O.C.G.A. § 11-3-308 (2019)

Annotations

Law reviews. For comment discussing imposition upon holder in due course of a greater burden of proof under this section of Uniform Commercial Code than that previously required under Uniform Negotiable Instruments Law before its repeal, in light of Budget Charge Accounts, Inc. v. Mullaney, 187 Pa. Super. Ct. 190, 144 A.2d

438 (1958), see 10 Mercer L. Rev. 211 (1958). For note, “The Law of Evidence in the Uniform Commercial Code,” see 1 Ga. L. Rev. 44 (1966). For comment on Perini Corp. v. First Nat’l Bank, 553 F.2d 398 (5th Cir. 1977), see 27 Emory L.J. 393 (1978). For article discussing parol evidence in the law of commercial paper, see 13 Ga. L. Rev. 53 (1978).

JUDICIAL DECISIONS ANALYSIS GENERAL CONSIDERATION SIGNATURES DEFENSES ESTABLISHING DUE COURSE STATUS General Consideration Editor’s notes. - In light of the similarity of the statutory provisions, decisions under former Civil Code 1910, § 4290, former Code 1933, §§ 14-223, 14305, 14-405, 14-505, and 109A-3-307, and former Code Section 11-3-307 are included in the annotations for this Code section. Former subsection (2) inapplicable to nonnegotiable notes. - Where language of promissory note revealed that it was not payable on demand or at a definite time, and was therefore not negotiable, it was not subject to former subsection (2) of this section. Barton v. Scott Hudgens Realty & Mtg., Inc., 136 Ga. App. 565, 222 S.E.2d 126, 1975 Ga. App. LEXIS 1418 (1975) (decided under former Code 1933, § 109A-3-307). Direct action on instrument without alleging facts creating underlying obligation. - Under Uniform Commercial Code, as formerly, one may bring action upon debt evidenced by commercial paper in form of suing directly on instrument which imports its own consideration without setting forth facts creating obligation evidenced by the paper. Riddick v. Evans, 155 Ga. App. 868, 274 S.E.2d 40, 1980 Ga. App. LEXIS 2822 (1980) (decided under former Code 1933, § 109A-3-307). Prima facie case for holder. - With admission by defendant of execution of

note to plaintiff, plaintiff has a prima facie right to judgment sought and defendant then has burden of establishing any claimed defense to the action. Crosby v. Jordan, 123 Ga. App. 83, 179 S.E.2d 537, 1970 Ga. App. LEXIS 733 (1970); Freezamatic Corp. v. Brigadier Indus. Corp., 125 Ga. App. 767, 189 S.E.2d 108, 1972 Ga. App. LEXIS 1466 (1972); Malone v. Price, 138 Ga. App. 514, 226 S.E.2d 623, 1976 Ga. App. LEXIS 2217 (1976); Brooks v. McCorkle, 174 Ga. App. 132, 329 S.E.2d 214, 1985 Ga. App. LEXIS 1762 (1985) (decided under former Code 1933, § 109A3-307 and former Code Section 11-3-307). Where evidence establishes that face amount of notes at time of execution was due to plaintiff payee by defendant maker, and defendant admits execution of such notes which bear defendant’s signature, plaintiff has made out a case as a matter of law as to face amount of notes and specified interest. General Tire & Rubber Co. v. Solomon, 124 Ga. App. 308, 183 S.E.2d 573, 1971 Ga. App. LEXIS 904 (1971) (decided under former Code 1933, § 109A-3-307). Proof of possession by production of instrument entitles holder to recover on it unless opposing party establishes a defense. James Talcott, Inc. v. Allahabad Bank, Ltd., 444 F.2d 451, 1971 U.S. App. LEXIS 10368 (5th Cir.), cert. denied, 404

