O.C.G.A.
O.C.G.A.

O.C.G.A. § 11-3-305 (2019)

Defenses and claims in recoupment

✓ O.C.G.A. — 2019 edition (Public.Resource.Org Release 73)
Code text and O.C.G.A. statutory annotations on this page reflect the 2019 Official Code of Georgia Annotated (Public.Resource.Org Release 73, 2019-08-21; public domain per Georgia v. Public.Resource.Org, 2020). The Syfert case-law annotations in Notes of Decisions, below, are current.
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(a) Except as stated in subsection (b) of this Code section, the right to enforce the obligation of a party to pay an instrument is subject to the following: (1) A defense of the obligor based on: (i) Infancy of the obligor to the extent it is a defense to a simple contract; (ii) Duress, lack of legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor; (iii) Fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms; or (iv) Discharge of the obligor in insolvency proceedings; (2) A defense of the obligor stated in another section of this article or a defense of the obligor that would be available if the person entitled to enforce the instrument were enforcing a right to payment under a simple contract; and (3) A claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought. (b) The right of a holder in due course to enforce the obligation of a party to pay the instrument is subject to defenses of the obligor stated in paragraph (1) of subsection (a) of this Code section, but is not subject to defenses of the obligor stated in paragraph (2) of subsection (a) of this Code section or claims in recoupment stated in paragraph (3) of subsection (a) of this Code section against a person other than the holder. (c) Except as stated in subsection (d) of this Code section, in an action to enforce the obligation of a party to pay the instrument, the obligor may not assert against the person entitled to enforce the instrument a

defense, claim in recoupment, or claim to the instrument of another person pursuant to Code Section 11-3-306, but the other person’s claim to the instrument may be asserted by the obligor if the other person is joined in the action and personally asserts the claim against the person entitled to enforce the instrument. An obligor is not obliged to pay the instrument if the person seeking enforcement of the instrument does not have rights of a holder in due course and the obligor proves that the instrument is a lost or stolen instrument. (d) In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert against the person entitled to enforce the instrument any defense or claim in recoupment under subsection (a) of this Code section that the accommodated party could assert against the person entitled to enforce the instrument, except the defenses of discharge in insolvency proceedings, infancy, and lack of legal capacity.

History

Code 1981, § 11-3-305, enacted by Ga. L. 1996, p. 1306, § 3.

Annotations

JUDICIAL DECISIONS Editor’s notes. - In light of the similarity of the statutory provisions, decisions under former Code 1933, § 109A-3305 and former Code Section 11-3-305 are included in the annotations for this Code section. Illegality referred to in former subsection (2)(b). - Among those defenses available even against holder in due course, former subsection (2)(b) of this section referring to “such . . . illegality of the transaction as renders the obligation of the party a nullity” refers to those defects which render instrument void, not merely voidable. Citizens Nat’l Bank v. Brazil, 141 Ga. App. 388, 233 S.E.2d 482, 1977 Ga. App. LEXIS 1918 (1977); Milligan v. Gilmore Meyer Inc., 775 F. Supp. 400, 1991 U.S. Dist. LEXIS 14830 (S.D. Ga. 1991); Dal-Tile Corp. v. Cash N’ Go, Inc., 226 Ga. App. 808, 487 S.E.2d 529, 1997 Ga. App. LEXIS 776 (1997), cert. denied, No. S97C1677, 1997 Ga. LEXIS 966 (Ga. Oct. 31, 1997) (decided under former Code 1933, § 109A-3-305 and former Code Section 11-3-305). Bank not liable for bookkeeper’s embezzlement. - A bank was properly granted summary judgment in a suit

brought by a company seeking reimbursement for money its bookkeeper embezzled as the bank was a holder in due course and had paid the checks presented by the bookkeeper as it was authorized under a certificate of resolution; there was no bad faith shown on the part of the bank in paying the items presented by the bookkeeper. Dalton Point, L.P. v. Regions Bank, Inc., 287 Ga. App. 468, 651 S.E.2d 549, 2007 Ga. App. LEXIS 997 (2007). Holder in due course status irrelevant. - Whether or not a bank was a holder in due course of a check made payable to a payee who never received possession of the check before an endorsement was forged on the check was irrelevant to the payee’s right to recover against the bank, because the bank’s status as a holder in due course or not did not change the fact that the payee had no right to recover. Jenkins v. Wachovia Bank, Nat’l Ass’n, 309 Ga. App. 562, 711 S.E.2d 80, 2011 Ga. App. LEXIS 403 (2011). Taking without notice of forgery. - On plaintiff commercial checking account customer’s suit against defendant, its employee embezzler’s depository bank, alleg-

ing the embezzler deposited checks made payable to the embezzler into the embezzler’s personal account, because those checks contained no indications of forgery, the depository bank’s failure to verify signatures was not evidence that it acted without “honesty in fact” as a holder in due course under O.C.G.A. §§ 11-3302(a)(2) and 11-3-306; because the de-

pository bank had no actual notice of the embezzlement scheme or that the checks contained unauthorized signatures, no material issue of fact existed as to the notice requirement set forth under O.C.G.A. §§ 11-3-302(a)(2)(iii)-(vi) and 113-305. Ownbey Enters. v. Wachovia Bank, N.A., 457 F. Supp. 2d 1341, 2006 U.S. Dist. LEXIS 44806 (N.D. Ga. 2006).

RESEARCH REFERENCES Am. Jur. Pleading and Practice Forms. 8C Am. Jur. Pleading and Practice Forms, Duress and Undue Influence, § 1. U.L.A. Uniform Commercial Code (U.L.A.) § 3305. ALR. What constitutes “dealing” under UCC § 3-305(2), providing that holder in due

course takes instrument free from all defenses of any party to instrument with whom holder has not dealt, 42 A.L.R.5th 137. Duress, incapacity, illegality, or similar defense rendering obligation a nullity as affecting enforceability of negotiable instrument against holder in due course under UCC § 3-305(a)(1)(ii), 89 A.L.R.5th 577.

