the instrument has been dishonored by nonacceptance or nonpayment. The protest may also certify that notice of dishonor has been given to some or all parties.

ANALYSIS: The note can be dishonored when not paid on the day of presentment, if there is no presentment, then it can be dishonored when the note is not paid on the day it becomes payable.

What happens if the debtor tenders full payment of the amount of the note to the noteholder, but the noteholder fails or refuses to accept the payment?

Under U.C.C. Sec. 3-603 (a) If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument, the effect of tender is governed by principles of law applicable to tender of payment under a simple contract. o (b) If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument and the tender is refused, there is discharge, to the extent of the amount of the tender, of the obligation of an indorser or accommodation party having a right of recourse with respect to the obligation to which the tender relates. o (c) If tender of payment of an amount due on an instrument is made to a person entitled to enforce the instrument, the obligation of the obligor to pay interest after the due date on the amount tendered is discharged. If presentment is required with respect to an instrument and the obligor is able and ready to pay on the due date at every place of payment stated in the instrument, the obligor is deemed to have made tender of payment on the due date to the person entitled to enforce the instrument. In addition to this, under O.C.G.A. 13-4-24, a tender properly made may be equivalent to performance. The tender must be certain and unconditional, except for a receipt in full or delivery of the obligation, and may be made by an agent and to an agent authorized to receive. The tender must be in full payment of the specific debt, and not in part, and may be made at any time before trial. If tender is rejected on grounds unrelated to informality, informality cannot afterward be raised in objection to the tender. o Lanier v. Mandeville Mills, 183 Ga. 716 (Ga. 1936) - Where a creditor refuses to accept a proper tender, the claim is not extinguished, nor is the debtor harmed by the refusal . . . But where the creditor has collateral, mortgage, or other form of security upon the property of the debtor, the failure to accept a legal tender discharges the lien which was intended to secure payment . . . The creditor may indeed decline to receive what is due, but he can not couple with his declination a refusal to cancel the lien or surrender that which thereafter belongs to the debtor free from the incumbrance . . . The creditor by refusing to accept does not forfeit his right to the thing tendered [money], but he does lose all collateral benefits or securities. o Lanier v. Romm, 131 Ga. App. 531, 535-536 (Ga. Ct. App. 1974) - upon the proper tender being made, while the original debt may continue, the lienor is entitled to a satisfaction of the lien or to be restored to possession of the property. One of the ways for enforcing this right is the provision that the refusal of a proper tender discharges the lien. The debt continues, 'but the tender is equivalent to payment as to all things which are incidental or accessorial to the debt. The creditor by refusing to accept does not forfeit his right to the thing

tendered [money], but he does lose all collateral benefits or securities.' Tiffany v. St. John, 5 N. Y. 314; [*536] McCalla v. Clark, 55 Ga. 53." Anderson v. Barron, 208 Ga. 785, 793 (Ga. 1952) A tender properly made is the equivalent of performance. [***17] Code, 20-1105. And where payment is refused when legally tendered, such tender satisfies the statutory requirement of payment. Forrester v. Lowe, 192 Ga. 469 (15 S. E. 2d, 719).

ANALYSIS: If payment of tender is refused or not accepted, then the noteholder/creditor loses collateral benefits or securities, but does not lose his right to what has been tendered (money). Refusal of payment if there is collateral, mortgage, or other form of security upon debtors property, would allow the debtor to discharge / satisfaction of the lien or obtain possession of the property.