U.S. 940, 92 S. Ct. 280, 30 L. Ed. 2d 253, 1971 U.S. LEXIS 555 (1971); Brooks v. McCorkle, 174 Ga. App. 132, 329 S.E.2d 214, 1985 Ga. App. LEXIS 1762 (1985) (decided under former Code 1933, § 109A3-307 and former Code Section 11-3-307). Where holder introduced promissory note, established its authenticity and that its consideration was purchase of half interest in partnership business, and maker failed to establish an affirmative defense, holder made out prima-facie case entitling the holder to recovery on note. Peters v. Thomason, 157 Ga. App. 513, 277 S.E.2d 798, 1981 Ga. App. LEXIS 1884 (1981) (decided under former Code Section 11-3-307). Introduction of a promissory note (together with related documents, where appropriate) makes a prima facie case for the plaintiff and imposes upon the defendant the burden of raising defenses in rebuttal of the plaintiff’s evidence. First Nat’l Bank v. Damil, Inc., 171 Ga. App. 237, 319 S.E.2d 54, 1984 Ga. App. LEXIS 2195 (1984) (decided under former Code Section 11-3-307). Where guarantors admitted they signed the note, received the money, and defaulted, the lender had a prima facie right to recover the face value due on the note. Hovendick v. Presidential Fin. Corp., 230 Ga. App. 502, 497 S.E.2d 269, 1998 Ga. App. LEXIS 207 (1998). Production of promissory note establishes prima facie case which cannot be rebutted by parol evidence. Tatum v. Bank of Cumming, 135 Ga. App. 675, 218 S.E.2d 677, 1975 Ga. App. LEXIS 1779 (1975) (decided under former Code 1933, § 109A-3-307). Rebuttable presumption. - While a party is entitled ordinarily to rely on a notarized signature to sue on an indemnification agreement, where the evidence showed that the plaintiff knew months before filing the action that the defendant denied both knowing anything about or having signed the agreement, and that this denial was supported by a handwriting examiner’s opinion that the defendant did not sign the document, any presumption arising from the notarized signature was rebutted. Additionally, as the evidence showed there noticeably was no

notary seal on that portion of the agreement, purporting to acknowledge the alleged signature, the notarization did not comply with O.C.G.A. § 45-17-6(a)(1), and, accordingly, the notary’s signature standing alone did not give rise even to a rebuttable presumption. Fabe v. Floyd, 199 Ga. App. 322, 405 S.E.2d 265, 1991 Ga. App. LEXIS 475 (1991) (decided under former Code Section 11-3-307). Inquiry into plaintiff’s title. - In suit instituted by person claiming to be owner and holder of promissory note for purpose of recovering thereon against maker and another alleged to have assumed the debt, it is permissible for the later to inquire into plaintiff’s title to the note, if necessary either for the other’s protection or to let in any valid defense which the other seeks to make. Austell Bank v. National Bondholders Corp., 188 Ga. 757, 4 S.E.2d 913, 1939 Ga. LEXIS 628 (1939) (decided under former Code 1933, §§ 14-223 and 14-505). Guarantor personally liable on promissory note. - Trial court did not err by finding a guarantor personally liable on a promissory note because the trial court correctly found that the language of the promissory note, the unconditional guaranty, and the modification to the promissory note were unambiguous, and since the documents’ provisions were clear, the trial court’s proper role was to apply the terms as written; in the guaranty, the guarantor expressly waived all notices or defenses to which the guarantor could be entitled under the guaranty, to the extent permitted by law, and because the guarantor failed to assert any defense based upon an alleged incompetency to enter into a contract at the time the guarantor executed the guaranty, and because the guarantor failed to show that the guaranty’s broad waiver of defenses was prohibited by statute or public policy, the guarantor was bound thereby. Core LaVista, LLC v. Cumming, 308 Ga. App. 791, 709 S.E.2d 336, 2011 Ga. App. LEXIS 281 (2011). Signatures Signature presumed to be authorized. - Signature executed as provided for in former Code 1933, § 109A-3-403 is

Signatures (Cont’d) presumed to be authorized, and if one desires to challenge its effectiveness it must be specifically denied in pleadings. Modern Free & Accepted Masons of World v. Cliff M. Averett, Inc., 118 Ga. App. 641, 165 S.E.2d 166, 1968 Ga. App. LEXIS 1484 (1968) (decided under former Code 1933, § 109A-3-307). Until evidence is introduced to support finding that signature is forged or unauthorized, party claiming under the signature is not required to prove its authenticity. Perini Corp. v. First Nat’l Bank, 553 F.2d 398, 1977 U.S. App. LEXIS 13115 (5th Cir. 1977) (decided under former Code 1933, § 109A-3-307). Apparent authority of agent must be specifically denied. - Where petition alleged that drawer had stopped payment on a check on drawer’s account, bearing drawer’s imprinted trade name, underneath which appeared signature of drawer’s wife who had apparent authority as agent or representative, in absence of pleading that wife had no such authority to draw checks on that account, this must be construed as an admission of wife’s authority. Gate City Furn. Co. v. Rumsey, 115 Ga. App. 753, 156 S.E.2d 221, 1967 Ga. App. LEXIS 1239 (1967) (decided under former Code 1933, § 109A-3-307). Proving genuineness of endorsement. - Where one sued upon negotiable instrument, which is complete and regular upon its face, files answer under oath denying that transfer and endorsement to plaintiff is genuine, but which answer does not amount to a plea of non est factum, burden is cast upon plaintiff to prove genuineness of endorsement before such note can be introduced into evidence. Equitable Disct. Corp. v. Guest, 103 Ga. App. 258, 118 S.E.2d 864, 1961 Ga. App. LEXIS 917 (1961) (decided under former Code 1933, § 14-405). Equivocal testimony did not overcome presumption of authenticity. - Note that stated that it was “given under the hand and seal of each of the undersigned,” and the appearance of the notation “(seal)” after the debtors’ signatures was proof of the authenticity of the signatures; one debtor’s equivocal testimony

