Can a lender enforce an undelivered promissory note? In Asgaard Fund, L.P. v. MM80 Oceanside Holdings, LLC, No. 3D19-2126 (Fla. 3d DCA Oct. 27, 2021), the Third District Court of Appeal said yes — at least where the maker never pleads nondelivery as an affirmative defense. The decision is a practical reminder that section 673.1051(2), Florida Statutes, makes an unissued instrument binding on its maker, and that the borrower carries both the pleading burden and the proof burden on nonissuance.
Facts: Asgaard Fund, L.P. v. MM80 Oceanside Holdings, LLC
MM80 Oceanside Holdings, LLC was formed in 2012 to acquire the Galleria Shopping Center in Islamorada. Asgaard Fund, L.P. loaned MM80 roughly $2,061,856, and MM80’s manager, Julie Kean, signed two promissory notes — Note A for $515,464 and Note B for $1,546,392 — secured by mortgages on the property. The transaction closed in October 2012 and title passed to MM80.
MM80 made two months of payments and then defaulted, all while continuing to operate the Galleria and collect more than $600,000 in rent through April 2018. Asgaard sued to foreclose in June 2015. It had scanned copies of the notes but could not locate the originals, which the evidence showed had ended up with Gary Hirst, the attorney who formed MM80, and were never produced despite demand.
After a bench trial, the Monroe County circuit court ruled for MM80 on all six counts of the foreclosure complaint. It found the originals had never been delivered, concluded the notes were therefore unenforceable, and held the mortgages could not be foreclosed. Recognizing that MM80 had taken the loan proceeds, the court entered an equitable judgment for Asgaard limited to principal plus statutory interest — not the contract rate, attorney’s fees, or the other sums the loan documents provided. Asgaard appealed; MM80 cross-appealed the denial of leave to add a compulsory counterclaim for fraud in the inducement.
Issues: Enforcing an Undelivered Promissory Note
Two questions were in dispute. First, whether an undelivered promissory note is enforceable against the maker where delivery was contemplated at closing but never completed. Put differently, does an undelivered promissory note simply fail for want of delivery, or must the maker raise nondelivery itself? Second, whether the trial court abused its discretion by denying MM80 leave to amend to assert its compulsory counterclaim for fraud in the inducement.
Holding
The Third District reversed. Section 673.1051(2) provides that “[a]n unissued instrument, or an unissued incomplete instrument that is completed, is binding on the maker or drawer, but nonissuance is a defense.” Read together, those clauses mean an undelivered promissory note still binds its maker, and nondelivery operates only as an affirmative defense that the maker must plead and prove. MM80 pleaded three affirmative defenses, none of them nondelivery, and the parties then agreed to strike all of them. MM80 could not defeat enforcement on a defense it had abandoned.
The court also reversed on the cross-appeal, holding that MM80 should have been permitted to amend to assert its fraud-in-the-inducement counterclaim, and remanded for further proceedings. The foreclosure action therefore goes forward with the undelivered promissory note and the mortgages treated as enforceable.
Rationale
The court began with the statutory text. Nonissuance is framed as a defense, not as an element of the payee’s case, so the absence of delivery does not strip an undelivered promissory note of its binding effect. MM80 was the “maker” under section 673.1031(e), and the statute makes the instrument binding on exactly that party.
Treating nondelivery as an affirmative defense also tracks settled Florida authority. As between original parties, the maker asserting nondelivery bears the burden of proof. See Johnson v. Smith, 84 So. 2d 722 (Fla. 1956); 6 Fla. Jur. 2d Bills and Notes § 387. Because MM80 never raised it and the defenses were stricken by agreement, the trial court had no properly pleaded basis to declare the notes and mortgages unenforceable. On this record, the undelivered promissory note remained enforceable.
On the cross-appeal, the court applied the liberal amendment standard: amendments ought to be allowed freely unless there is a clear danger of prejudice, abuse, or futility. See Am. Integrity Ins. Co. v. Estrada, 276 So. 3d 905 (Fla. 3d DCA 2019); RV-7 Prop., Inc. v. Stefani De La O, Inc., 187 So. 3d 915 (Fla. 3d DCA 2016). MM80 moved to amend before the discovery cutoff and well ahead of trial, so none of those dangers was present. Standards of review followed Musi v. Credo, LLC, 273 So. 3d 93 (Fla. 3d DCA 2019).
Practice Points
For borrower’s counsel, the lesson is procedural: an undelivered promissory note is not a free defense — nondelivery wins nothing unless it is pleaded. Plead nonissuance expressly as an affirmative defense, and think hard before stipulating to strike defenses wholesale — that stipulation is what cost MM80 a complete defense at trial.
For lenders, the case is a reminder to keep custody of original loan documents at closing and to confirm receipt in writing. An undelivered promissory note is still a litigation problem even when it is legally enforceable. It is also a caution about settling for equitable relief. A principal-plus-statutory-interest judgment is a poor substitute for the contract rate, default interest, and fee entitlement a note and mortgage supply, which is precisely why Asgaard appealed rather than accepting the win it was handed.
Note also what the decision does not do. It does not dispense with proof of the right to enforce, and it is distinct from reestablishing a lost instrument under section 673.3091. It holds only that an undelivered promissory note remains binding on its maker when the nonissuance defense is not properly raised.
The Court Opinion can be found here: https://www.3dca.flcourts.org/content/download/798053/opinion/192126_DC13_10272021_100457_i.pdf
The PDF for the Court Opinion found below.
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