Cengage Advantage Books: Business Law Today, The Essentials 10th Edition by Roger LeRoy Miller

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Hammett v. Deutsche Bank National Co.
FACTS Vernon Hammett and others (the plaintiffs) purchased a residential property in Alexandria, Virginia. As part of that transaction, the plaintiffs executed a promissory note in favor of Encore Credit Corporation in the amount of $475,000. The note was secured by the property being purchased. Subsequently, the note was negotiated by delivery to Deutsche Bank National Company. The note had an attached allonge,a which contained a blank indorsement reading as follows: "Pay to The Order of ____ without Recourse Encore Credit Corp. A California Corporation."
At some point after executing the note, the plaintiffs refused to continue making the payments due under the note. As the holder of the note, Deutsche Bank initiated foreclosure proceedings on the property and subsequently purchased the property at the foreclosure sale. The plaintiffs brought an action against Deutsche Bank, alleging that the bank had no rights in the note. Deutsche Bank filed a motion to dismiss the case.
ISSUE If a borrower executes a note with a blank indorsement to purchase a home, can the current holder of the note enforce it by foreclosing on the homeowner?
DECISION Yes. The court granted the motion to dismiss the case. Deutsche Bank, as holder of the note, was entitled to enforce the instrument.
REASON The court reasoned that the note had included a blank qualified indorsement and thus only delivery of the instrument was required for negotiation. "If an instrument has a blank [i]ndorsement, it is considered 'payable to bearer' and it may be negotiated by transfer of possession alone." Because the face of the note showed that it had a blank indorsement, it was indeed negotiable by a simple change in possession. Thus, it was enforceable by its current possessor, Deutsche Bank. The court further stated that "by their own allegations, Plaintiffs admit that they 'refused to pay' on the Note. To permit parties to the [instrument] to object to its payment, on any of the grounds stated, would greatly impair the negotiability of bills and notes, their most distinguishing, most useful, and most valued feature."
WHAT IF THE FACTS WERE DIFFERENT? Suppose that the indorsement at issue in this case had been written on a separate document that was not firmly affixed to the note. Would this document have constituted an allonge? Would Deutsche Bank have been entitled to enforce the note? Explain.