regarding recognizing the note as the one the debtor signed was insufficient to overcome the presumption of the signatures’ authenticity. Thomas v. Summers, 329 Ga. App. 250, 764 S.E.2d 578, 2014 Ga. App. LEXIS 661 (2014). Bankruptcy debtor failed to show that the debtor’s signature on a personal guaranty of a substantial business loan debt was a forgery since conflicting expert testimony was equivocal and the debtor’s asserted lack of memory of signing the guaranty was inconsistent with the intelligent debtor’s business experience and acumen in dealing with the lender which always required personal guarantees. In re Brooks, No. 13-10860, 2015 Bankr. LEXIS 3301 (Bankr. S.D. Ga. Sept. 29, 2015). Summary judgment inappropriate when validity of signature questionable. - Trial court erred in granting a bank’s motion for summary judgment in the bank’s action seeking the repayment of a loan because the debtor specifically denied in the answer the validity of the signature on a note, which raised the defense of non est factum, created a factual question as to the authenticity of the signature, and kept the signature from being deemed admitted under O.C.G.A. § 11-3-308; as the nonmoving party to a summary judgment motion, the debtor had to only produce or point to any evidence that gave rise to a triable issue of material fact, which the debtor did by submitting an affidavit attesting that the the debtor did not sign the note, and given that the debtor’s sworn statements were unrefuted, the affidavit had to be taken as true for purposes of deciding the motion. Lee v. Suntrust Bank, 314 Ga. App. 63, 722 S.E.2d 884, 2012 Ga. App. LEXIS 119 (2012). Defenses Recovery for holder if defenses overcome. - Holder of instrument may recover on it if the holder can successfully overcome any defense raised. Gate City Furn. Co. v. Rumsey, 115 Ga. App. 753, 156 S.E.2d 221, 1967 Ga. App. LEXIS 1239 (1967) (decided under former Code 1933, § 109A-3-307). Burden of establishing defense. - Where suit is brought upon promissory note, and defendant pleads that note was

without consideration, burden is on defendant to sustain plea by showing by preponderance of evidence the want of consideration. Morgan’s, Inc. v. Mons, 79 Ga. App. 525, 54 S.E.2d 498, 1949 Ga. App. LEXIS 684 (1949) (decided under former Code 1933, § 14-305). With admission by defendant of execution of note to plaintiff, the plaintiff had a prima facie right to judgment sought and defendant then had burden of establishing any claimed defense to action. FDIC v. Kucera Bldrs., Inc., 503 F. Supp. 967, 1980 U.S. Dist. LEXIS 15558 (N.D. Ga. 1980) (decided under former Code 1933, § 109A3-307). Where it was undisputed that defendant-maker executed note evidencing indebtedness and plaintiff held all right, title and interest that payee originally held in said note, plaintiff established prima-facie right to judgment sought and burden shifted to defendants to interpose viable defense. Slappey Bldrs., Inc. v. FDIC, 157 Ga. App. 343, 277 S.E.2d 328, 1981 Ga. App. LEXIS 1815 (1981) (decided under former Code Section 11-3-307). When a plaintiff established execution of a note, the burden was on the defendant to establish an affirmative defense, but on plaintiff’s motion for summary judgment it was plaintiff’s burden to establish nonexistence of a genuine issue of fact as to each affirmative defense, and all doubts were resolved against plaintiff as movant; plaintiff’s papers are carefully scrutinized, while the respondents’ papers are treated with considerable indulgence. Maddox v. Leaphart, 214 Ga. App. 340, 447 S.E.2d 694, 1994 Ga. App. LEXIS 862 (1994) (decided under former Code Section 11-3307). The trial court erred when it ruled at an initial traverse hearing that the payors under a promissory note were liable solely because they admitted the genuineness of their signatures, since the payee would not have been entitled to recover fully or at all if the payors had totally or partially proven their defense of breach of contract. Lowery v. Dallis, 237 Ga. App. 309, 513 S.E.2d 740, 1999 Ga. App. LEXIS 84 (1999). Failure to establish defense. - Since it appears conclusively from evidence that defendant had not established

