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A reading document on “Collective Souls Follow the Instrument Follow the Value”, grouped with material about background concepts and reference material. Use it to learn the terminology and compare the explanation with its cited sources.
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Follow the Instrument Follow the Value
Elementary My Dear Watson
An Elementary Guide to Promissory Notes Indorsement Transfer Rescission Accounting Restoration and Equity
Prepared as an educational study guide for the Collective Souls
1 Begin With the Instrument
Imagine three people: Chris, Amy and Bob. Chris is the maker, Amy is the original payee/lender, and Bob is a later purchaser or transferee. Chris signs a promissory note. Under Article 3 terminology, his signature is the signature of the maker. Amy's later signature may serve a different function: an indorsement.
The first lesson is simple: the borrower's signature and a later corporate indorsement can appear on the same paper while performing different legal jobs.
2 The Transaction Has Two Directions
Do not study only the movement of the promissory note. Study the corresponding consideration and funding side as well.
3 Indorsement and Transfer
UCC § 3-204 addresses indorsements. UCC § 3-205 distinguishes special and blank indorsements. UCC § 3-203 addresses transfer by delivery for the purpose of giving the recipient the right to enforce the instrument.
When a note bears language such as “PAY TO THE ORDER OF” followed by “WITHOUT RECOURSE” and a corporate signature, the document should be examined for the precise identity of the indorsee, the nature of the indorsement, delivery, and possession.
Special indorsement: identifies the person to whom the instrument is payable.
Blank indorsement: does not identify that person; when the statutory requirements are met, the instrument becomes payable to bearer until specially indorsed.
“Without recourse”: generally limits indorser liability; it is not, by itself, proof that the maker's obligation was paid or discharged.
4 Follow Delivery and Possession
An indorsement is not the entire factual history. Ask who received the original, when delivery occurred, who possessed it afterward, whether another indorsement was added, and where the original is presently located. This converts a signature analysis into an instrument-chain analysis.
5 The Two Highway Model
The easiest teaching model is two highways running beside one another.
6 Where Fedwire May Enter
Fedwire belongs on the payment-and-settlement highway, not automatically on the instrument highway. If a mortgage loan or pool is sold, settlement for that sale could potentially use Fedwire or another settlement mechanism. An indorsement alone does not prove which system was used.
To establish Fedwire involvement, look for the corresponding payment and settlement evidence: transaction identifiers, sending and receiving institutions, amount, date, and related accounting records.
7 Tender Payment and Discharge Are Separate Concepts
UCC § 3-603 addresses tender of payment. Making an instrument, transferring an instrument, tendering payment, actual payment, and discharge should not be treated as interchangeable words. Each question should be tested under the rule that actually governs it.
8 The Estate Asserted Rescission and Reconciliation Theory
In the estate framework being studied, the asserted sequence is: execution of the instrument; later discovery of facts concerning its treatment or transfer; prompt notice of rescission; and a demand to identify, account for, trace, restore and reconcile the transaction.
For educational accuracy, allegations such as nondisclosure, the source of loan funding, the effectiveness of rescission, or the ownership of particular credits must be established from the transaction documents, accounting records and governing law rather than assumed from labels alone.
9 Pomeroy and the Equity Sequence
Traditional equity supplies a vocabulary for analyzing what happens when a transaction is challenged. The concepts are related, but they are not synonyms.
10 Gibson and Complete Justice
The chancery principle associated with Gibson is useful as a teaching rule: examine the whole controversy rather than one isolated fragment. The note, mortgage or deed of trust, indorsements, possession, consideration, funding, settlement, transfers, rescission notices and accounting records should be examined together where they bear on the same controversy.
11 The Watson Audit
Who made the instrument?
Who received it?
What did the receiving party furnish in exchange?
How was the closing funded?
Was the note indorsed, and if so, how?
Who received possession of the original?
Was it sold, pledged, deposited with a custodian, or transferred again?
What consideration accompanied each later transfer?
How was each transfer settled?
Do the records actually establish Fedwire or another payment system?
Was rescission asserted, and on what legal or contractual basis?
When and to whom was notice delivered?
What happened to the instrument before and after that notice?
What does each party presently claim?
What must be accounted for, restored, credited, surrendered or cancelled under the governing law?
12 Illustration of the Whole Transaction
This illustration condenses the final lesson into one audit trail. Each box is a question to prove with records, not a conclusion to assume.
13 What the Signature Review Establishes
The reviewed promissory note and deed of trust materials consistently showed the borrower or trustor signing the obligation or security instrument. No lender signature was identified on the promissory notes examined. This is a documented finding within the reviewed record, not a finding about every possible document or transaction.
That finding proves the narrow point that the lender did not sign the examined note. It does not by itself establish lack of consideration, invalidity, rescission, discharge, or that the maker became the creditor. Each broader conclusion requires its own governing rule and evidence.
14 Maker Payee Holder and Creditor
A note is the maker's written promise to pay. The maker or issuer is generally the person who signs that promise. The payee is the person to whom the note is initially payable. A holder or other person entitled to enforce may later acquire enforcement rights through delivery, indorsement, transfer, or another rule recognized by law.
