eyes on indorsements f2 lr3

8/7/2019 Eyes on Indorsements f2 Lr3

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Eyes on Indorsement

By James McGuire

Copyright March 1, 2011 [email protected]

The United States Court of Appeals, Third Circuit in re:

Adams v Madison Realty & Development

The New York Supreme Court in re:

Bayview Loan Servicing, LLC v Bozymowski 00296-2010

United States District Court for the Western District of Texas, Austin Division in re:

Valerie Norwood v Chase Home Finance LLC

United States Bankruptcy Court, District of New Jersey in re:

Kemp v Countrywide

SUPREME COURT OF NEW HAMPSHIRE in re:

Grafton, No. 96-322 GEORGE T. HATHORN & a. v. WILLIAM R. LOFTUS

New Jersey version Uniform Commercial Code

Texas version Uniform Commercial CodeTennessee version Uniform Commercial Code


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Proper Party

All courts require a party of interest be known before the courts can have jurisdiction.

Foreclosure in judicial states provides a process where the proper parties should be before the

court; however, in non-judicial states the protection of making sure the correct parties are

executing a foreclosure action is not available unless the obligor challenges the foreclosure

action in court.

Indorsement

The United States Court of Appeals, Third Circuit in re: Adams v Madison Realty &

Development addressed negotiation by stating:

Mere ownership or possession of a note is insufficient to qualify an

individual as a "holder." The instrument must be obtained through a

process the Code terms "negotiation," defined as "the transfer of aninstrument in such form that the transferee becomes a holder." U.C.C. Sec.

3-202(1).

We are aware that section 3-201(3) grants a transferee for value a

specifically enforceable right to have the unqualified indorsement of the

transferor. However, actual "[n]egotiation takes effect only when theindorsement is made and until that time there is no presumption that the

transferee is the owner." U.C.C. Sec. 3-201(3).

The New York Supreme Court in re: Bayview Loan Servicing, LLC v Bozymowski

00296-2010 referenced the following:

A plaintiff has standing to maintain the action only where the plaintiff isthe proper assignee of the mortgage and the underlying note at the time the

foreclosure action was commenced (U.S. Bank, N.A. v Collymore, 68

AD3d 752, 890 NYS2d 578 [2d Dept 2009]; Federal Natl. Mtge. Assn. v

Youkelsone, 303 AD2d 546, 755 NYS2d 730 [2d Dept 2003]; WellsFargo Bank, N.A. v Marchione, 69 AD3d 204, 887 NYS2d 615 [2d Dept

2009]; First Trust Natl. Assn. v Meisels, 234 AD2d 414, 651 N.Y.S.2d


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121 [2d Dept 1996]). It remains settled that foreclosure of a mortgage maynot be brought by one who has no title to it and absent transfer of the debt,

the assignment of the mortgage is a nullity (U.S. Bank, N.A. v Collymore,

supra; Kluge v Fugazy, /2011/02/28/nysc-orders-all-witnesses-to... 145AD2d 537, 536 NYS2d 92 [2d Dept 1988]). Furthermore, a plaintiff has

no foundation in law or fact to foreclose upon a mortgage in which theplaintiff has no legal or equitable interest (Wells Fargo Bank, N.A. vMarchione, supra; Katz v East-Ville Realty Co., 249 AD2d 243, 672

NYS2d 308 [1st Dept 1998])

The United States District Court for the Western District of Texas, Austin Division in re:

Valerie Norwood v Chase Home Finance LLC notes:

Statutorily, the Texas Business and Commercial Code sets out an

apparently straightforward list of four types of entities that may enforce aninstrument: (1) a holder of the instrument, (2) a nonholder in possession of

the instrument who has the rights of a holder, (3) a person not in

possession of the instrument who is entitled to enforce it as a lost,

destroyed, or stolen instrument, or (4) a person not in possession of aninstrument from whom a prior payment on the instrument has been

recovered. TEX.BUS.& COM.CODE 3.301, 3.309, 3.418(d).

("Mere possession of a note payable to the order of another is not

sufficient evidence to prove that one is the holder or owner.") (citing RTC

v. Camp, 965 F.2d 25, 29 (5th Cir. 1992)). The court emphasizes the

importance of possession: "A transferee of a note who has not yet acquiredpossession of it is not the holder of the note and therefore does not have aholder's right to receive payment of the note." Id. at 4 n.13 (emphasis

added).

Even without the "holder's right to receive payment," an owner may

enforce a note. Id. at 4. But this requires a party to "prove the transaction

through which the note was acquired." Id. (emphasis added). While these

cases allow non-holders to enforce a note, they do not eliminatepossession requirements. The rationale for the strict requirement of

possession is to protect the obligor from being subject to multiple

demands for payment on a single note. See Camp, 965 F.2d at 29(explaining that mere possession is insufficient because a later party may

demand payment).

The United States Bankruptcy Court, District of New Jersey in re: Kemp v Countrywide

provided the clear definition of what is required of negotiation to a subsequent holder:


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A "holder" is defined as "the person in possession if the instrument ispayable to bearer or, in the case of an instrument payable to an identified

person, if the identified person is in possession." N.J.S.A. 12A:1-201(20).