any defense to the note, defendant cannot dispute title of plaintiff as transferee upon ground that plaintiff was not a bona fide purchaser for value. Jones v. Roper, 39 Ga. App. 309, 147 S.E. 156, 1929 Ga. App. LEXIS 305 (1929) (decided under former Civil Code 1910, § 4290). When the maker of a note was unable to establish a valid defense to payment, the payee was entitled as a matter of law to recover on the note. Brooks v. McCorkle, 174 Ga. App. 132, 329 S.E.2d 214, 1985 Ga. App. LEXIS 1762 (1985) (decided under former Code Section 11-3-307). Trial court erred in denying a seller’s motion for summary judgment in the seller’s action against the buyers to recover upon a promissory note because the buyers failed to make payments on the note, and the buyers did not show damages in any amount from the alleged failure of consideration; the note was supported by adequate consideration because the buyers took immediate possession of the seller’s business and began operating the business as the buyers’ own. West v. Diduro, 312 Ga. App. 591, 718 S.E.2d 815, 2011 Ga. App. LEXIS 907 (2011), cert. denied, No. S12C0522, 2012 Ga. LEXIS 279 (Ga. Mar. 5, 2012). Mere denial of indebtedness is not defense. - Defendant’s answer admitting execution of the notes but denying indebtedness because the notes were “part of a series of actions dealing with stock of the two companies, stock options and other matters” is not a defense to an action on promissory notes. Freezamatic Corp. v. Brigadier Indus. Corp., 125 Ga. App. 767, 189 S.E.2d 108, 1972 Ga. App. LEXIS 1466 (1972) (decided under former Code 1933, § 109A-3-307). Where defendant admits execution of note, mere denial of debt for various general reasons not contained in O.C.G.A. § 9-11-8 does not constitute a defense under this section. Malone v. Price, 138 Ga. App. 514, 226 S.E.2d 623, 1976 Ga. App. LEXIS 2217 (1976) (decided under former Code Section 11-3-307). Want or absence of consideration may be pleaded in suit on promissory note executed under seal, in same manner as has uniformly been allowed in this state in case of failure of consideration.

Defenses (Cont’d) Citizens’ Bank v. Hall, 179 Ga. 662, 177 S.E. 496, 1934 Ga. LEXIS 367 (1934) (decided under former Code 1933, § 14305). When defense of failure of consideration not available. - Where note is renewed, defense of failure of consideration is not available under this section. Mercantile Nat’l Bank v. Berger, 129 Ga. App. 707, 200 S.E.2d 921, 1973 Ga. App. LEXIS 1117 (1973), aff’d, 231 Ga. 680, 203 S.E.2d 479, 1974 Ga. LEXIS 1187 (1974) (decided under former Code 1933, § 109A3-307). Receipt of money by one comaker. - Where two parties execute note as comakers, one comaker is not allowed to plead failure of consideration because that party does not receive money named on face of note. If either of them receives money, both are bound. Mercantile Nat’l Bank v. Berger, 129 Ga. App. 707, 200 S.E.2d 921, 1973 Ga. App. LEXIS 1117 (1973), aff’d, 231 Ga. 680, 203 S.E.2d 479, 1974 Ga. LEXIS 1187 (1974) (decided under former Code 1933, § 109A-3-307). Defense that transfer by payee not genuine. - Payment of promissory note to supposed transferee, holding by virtue of forged endorsement, will not protect maker or one who has assumed the debt against payment to true owner; and, consequently, in a suit by such alleged transferee to enforce liability against such parties, assumer may utilize defense that alleged transfer by payee was not genuine. Austell Bank v. National Bondholders Corp., 188 Ga. 757, 4 S.E.2d 913, 1939 Ga. LEXIS 628 (1939) (decided under former Code 1933, § 14-223). No viable defense established. - See Harbage v. Dollar Farm Prods. Co., 166 Ga. App. 561, 305 S.E.2d 25, 1983 Ga. App. LEXIS 2247 (1983) (decided under former Code Section 11-3-307). An accommodation party argued that no liability should arise on certain notes, because commercial loan officers of the bank breached an oral agreement not to make loans to the accommodated parties without that party’s prior knowledge and consent. The accommodated party’s signature on the notes sued on, the authenticity