Creating and signing the written promise proves authorship and assent to the promise. It does not identify the source of the money used at closing. Creditor status depends on the debt relationship and the applicable statutory definition, not merely on who supplied the paper or signature.
Primary references include Arizona Revised Statutes sections 47-3104, 47-3105, 47-3301, 47-3401 and 47-3412.
15 Receipt Surrender Cancellation and Rescission
A receipt must be read according to what it actually acknowledges. Proof that a lender received the signed note is not the same as proof that the lender later surrendered or cancelled the obligation. Arizona Revised Statutes section 47-3604 places cancellation or renunciation authority in the person entitled to enforce the instrument and requires an intentional voluntary act or a signed renunciation.
16 Disclosure Audit
A nondisclosure claim must identify a disclosure the law required for the particular transaction. Regulation Z requires specified credit terms such as the creditor identity, amount financed, finance charge, annual percentage rate, payment schedule, total of payments, security interest and other transaction-specific terms. A materially inaccurate or omitted required disclosure may create statutory remedies.
The internal source of a lender's liquidity or its general ledger mechanics is not automatically a required Truth in Lending disclosure. The legally focused inquiry is whether a specifically required disclosure was omitted or inaccurate and whether the transaction and timing support the requested remedy.
For qualifying principal-dwelling transactions, 15 U.S.C. section 1635 and 12 C.F.R. section 1026.23 govern the federal right of rescission. A residential purchase-money mortgage is excluded, and statutory time limits apply.
17 Findings From the Documents Reviewed
These findings are limited to the files and extracted pages available for review. A missing signature in this review is not proof that no separate lender-signed agreement or closing record exists elsewhere.
18 Evidence Status and Required Proof
The strongest complete inquiry is therefore not limited to asking who signed. It demands the original instrument, every allonge and indorsement, proof of delivery and possession, the closing disbursement ledger, escrow records, wire confirmation, funding authorization, consideration for each transfer, servicing history, satisfaction records and the accounting treatment claimed by each party.
19 The Collective Souls Rule
FOLLOW THE INSTRUMENT. FOLLOW THE VALUE. FOLLOW THE CONSIDERATION. FOLLOW THE SIGNATURES AND INDORSEMENTS. FOLLOW DELIVERY AND POSSESSION. FOLLOW THE TRANSFERS. FOLLOW THE MONEY, CREDITS AND ACCOUNTING. FOLLOW THE RESCISSION. TRACE. ACCOUNT. RESTORE. RECONCILE.
Final Lesson Elementary My Dear Watson
A promissory note should not be studied merely as paper bearing a borrower's signature. Study the maker, payee, holder, indorser, transferee, delivery, possession, consideration, payment, settlement and any later equitable remedies.
An indorsement does not by itself prove payment, discharge or Fedwire settlement. But neither should it be ignored: it may be important evidence concerning negotiation or transfer, which leads to the next questions — where did the instrument go, who acquired it, what did that party give for it, how was the transaction settled, and how was everything accounted for?
When rescission and equity are asserted, ask what each party received, what can legally be restored, what must be accounted for, where the outstanding instrument is located, whether surrender or cancellation is warranted, and what rights remain after reconciliation.
SHOW THE BOOKS. SHOW THE INSTRUMENT. SHOW THE TRANSFER. SHOW THE CONSIDERATION. SHOW THE SETTLEMENT. THEN RECONCILE THE WHOLE TRANSACTION.
Selected Primary Study References
Arizona Revised Statutes section 47-3104 Negotiable Instrument https://www.azleg.gov/ars/47/03104.htm
Arizona Revised Statutes section 47-3105 Issue of Instrument https://www.azleg.gov/ars/47/03105.htm
Arizona Revised Statutes section 47-3301 Person Entitled to Enforce Instrument https://www.azleg.gov/ars/47/03301.htm
Arizona Revised Statutes section 47-3401 Signature https://www.azleg.gov/ars/47/03401.htm
Arizona Revised Statutes section 47-3412 Obligation of Issuer of Note https://www.azleg.gov/ars/47/03412.htm
Arizona Revised Statutes section 47-3604 Discharge by Cancellation or Renunciation https://www.azleg.gov/ars/47/03604.htm
15 U.S.C. section 1635 Right of Rescission https://www.law.cornell.edu/uscode/text/15/1635
12 C.F.R. section 1026.18 Content of Disclosures https://www.consumerfinance.gov/rules-policy/regulations/1026/18/
12 C.F.R. section 1026.23 Right of Rescission https://www.consumerfinance.gov/rules-policy/regulations/1026/23/
UCC § 3-203 — Transfer of Instrument; Rights Acquired by Transfer https://www.law.cornell.edu/ucc/3/3-203
UCC § 3-204 — Indorsement https://www.law.cornell.edu/ucc/3/3-204
UCC § 3-205 — Special Indorsement; Blank Indorsement https://www.law.cornell.edu/ucc/3/3-205
UCC § 3-603 — Tender of Payment https://www.law.cornell.edu/ucc/3/3-603
Federal Reserve — Fedwire Funds Service https://www.federalreserve.gov/paymentsystems/fedfunds_about.htm
Educational note: This guide explains commercial-law and equity concepts for study. Application to a particular mortgage requires the complete transaction documents, jurisdiction-specific law, and evidence of the actual funding, transfer, possession and accounting history.
