Many people are vaguely familiar with the case of Carpenter v. Longan, 83 U.S. 271, 21 L. Ed. 313, 1872 U.S. L.E.X.I.S. 1157 (1873). In where the repeated quote is, “The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” The legal term used to describe a separation of the negotiable instrument (Note) from the security instrument (Mortgage/Deed of Trust) is, “bifurcation”. Bifurcation is generally defined as a “separation” of one thing into two or more branches or parts more commonly associated to trials.
When I read this very small excerpt from Carpenter v Longan (“Carpenter”) I, like many others, thought that I had found the ‘holy grail’ to foreclosure defense, but I was soon disappointed by the court’s ruling in multiple cases and accused the court of being corrupt. I was wrong. Let’s take a closer look at Carpenter.
First let’s look at what the issue was in Carpenter. The Supreme Court of the Colorado Territory, Justice Swayne opined as follows,
“[m]ore than two months before the maturity of the note, Jacob B. Carpenter, for a valuable consideration, assigned the note and mortgage to B. Platte Carpenter, the appellant. The note not being paid at maturity, the appellant filed this bill against Mahala Longan, in the District Court of Jefferson County, Colorado Territory, to foreclose the mortgage.
She answered and alleged that when she executed the mortgage to Jacob B. Carpenter, she also delivered to him certain wheat and flour, which he promised to sell, and to apply the proceeds to the payment of the note;”
“It was proved that the wheat and flour were in the hands of Miller & Williams, warehousemen, in the city of Denver, that they sold, and received payment for, a part, and that the money thus received and the residue of the wheat and flour were lost by their failure. The only question made in the case was, upon whom this loss should fall, whether upon the appellant or the appellee.” Id. 272.
In this we see that the Carpenter case was not over a mortgage at all, but rather it was over the delivery of “wheat and flour”. We now have to ask ourselves, what does wheat and flour have to do with my mortgage? The correct response is nothing at all.
In many cases in where Carpenter has been cited, the Justices have held that if anything can be taken from Carpenter it is that, “The note and mortgage are inseparable”, meaning that it makes no difference if one party holds the Note, and a separate party has assignment of the security instrument. This concept is concurrent with contract law, “separate instruments or contracts executed at the same time, for the same purpose, and in the course of the same transaction are to be considered as one instrument, and are to be read and construed together.” Jones v. Kelley, 614 S.W.2d 95, 98 (Tex.1981); see also Vista Dev. Joint Venture II v. Pac. Mut. Life Ins. Co., 822 S .W.2d 305, 307 (Tex.App.-Houston [1st Dist.] 1992, writ denied) (applying rule to promissory note and deed of trust).
Though Carpenter has been upheld by a few other courts such as in the case of Landmark Nat. Bank v. Kesler, 216 P.3d 158, 289 Kan. 528 (2009) in many other cases this similar argument has repeatedly failed miserably, and in the wake of such failure we now should ask is bifurcation still a viable claim. The correct response to that question is yes it is, but not the separation of the instruments but rather the separation of the elements therein.
I covered this issue in a previous article titled, “When is a Negotiable Instrument no longer eligible for negotiation?”, but to briefly recap here, if the “promise to pay” has been stripped, separated, or removed (bifurcated) from the tangible negotiable instrument (original paper Note) and sold to a third party investor (securitized) then there is no longer an apparent debt associated with the paper Note, it’s now just a piece of paper. Bifurcation of the only element that would have ever given value to the paper Note is now gone and the paper can no longer be used for collection or the claim of rights under the Note.
I hope this helps better understand why courts do not care about claims under Carpenter v Longan that the security instrument is null or void.