## Facts

- Dennis Sheskey (debtor) borrowed $30,000 from his sister, Angie Sheskey (daughter), and prepared a promissory note using an online form.
- The debtor filled in the loan terms and kept possession of the note; the record did not show that Angie ever received the original note.
- The note included preprinted assignment language on a later page; initially, the assignment section was left blank.
- When Angie needed funds to purchase a home, their parents, John and Twila Sheskey (parents/creditors), gave Angie two checks totaling $30,000, with “Repayment of Loan” written on the memo lines.
- Angie and the parents entered into an oral agreement under which Angie assigned to the parents her right to payment associated with the $30,000 note.
- After the parents paid Angie, the debtor filled in the assignment language on the note, but no one signed the assignment page.
- The parents and Angie still did not obtain possession of the original note; the debtor retained it at all relevant times, and the original was not produced in court.
- The debtor later filed Chapter 7 bankruptcy; the parents filed a proof of claim asserting $89,063 based on various family loans, including the $30,000 note (and an asserted interest component).
- In the trustee’s final report, the trustee allowed $41,000 (based on certain notes) but disallowed the balance, including the $30,000 note payable to Angie and any unproven interest.
- The parents objected to the trustee’s final report, arguing they could enforce the $30,000 note as Angie’s assignees.
- The parties agreed Wisconsin law governed the note and related agreements because the family members lived in Wisconsin and the transactions occurred there.

## Issues

1. Whether the parents, as alleged assignees of Angie’s rights, were entitled to enforce the debtor’s $30,000 promissory note in bankruptcy when the note was never delivered to Angie or to the parents and remained in the debtor’s possession.
2. Whether, after the trustee raised defects in transfer and proof of the note, the parents carried the burden to prove an enforceable right to payment under applicable nonbankruptcy law.
3. Whether the parents proved any claimed interest above the face amounts of the documented loan instruments.

## Decision

- The court upheld the trustee’s treatment of the parents’ claim as set out in the trustee’s final report.
- The court ruled that the parents did not prove they were entitled to enforce the $30,000 note, because the instrument was not delivered and the parents never obtained possession, so they were not a party entitled to enforce the note under Wisconsin law.
- The court left in place the trustee’s allowance of $41,000 and disallowance of the remainder of the parents’ asserted $89,063 claim, including the $30,000 note and any unsupported interest.

## Legal Principles

- A properly filed proof of claim is prima facie evidence of validity and amount; when an objector produces evidence rebutting that presumption, the claimant must prove the claim under the same burdens that would apply outside bankruptcy. (See Raleigh v. Illinois Dep’t of Rev.; In re Brown.)
- Under 11 U.S.C. § 502(b)(1), a claim is disallowed to the extent it is unenforceable against the debtor under applicable nonbankruptcy law.
- Transactions between close family members may warrant careful examination when asserted as claims in bankruptcy.
- Under Wisconsin law, an oral assignment of a debt may be valid if intent to transfer and consideration are shown; the absence of a signed written assignment does not necessarily defeat an assignment of the underlying obligation.
- The right to enforce a negotiable promissory note depends on transfer of the instrument in the manner required by the UCC as enacted in Wisconsin; as a general rule, a promissory note has no effect unless it is delivered.
- If the maker retains possession and the payee (and any claimed assignee) never receives delivery or possession of the instrument, the claimed assignee does not become a holder (or otherwise a party entitled to enforce the note) and cannot base an allowed bankruptcy claim on the note.
- Claimed interest must be supported by evidence showing the contractual basis and the calculation; unsupported interest may be disallowed.

## Conclusion

In *In re Sheskey*, the bankruptcy court applied Wisconsin law to a family-loan promissory note and held that the parents could not enforce the debtor’s $30,000 note, even though they paid the original payee and had an oral assignment of her rights, because the note was never delivered and remained in the debtor’s possession; as a result, the trustee properly disallowed that portion of the parents’ bankruptcy claim (and any unproven interest) and allowed only the amounts supported by enforceable instruments.


In re Sheskey, 263 B.R. 264 (2001)