The case of the day is Bonomi v. JPMorgan Chase Bank, NA. John Bonomi, a retired New York lawyer, bought what he describes in his complaint as “one of the most magnificent homes on Cape Cod.” The nearly 5,600 square foot home “stood alone on a bluff, with unobstructed views of the Cape Cod Bay and the Wellfleet Harbor.” According to Bonomi’s enjoyable complaint (I don’t mean to make light, as Bomoni alleges he was suffering from bipolar disorder and was suffering a “severe manic episode” at the relevant times), the property became an “irrational talisman for him” and was “seductive … especially to a person not mentally able at the time to process the concomitant risks.” Unfortunately, according to an article in the Cape Cod Times, the house sat “atop an eroding dune between Wellfleet Harbor and Cape Cod Bay. The home [had] been getting closer to the edge as the dune erodes.” The prior owner had listed the property, according to the Provincetown Independent, listed their “endangered house” for $5.5 million. At the time the house sat “less than 14 feet from the edge of an eroding costal bank,” which was eroding “at a rate of 6 to 7 feet per year.” That sounds bad.

Unsurprisingly, Bonomi made the only offer, or at least the only offer at the list price. He borrowed $3.85 million from JPMorgan Chase to finance the purchase. At the time, the prior owners had asked for the town’s permission to “build a stone revetment on the seashore to halt the erosion.” But the town had denied the application, and a lawsuit was pending. Bonomi knew this at the time of the purchase, but he was “unable to appreciate the true import of these facts due to his illness, and was convinced that he easily could persuade the Town to change its mind, when all others had failed.” But as the erosion continued, Bonomi realized he could not wait for a decision in the lawsuit and “was forced to demolish the home.” Ultimately the court affirmed the decision of the town’s conservation commission denying permission. Bonomi then sued JPMorgan, the mortgagee, seeking a declaration that he “lacked the legal capacity to enter into the Mortgage and Note.” The case is pending in the US District Court for the Southern District of New York: Bonomi lives in New York, and JPMorgan is a national bank.

The case has obvious interest for lots of reasons, including the claim of lack of capacity and the obvious question about Chase’s underwriting. But to me the most interesting thing about it is the allegation in the complaint that although the mortgage provides that it is governed by Massachusetts law, “Notwithstanding this provision of the Mortgage, whether Plaintiff has the right to void these contracts due to lack of mental capacity at the time of signing is to be determined in accordance with the law of the State of New York.”

Really? It seems to me that the validity of a mortgage is almost necessarily governed by the law of the situs. The rule of the Restatement is actually a little bit more nuanced than that. Section 228 of the Restatement (Second) of Conflict of Laws provides, first (and contrary to the way conflicts work in most areas of law) that “Whether a mortgage creates an interest in land and the nature of the interest created are determined by the law that would be applied by the courts of the situs.” In other words, the forum should not apply its own conflicts rules, but the conflicts rules of the situs. That’s a rare example of renvoi in practice. Second, the Restatement notes that the courts of the situs generally will apply their own law to the question. And the Restatement (§ 223, cmt. b) gives an example of just how strong this principle is, even in cases involving, for example, capacity, where it’s not obvious that the situs has the dominant interest.

Suppose that in state X, where both A and B are domiciled, A gives B a deed to land in state Y and that thereafter the question arises before a Y court whether A had the requisite capacity to do so. It could be argued in support of application by the Y courts of X local law to determine this question of capacity that X is the state which has the dominant interest in the determination of this issue. But such a decision would complicate the task of title searchers and of other persons concerned with Y land. Thereafter, they could not always safely restrict their attention to Y local law in determining the capacity of a transferor of Y land. 

It seems to me there are two reasons why this principle should apply with special force. First, Massachusetts is probably the purest example left of a “title theory” state, where a mortgage is not just a lien on real property, but a conveyance of legal title to the property.¹ Second, title to the land in this case is registered title, which means that Massachusetts has a particularly strong interest in the correctness of the mortgage deeds and other documents that have been registered and that concern the title to the property.

Since the case is still new, this issue hasn’t been fleshed out yet. But I assume Chase will eventually say that Massachusetts law, not New York law, should govern capacity here.

1. In our law, a mortgagee can foreclose (remember that “foreclose” is shorthand for “foreclose the equity of redemption,” which helps remind us what a mortgage really is) without having to bring a lawsuit against the mortgagor (although federal law, specifically the Servicemember Civil Relief Act, does mean that the mortgagee must bring a case in the Land Court to establish that the mortgagor is not a servicemember entitled to the protections of the law). ↩︎