of which was not contested, eliminated this defense. Richards v. First Union Nat’l Bank, 199 Ga. App. 636, 405 S.E.2d 705, 1991 Ga. App. LEXIS 635 (1991), cert. denied, No. S91C1145, 1991 Ga. LEXIS 725 (Ga. June 20, 1991) (decided under former Code Section 11-3-307). Pleading defense of denial of execution of note. - In debtor-creditor case, general denial by plaintiff of allegations in defendant’s counterclaim was sufficient to raise defense of non est factum, since that defense need no longer be affirmatively pleaded; and, therefore, plaintiff did not admit the signature within meaning of this section. Spurlock v. Commercial Banking Co., 151 Ga. App. 649, 260 S.E.2d 912, 1979 Ga. App. LEXIS 2675 (1979) (decided under former Code 1933, § 109A3-307). Borrower’s general denial of the allegations contained in lender’s complaint was sufficient to raise the defense of denial of the execution of a note, which, in turn, meant that borrower did not admit the signature within the meaning of this Code section. Jones v. Kim, 189 Ga. App. 5, 374 S.E.2d 820, 1988 Ga. App. LEXIS 1283 (1988) (decided under former Code Section 11-3-307). Unclean hands doctrine did not apply. - Since there was no dispute that the promissory notes at issue were authentic, that the buyers signed the notes, that the sellers’ were the holders, or as to the amount due on the notes, and since a trial court did not err in finding that no novation occurred and that there were no other meritorious defenses, the trial court did not err in finding that the buyers had no defense to the sellers’ suit seeking payment on the notes; however, the equitable doctrine of unclean hands had no application to an action at law, and the trial court was not authorized to reduce the amounts shown to be due and payable on the notes on account of its finding of unclean hands. Park v. Fortune Ptnr., Inc., 279 Ga. App. 268, 630 S.E.2d 871, 2006 Ga. App. LEXIS 519 (2006), cert. denied, No. S06C1706, 2006 Ga. LEXIS 703 (Ga. Sept. 8, 2006). Establishing Due Course Status When burden of proof shifts to holder. - Burden of proving that one is a holder in due course does not shift to holder until it is shown that a defense

exists. James Talcott, Inc. v. Allahabad Bank, Ltd., 444 F.2d 451, 1971 U.S. App. LEXIS 10368 (5th Cir.), cert. denied, 404 U.S. 940, 92 S. Ct. 280, 30 L. Ed. 2d 253, 1971 U.S. LEXIS 555 (1971) (decided under former Code 1933, § 109A-3-307). Showing of any defense provided by O.C.G.A. § 11-3-305 or § 11-3-306, against holders in due course as well as holders not in due course, is what is required to cast burden on plaintiff holder. Pitillo v. Demetry, 112 Ga. App. 643, 145 S.E.2d 792, 1965 Ga. App. LEXIS 802

(1965) (decided under former Code Section 11-3-307). “In all respects” as used in former subsection (3) of this section means that the person must sustain burden of proving that the person is a holder in due course by affirmative proof that the instrument was taken for value, in good faith, and without notice. Brown v. Kelley, 120 Ga. App. 788, 172 S.E.2d 181, 1969 Ga. App. LEXIS 927 (1969) (decided under former Code 1933, § 109A-3-307).

RESEARCH REFERENCES Am. Jur. 2d. 11 Am. Jur. 2d, Bills and Notes, §§ 105, 215, 216, 299. 12 Am. Jur. 2d, Bills and Notes, §§ 557, 650 et seq., 681. 15A Am. Jur. 2d, Commercial Code, §§ 73, 74. C.J.S. 10 C.J.S., Bills and Notes, § 284 et seq. U.L.A. Uniform Commercial Code (U.L.A.) § 3308. ALR. Necessity of endorsement by all payees before maturity to make a transferee a bona fide holder, 25 A.L.R. 163. Necessity of proof of title by one in possession of a negotiable instrument bearing his endorsement, 30 A.L.R. 328. Burden of proof as to alteration not apparent on face of instrument, 31 A.L.R. 1455. Stamped, printed, or typewritten signature as compliance with requirement that process or document be “under his hand,” 37 A.L.R. 87. Character as holder in due course protected against defenses of prior party as

affected by lack of bona fides toward intermediate party, 52 A.L.R. 516. Rights as between one who deposits commercial paper for collection without any indication on the paper of that purpose, and one who takes it in good faith from the depositary, 58 A.L.R. 259. Proof or admission that title to negotiable paper was defective as between intermediate holders as affecting presumption that subsequent holder was a holder in due course, 70 A.L.R. 1228. Renewal of bill or note as precluding defense available against the original, 72 A.L.R. 600. Production of paper purporting to be endorsed in blank by payee or by a special endorsee as prima facie evidence of plaintiff’s title, 85 A.L.R. 304. Burden of proof as to consideration for bill or note when plaintiff not protected as a holder in due course, 127 A.L.R. 1003. Deception as to character of paper signed as defense as against bona fide holder of negotiable paper, 160 A.L.R. 1295.