Okla. Stat. tit. 12A § 3-602
Okla. Stat. tit. 12A, § 3-602
Oklahoma Code Comment
6. Subsection (a) provides that an instrument is paid to the extent payment is made to a person entitled to enforce the instrument. However, 46 O.S. § 12 (1931) provides that with respect to assignments of real estate mortgages, if such assignments are not recorded, then the mortgagor may pay the indebtedness secured thereby to the mortgagee or the last assignee whose assignment is recorded in the applicable real estate records, and such payment shall be effective to extinguish that indebtedness. It is unclear whether Section 3-602 controls over 46 O.S. § 12. Section 3-602 is more recent and should control over the older statute pursuant to Travelers Insurance Co. v. Panama-Williams, Inc., 597 F.2d 702 (1Oth Cir. 1979). However, 46 O.S. § 12 is more limited, and thus arguably should control over the broader Section 3-602 . See City of Tulsa v. Smittle, 702 P.2d 367 (Okla. 1985). This conflict is resolved by the WCC's policy of unitary construction illustrated by Section 1-104 , resulting in the conclusion that Section 3-602 should control over 46 O.S. § 12. Nevertheless, in real estate mortgage transactions, it is recommended that an assignment of a real estate mortgage be properly recorded at the time an instrument secured by the mortgage is negotiated.
This problem is present in commercial bank mortgage loan warehouse financing for mortgage banking companies. Mortgage companies, in order to have funds available to close and fund mortgage loans, generally establish lines of credit with one or more commercial banks, which lines of credit are secured by mortgage loans awaiting sale to the secondary mortgage market. The lending bank cannot be assured that it is fully protected against the mortgage company's bankruptcy unless the bank takes possession of the notes and files assignments of the mortgages. However, because the lending bank is relying on sale of the mortgage loans in the secondary mortgage market as the source of repayment, rather than on payments by the mortgagors of the mortgage loans, the payment rule under Section 3-602 is not of great importance.
7. Other statutory provisions may have the effect of modifying the payment rules set forth in Section 3-602 . The Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601 - 2617 , contains specific provisions dealing with mortgage loan servicing which, because of federal preemption, control over Section 3-602 . See 12 U.S.C. § 2605 . Section 3-406 of the Oklahoma Uniform Consumer Credit Code ("U3C"), 14A O.S. § 3-406, provides that an original debtor is authorized to pay the original lender until the debtor receives notification of assignment of rights. Because the U3C is a uniform law designed to protect consumers, 14A O.S. § 3-406 should control over UCC Section 3-602 .
8. Note that payment can constitute a discharge under sub section 3-602(a) if made to an undisclosed agent of the note holder. For example, in real estate mortgage lending, it is common industry practice for mortgage companies to act as servicing agents of mortgage note holders in return for a servicing fee. As payments are received by the mortgage companies for and on behalf of the note holders, the obligors are discharged to that extent. The converse is true however, under Section 3-402 , where a representative signs an instrument without indication of the representative status.
9. Prior Oklahoma decisions have held that payment of negotiable paper before maturity to one other than the holder or holder's dub authorized agent is at the payor's risk. See Green v. Struble, 141 Okla. 207, 284 P. 895 (1930), Catlin v. Reed, 141 Okla. 14, 283 P. 549 (1929); Bale v. Wright, 120 Okla. 174, 252 P. 56 (1926); Chase v. Commerce Trust Co., 101 Okla. 182, 224 P. 148 (1924). Where the payee is the authorized agent, express or implied, of the holder of a note the maker is discharged. However, in Sherrill v. Cole, 144 Okla. 301, 291 P. 54 (1930), a mere recital that a collection agency was the note holder's agent was not conclusive in determining whether an agency relationship actually existed. These cases are still viable authorities.
10. Generally, a change in the form of the evidence of a debt or the time of payment of the debt will not discharge a mortgage securing the debt. Consequently, a renewal of a prior promissory note does not impair the mortgage lien. See Montgomery v. Wade, 195 Okla. 60, 154 P.2d 943 (1944); Unger v. Shull, 154 Okla. 277, 7 P.2d 881 (1931). However, the execution of a new note and mortgage pursuant to an agreement that the new note and mortgage will satisfy an existing note and mortgage operates as payment and satisfaction of the existing note and mortgage. See Brady v. Interstate Mortg. Trust Co., 96 Okla. 293, 223 P. 145 (1924).
11. A debtor is entitled to direct to which of several debts a payment is to be applied. See Hartford Acc. & Indemn. Co. v. City of Sulphur, 123 F.2d 566 (10th Cir. 1941), cert. denied, 315 U.S. 805(1942); Melton v. Quality Homes, Inc. 312 P.2d 476 (Okla. 1957); Cooper v. Federal Nat'l Bank of Shawnee, 175 Okla. 610, 53 P.2d 678 (1935). However, if the debtor fails to direct how a payment is to be applied, then the creditor is ordinarily free to make the application as it; chooses. See McGlumphy v. Jetero Constr. Co., 593 P.2d 76 (Okla. 1978); Titus v. Electric Supply Co., 172 Okla. 408, 45 P.2d 515 (1935).