Notes of Decisions
Cited in 25 cases (1 in the last 5 years), 1983–2024 · leading case: Dal-Tile Corp. v. Cash N' Go, Inc., 487 S.E.2d 529 (Ga. Ct. App. 1997).
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Dal-Tile Corp. v. Cash N' Go, Inc., 487 S.E.2d 529 (Ga. Ct. App. 1997). · cites it 16× “Pursuant to OCGA § 11-3-305 (2) (b) (1994 version), a holder in due course of a check is subject to the defense that the underlying transaction was illegal to the point of rendering the obligation of the maker a nullity.”
Southtrust Bank of Georgia v. Parker, 486 S.E.2d 402 (Ga. Ct. App. 1997). · cites it 6× ““Unlike those ‘personal’ defenses which the holder in due course takes free from, the real defenses are so quintessential to the obligation that even the very status of holder in due course does not freely elude the grasp of the defenses.”
Union Planters Nat'l Bank v. Crook, 484 S.E.2d 327 (Ga. Ct. App. 1997). · cites it 6× “We address first Union Bank’s third enumeration which is that the trial court erred in not granting its motion for directed verdict, “in that no credible evidence was proffered or elicited at trial which remotely indicated any conduct rising to the level of ‘fraud in the factum’…”
Jenkins v. Wachovia Bank, Nat'l Ass'n, 711 S.E.2d 80 (Ga. Ct. App. 2011). · cites it 2× “5 See OCGA § 11-3-305 (b) and official comment 2 thereunder; “Proof of Fraud in the Making of Commercial Paper and the Resulting Consequences,” by Thomas M.”
Consum. Solutions Fin. Servs., Inc. v. Heritage Bank, 684 S.E.2d 682 (Ga. Ct. App. 2009). · cites it 8× “See OCGA §§ 11-3-305 (a) (1) (iii) (the right to enforce an obligation is subject to the obligor’s defense that fraud induced the obligor to sign the instrument without; knowledge or reasonable opportunity to learn of its terms); 11-3-305 (a) (2) (obligor may raise any defense…”
Fedeli v. UAP/Ga. Ag. Chem., Inc., 514 S.E.2d 684 (Ga. Ct. App. 1999). · cites it 2× “OCGA § 11-3-305 (1) provides that a holder in due course takes an instrument free from “[a] 11 claims to it on the part of any person.”
Ownbey Enter., Inc. v. Wachovia Bank, N.A., 457 F. Supp. 2d 1341 (N.D. Ga. 2006). · cites it 3× “ith respect to payment of another instrument issued as part of the same series; *1355 (iv) Without notice that the instrument contains an unauthorized signature or has been altered; (v) Without notice of any claim to the instrument described in Code Section 11-3-306; and (vi)…”
Massey-Ferguson Credit Corp. v. Wiley, 655 F. Supp. 655 (M.D. Ga. 1987). · cites it 4× “” O.C.G.A. § 11-3-305 (1982). II. Defenses as they apply to Security Agreement 1.”
Coastal Plains Trucking Co. v. Thomas Cnty. Fed. Sav. & Loan Ass'n, 482 S.E.2d 493 (Ga. Ct. App. 1997). · cites it 2× “Such affidavits merely show the defenses appellant may have against Durrance or one who is not a holder in due course, and do not show any of the defenses to which a holder in due course would be subject under OCGA § 11-3-305 (2). Appellee is entitled to a grant of summary…”
Willson v. MLA, Inc. (In Re Ascot Mortg., Inc.), 153 B.R. 1002 (Bankr. N.D. Ga. 1993). · cites it 2× “O.C.G.A. § 11-3-305; Fla.Stat.Ann. § 673.”
Stebbins v. Georgia Power Co., 555 S.E.2d 906 (Ga. Ct. App. 2001). · cites it 2× “omplete as to call into question its authenticity; and (2) The holder took the instrument: (i) For value; (ii) In good faith; (iii) Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another…”
T. L. Rogers Oil Co. v. South Carolina Nat'l Bank, 417 S.E.2d 336 (Ga. Ct. App. 1992). · cites it 2× “Appellant also contends the trial court erred in finding that any alleged misrepresentations were not made by appellee or SCN and therefore that appellant could not avail itself of a defense to the action as provided by OCGA § 11-3-305 (2) (c). Initially, the trial court…”
Show all 25 citing cases →
— 11-3-305(2)(b) — 1 case
Dal-Tile Corp. v. Cash N' Go, Inc., 487 S.E.2d 529 (Ga. Ct. App. 1997). “Pursuant to OCGA § 11-3-305 (2) (b) (1994 version), a holder in due course of a check is subject to the defense that the underlying transaction was illegal to the point of rendering the obligation of the maker a nullity.”
— 11-3-305(2)(c) — 1 case
Dal-Tile Corp. v. Cash N' Go, Inc., 487 S.E.2d 529 (Ga. Ct. App. 1997). “Pursuant to OCGA § 11-3-305 (2) (b) (1994 version), a holder in due course of a check is subject to the defense that the underlying transaction was illegal to the point of rendering the obligation of the maker a nullity.”
— 11-3-305(a)(3) — 1 case
LifeBrite Hosp. Grp., LLC v. ECHP, Inc. (N.D. Ga. 2024).
Annotations are extracted automatically from the opinions in the Syfert caselaw corpus and ranked by authority, recency, and treatment. Dots show Syfertize treatment of the citing case itself.