"Mere ownership or possession of a note is insufficient to qualify an

individual as a 'holder'." Adams v. Madison Realty & Dev. Inc., 853 F.2d163, 166 (3d Cir. 1988). Where, as here, the ownership of an instrument istransferred, the transferee's attainment of the status of "holder" depends on

the negotiation of the instrument to the transferee. N.J.S.A. 12A:3-201(a).

The two elements required for negotiation, both of which are missing here,

are the transfer of possession of the instrument to the transferee, and itsindorsement by the holder. N.J.S.A. 12A:3-201(b).

What we do know is that the note was purchased by the Bank of NewYork as Trustee, but never came into the physical possession of the Bank.

Because the Bank of New York never had possession of the note, it can

not qualify as a "holder" under the New Jersey UCC. See Dolin v. Darnall,115 N.J.L. 508, 181 A. 201 (E&A 1935) ("Since the plaintiff was not 'in

possession of the notes in question, he was neither the 'holder' nor the

'bearer' thereof. ").

The SUPREME COURT OF NEW HAMPSHIRE in re: Grafton, No. 96-322, GEORGE T.

HATHORN & a. v. WILLIAM R. LOFTUS provides this comment:

RSA 382-A:3-201 (1994) (proper negotiation for "holder" status requires

indorsement)

Holder - Negotiation by Indorsement

The omission of indorsements upon the face of an allegedly negotiated promissory note

does not reflect a proper negotiation of the note under the Texas Business and Commerce Code

and fails to establish a proper chain of indorsement to assign either Holder in due course status

with rights to enforce the Note or the Power of Sale clause in the Deed of Trust. Similarly, in a

cursory review of the states equivalence of the Uniform Commercial Code notes the wording

may vary from state to state, but the meanings are nearly identical. This writing contains

excerpts of commercial laws for the states of New Jersey, Texas and Tennessee.


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Conclusion

Applying the requirements for indorsement appearing upon the face of the negotiable

instrument allows transfer of enforcements rights, where failure to apply the requirements is

sufficient to prohibit equitable action on the note. The lack of proper indorsements in utilizing

an indorsement in blank causes a failure in identifying subsequent purchasers (Indorsers and

Indorsees), thereby preventing further negotiation. These missing indorsements prevent the

negotiation required to attain Holder in due course status with rights of enforcement. Laws

governing the Negotiable Instrument do allow the omission of indorsements to be cured.

Importantly, the negotiable instrument (Note) is represented to all parties to be secured; however,

the omission of identities on the note, in conjunction with state laws in transferring the security

rights, has rendered the security a nullity and the Note unsecured. Regardless, the unsecured

status cannot be cured even if the chain of indorsements is proved up to grant status as holder in

due course.


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Excerpts from States Statutes


12A:3104Negotiableinstrument

a. Exceptasprovidedinsubsectionsc.andd.ofthissection,"negotiableinstrument"meansanunconditionalpromiseorordertopayafixedamountofmoney,withorwithoutinterestorotherchargesdescribedinthepromiseororder,ifit:(1) ispayabletobearerortoorderatthetimeitisissuedorfirstcomesintopossessionofa

holder;(2) ispayableondemandoratadefinitetime;and(3) doesnotstateanyotherundertakingorinstructionbythepersonpromisingorordering

paymenttodoanyactinadditiontothepaymentofmoney,butthepromiseorordermaycontainanundertakingorpowertogive,maintain,orprotectcollateraltosecurepayment,anauthorizationorpowertotheholdertoconfessjudgmentorrealizeonordisposeofcollateral,orawaiverofthebenefitofanylawintendedfortheadvantageorprotectionofanobligor.b. "Instrument"meansanegotiableinstrument.c. Anorderthatmeetsalloftherequirementsofsubsectiona.ofthissection,except

paragraph(1),andotherwisefallswithinthedefinitionof"check"insubsectionf.ofthissectionisanegotiableinstrumentandacheck.d. Apromiseororderotherthanacheckisnotaninstrumentif,atthetimeitisissuedorfirst

comesintopossessionofaholder,itcontainsaconspicuousstatement,howeverexpressed,totheeffectthatthepromiseororderisnotnegotiableorisnotaninstrumentgovernedbythischapter.e. Aninstrumentisa"note"ifitisapromiseandisa"draft"ifitisanorder. Ifaninstrument

fallswithinthedefinitionofboth"note"and"draft,"apersonentitledtoenforcetheinstrumentmaytreatitaseither.f. "Check"meansadraft,otherthanadocumentarydraft,payableondemandanddrawnon

abankoracashier'scheckorteller'scheck. Aninstrumentmaybeacheckeventhoughitisdescribedonitsfacebyanotherterm,suchas"moneyorder."g. "Cashier'scheck"meansadraftwithrespecttowhichthedraweranddraweearethesame


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bankorbranchesofthesamebank.h. "Teller'scheck"meansadraftdrawnbyabankonanotherbank,orpayableatorthrougha

bank.i. "Traveler'scheck"meansaninstrumentthatispayableondemand,isdrawnonorpayable

atorthroughabank,isdesignatedbytheterm"traveler'scheck"orbyasubstantiallysimilarterm,andrequires,asaconditiontopayment,acountersignaturebyapersonwhosespecimensignatureappearsontheinstrument.j. "Certificateofdeposit"meansaninstrumentcontaininganacknowledgment byabankthat

asumofmoneyhasbeenreceivedbythebankandapromisebythebanktorepaythesumofmoney. Acertificateofdepositisanoteofthebank.L.1995,c.28,s.1.

