UNIFORM COMMERCIAL CODE
Act 174 of 1962
440.3305 Right to enforce obligation; defenses or claims available; statement; section subject to other law.
Sec. 3305.
(1) Except as otherwise provided in this section, the right to enforce the obligation of a party to pay an instrument is subject to the following:
(a) 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.
(b) 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.
(c) 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.
(2) 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 subsection (1)(a), but is not subject to defenses of the obligor stated in subsection (1)(b) or claims in recoupment stated in subsection (1)(c) against a person other than the holder.
(3) Except as stated in subsection (4), 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 in section 3306 of another person, 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.
(4) 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 (1) 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.
(5) In a consumer transaction, if law other than this article requires that an instrument include a statement to the effect that the rights of a holder or transferee are subject to a claim or defense that the issuer could assert against the original payee, and the instrument does not include such a statement, all of the following apply:
(a) The instrument has the same effect as if the instrument included such a statement.
(b) The issuer may assert against the holder or transferee all claims and defenses that would have been available if the instrument included such a statement.
(c) The extent to which claims may be asserted against the holder or transferee is determined as if the instrument included such a statement.
(6) This section is subject to law other than this article that establishes a different rule for consumer transactions.
History: 1962, Act 174, Eff. Jan. 1, 1964 ;-- Am. 1993, Act 130, Eff. Sept. 30, 1993 ;-- Am. 2014, Act 101, Imd. Eff. Apr. 10, 2014
Notes of Decisions
Cessna Fin. Corp. v. Warmus, 407 N.W.2d 66 (Mich. Ct. App. 1987).
“MCL 440.3305; MSA 19.3305. When ruling on a motion for summary disposition with regard to holder-in-due-course status, the trial court must determine if there exist issues of material fact on the question of good faith and on the question of whether the holder took the…”
Alarcon v. Williams, 772 F. Supp. 334 (E.D. Mich. 1991).
“§ 440.3305, U.C.C. § 3-305. 18 The notes at issue in this case were executed in 1986.”
Frank v. McLain (In Re Peet Packing Co.), 233 B.R. 387 (Bankr. E.D. Mich. 1999).
· cites it 2× “Moreover, once payment is made on an instrument, that payment is final as to any “person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance.” Mich.Comp.Laws § 440.3418. A similar result occurs under…”
State Bank v. Dale M Smith (Mich. Ct. App. 2014).
· cites it 10× “As explained, Chase has no obligation to pay the check because it did not sign the check, nor did it authorize the signature that appears on the check.”
Thomas v. State Mortg., Inc, 439 N.W.2d 299 (Mich. Ct. App. 1989).
“See MCL 440.3305; MSA 19.3305. Since the trial court terminated its analysis of this case with its finding that defendant was not a holder in due course, we believe the appropriate *166 remedy is to remand the matter to the trial court for reconsideration of its decision in…”
Bza 301 Holdings LLC v. Louis Stevens (Mich. Ct. App. 2015).
· cites it 3× “MCL 440.3305. [Emphasis added.] -3- Thus, rather than determining whether one may enforce a promissory note, holder-in-due-course status means that the holder will be protected from various defenses to complying with the terms of the instrument made by one with whom the holder…”
In re Broucek, 341 B.R. 623 (Bankr. W.D. Mich. 2006).
· cites it 2× “The Overdraft Losses Warranty Claims MCLA § 440.3305(1)(a)(ii) defines a defense and claim in recoupment as the right to enforce the obligation of a party to pay an instrument that is subject to the defense of the illegality which under other law would nullify the obligation of…”
Morgan Stanley Mortg. Home Loan Trust v. Michael J Liebetreu (Mich. Ct. App. 2014).
“Cavanagh /s/ Kathleen Jansen /s/ Amy Ronayne Krause 7 See also MCL 440.3305(3) (stating that “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,…”
— Mich. Comp. Laws § 440.3305(1) — 3 cases
Frank v. McLain (In Re Peet Packing Co.), 233 B.R. 387 (Bankr. E.D. Mich. 1999).
“Moreover, once payment is made on an instrument, that payment is final as to any “person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance.” Mich.Comp.Laws § 440.3418. A similar result occurs under…”
State Bank v. Dale M Smith (Mich. Ct. App. 2014).
“As explained, Chase has no obligation to pay the check because it did not sign the check, nor did it authorize the signature that appears on the check.”
— Mich. Comp. Laws § 440.3305(1)(a) — 1 case
State Bank v. Dale M Smith (Mich. Ct. App. 2014).
“As explained, Chase has no obligation to pay the check because it did not sign the check, nor did it authorize the signature that appears on the check.”
— Mich. Comp. Laws § 440.3305(1)(a)(ii) — 1 case
In re Broucek, 341 B.R. 623 (Bankr. W.D. Mich. 2006).
“The Overdraft Losses Warranty Claims MCLA § 440.3305(1)(a)(ii) defines a defense and claim in recoupment as the right to enforce the obligation of a party to pay an instrument that is subject to the defense of the illegality which under other law would nullify the obligation of…”
— Mich. Comp. Laws § 440.3305(2) — 2 cases
State Bank v. Dale M Smith (Mich. Ct. App. 2014).
“As explained, Chase has no obligation to pay the check because it did not sign the check, nor did it authorize the signature that appears on the check.”
— Mich. Comp. Laws § 440.3305(3) — 2 cases
Morgan Stanley Mortg. Home Loan Trust v. Michael J Liebetreu (Mich. Ct. App. 2014).
“Cavanagh /s/ Kathleen Jansen /s/ Amy Ronayne Krause 7 See also MCL 440.3305(3) (stating that “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,…”
Bza 301 Holdings LLC v. Louis Stevens (Mich. Ct. App. 2015).
“MCL 440.3305. [Emphasis added.] -3- Thus, rather than determining whether one may enforce a promissory note, holder-in-due-course status means that the holder will be protected from various defenses to complying with the terms of the instrument made by one with whom the holder…”
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