THE STARTING QUESTION WHO GAVE WHAT TO WHOM — AND WHAT HAPPENED TO IT AFTERWARD?
INSTRUMENT / RIGHTS | CONSIDERATION / FUNDING
Chris → signed note → Amy | Funding source → closing transaction
Amy → indorsement / delivery → Bob | Bob / purchaser → consideration → Amy
HIGHWAY ONE — DOCUMENTS & RIGHTS Chris ↓ Promissory Note ↓ Amy ↓ Indorsement / Delivery ↓ Bob ↓ Custodian / Later Holder | HIGHWAY TWO — MONEY, CREDIT & ACCOUNTING Funding Source ↓ Closing / Settlement ↓ Accounting Entries Later sale: Purchaser ↓ Settlement System ↓ Seller / Receiving Institution
RESCISSION | Should the transaction be unwound?
ACCOUNTING | What did each side actually give and receive?
TRACING | Where did the instrument, property or value go?
RESTORATION / RESTITUTION | What must be returned, credited or restored?
SURRENDER | Who possesses the disputed instrument, and must it be returned?
CANCELLATION / DISCHARGE | Should the instrument remain legally operative?
QUIA TIMET | Is preventive equitable relief available against a threatened injury?
MERGER / SATISFACTION / EXTINGUISHMENT | After reconciliation, what interests or obligations actually remain?
1. SHOW THE INSTRUMENT Original note, allonge, signatures, dates and terms. ↓
2. SHOW THE SIGNATURES Identify maker, payee, indorser and authorized signatory capacities. ↓
3. SHOW THE TRANSFER Indorsement + delivery + possession + subsequent holder/custodian history. ↓
4. SHOW THE CONSIDERATION Identify what each side furnished at origination and at each later transfer. ↓
5. SHOW THE SETTLEMENT Trace actual funding/payment records; identify Fedwire only if the records establish it. ↓
6. SHOW THE RESCISSION Establish basis, timing, delivery, recipient and claimed legal effect. ↓
7. SHOW WHAT HAPPENED NEXT Trace the instrument and related interests after notice. ↓
8. ACCOUNT & RESTORE Determine debits, credits, receipts, offsets, restitution and restoration required by law. ↓
9. RECONCILE THE WHOLE TRANSACTION Determine what remains enforceable, what must be surrendered/cancelled, and whether merger, satisfaction or extinguishment applies.
Record | What It Can Establish | What Still Must Be Proved
Receipt for delivery | Shows that a document or package was received | Does not alone cancel the obligation
Copy returned to maker | May show possession of a copy | Does not establish surrender of the original
Original voluntarily surrendered | May support discharge when accompanied by intent to discharge | Intent and authority must still be proved
Original marked paid or cancelled | Strong evidence of intentional cancellation | Examine authenticity authority and related release records
Notice of rescission | Shows that rescission was asserted | Legal effect depends on the transaction basis timing and governing law
Date or Record | Amount | Maker or Borrower | Named Lender | Signature Finding
22 August 2000 | $224,500 | William P and Maria T Budrewicz | World Savings Bank FSB | Borrowers signed page 15 of 21; no lender signature identified
22 August 2000 | $64,143 | William P and Maria T Budrewicz | World Savings Bank FSB | Borrowers signed page 13 of 15; no lender signature identified
15 November 2001 | $109,000 | William P Budrewicz | Named lender in instrument | Borrower signed page 14 of 16; no lender signature identified
10 November 2005 | $462,000 | William P Budrewicz | WMC Mortgage | Borrower signed page 13 of 19; no lender signature identified
15 June 2007 | $65,000 | William P Budrewicz | U S Bank NA ND | Borrower signed page 6 of 8; no lender signature identified
Kimberly Byrd PNC materials | Loan record | Kimberly Byrd | PNC related parties | Materials demanded the original note; no executed lender-signed note was identified
Sierra CKS9 emails | Secured note references | Parties named in email records | Not established | Email bodies referenced a final note but did not expose a lender-signed signature page
Proposition | Present Status | Evidence Needed
No lender signature appears on the examined notes | Supported within the reviewed record | Preserve the complete original or certified copy and signature page
The note is invalid solely because the lender did not sign it | Not established | Identify a statute contract term or controlling decision requiring that signature
The maker became the creditor by signing | Not established | Prove the debt is owed to the maker under the instrument and transaction records
The maker's personal credit supplied the loan proceeds | Unresolved | Obtain the closing ledger wire record funding authorization and source account evidence
Required disclosures were omitted | Transaction specific | Compare the executed disclosures with the requirements applicable on the closing date
The note was surrendered cancelled or discharged | Not established by an ordinary receipt | Produce the original surrender cancellation notation signed renunciation release or satisfaction record