Texas version Uniform Commercial Code

Sec. 3.104. NEGOTIABLE INSTRUMENT.

(a) Except as provided in Subsections (c) and (d), "negotiable instrument" means an unconditional promise

or order to pay a fixed amount of money, with or without interest or other charges described in the promise

or order, if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to

do any act in addition to the payment of money, but the promise or order may contain:

(A) an undertaking or power to give, maintain, or protect collateral to secure payment;

(B) an authorization or power to the holder to confess judgment or realize on or dispose of

collateral; or

(C) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

(b) "Instrument" means a negotiable instrument.

(c) An order that meets all of the requirements of Subsection (a), except Subdivision (1), and otherwise

falls within the definition of "check" in Subsection (f) is a negotiable instrument and a check.

(d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into

possession of a holder, it contains a conspicuous statement, however expressed, to the effect that thepromise or order is not negotiable or is not an instrument governed by this chapter.

(e) An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within

the definition of both "note" and "draft," a person entitled to enforce the instrument may treat it as either.

(f) "Check" means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or

(ii) a cashier's check or teller's check. An instrument may be a check even though it is described on its face

by another term, such as "money order."


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(g) "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or

branches of the same bank.

(h) "Teller's check" means a draft drawn by a bank:

(1) on another bank; or

(2) payable at or through a bank.

(i) "Traveler's check" means an instrument that:

(1) is payable on demand;

(2) is drawn on or payable at or through a bank;

(3) is designated by the term "traveler's check" or by a substantially similar term; and

(4) requires, as a condition to payment, a countersignature by a person whose specimen signature

appears on the instrument.

(j) "Certificate of deposit" means an instrument containing an acknowledgment by a bank that a sum of

money has been received by the bank and a promise by the bank to repay the sum of money. A certificateof deposit is a note of the bank.

(k) Repealed by Acts 2007, 80th Leg., R.S., Ch. 427, Sec. 4, eff. September 1, 2007.

Amended by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996; Acts 1997, 75th Leg., ch. 131, Sec. 2,

eff. Sept. 1, 1997.

Amended by: Acts 2007, 80th Leg., R.S., Ch. 427, Sec. 4, eff. September 1, 2007.

Tennessee version Uniform Commercial Code

47-3-104. Negotiable instrument.

(a) Except as provided in subsections (c) and (d), negotiable instrument means an unconditional promise

or order to pay a fixed amount of money, with or without interest or other charges described in the promise

or order, if it:

(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) Is payable on demand or at a definite time; and

(3) Does not state any other undertaking or instruction by the person promising or ordering payment to

do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or

power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder

to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law

intended for the advantage or protection of an obligor.

(b) Instrument means a negotiable instrument.

(c) An order that meets all of the requirements of subsection (a), except paragraph (1), and otherwise falls

within the definition of check in subsection (f) is a negotiable instrument and a check.

(d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into

possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the

promise or order is not negotiable or is not an instrument governed by this chapter.


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(e) An instrument is a note if it is a promise and is a draft if it is an order. If an instrument falls within

the definition of both note and draft, a person entitled to enforce the instrument may treat it as either.

(f) Check means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank,

(ii) a cashier's check or teller's check, or (iii) a payee-initiated demand draft. An instrument may be a check

even though it is described on its face by another term, such as money order.

(g) Cashier's check means a draft with respect to which the drawer and drawee are the same bank or

branches of the same bank.

(h) Teller's check means a draft drawn by a bank (i) on another bank, or (ii) payable at or through a

bank.

(i) Traveler's check means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or

through a bank, (iii) is designated by the term traveler's check or by a substantially similar term, and (iv)

requires, as a condition to payment, a countersignature by a person whose specimen signature appears on

the instrument.

(j) Certificate of deposit means an instrument containing an acknowledgment by a bank that a sum of

money has been received by the bank and a promise by the bank to repay the sum of money. A certificate

of deposit is a note of the bank.

(k) Payee-initiated demand draft means a draft that is not signed by a customer, as defined in 47-4-

104(5), and that is created by a third party under the purported authority of the customer for the purpose of

charging the customer's account with a bank. A payee-initiated demand draft may contain any or all of the

following:

(1) The customer's printed or typewritten name or account number;

(2) A notation that the customer authorized the draft; or

(3) The statement No signature required, Authorization on file, Signature on file, or words to that

effect.

A payee-initiated demand draft shall not include a check purportedly drawn by and bearing the signature ofa fiduciary, as defined in 47-3-307(a)(1).

[Acts 1995, ch. 397, 2; 2003, ch. 62, 2, 3.]


12A:3-201. Negotiation

a. "Negotiation" means a transfer of possession, whether voluntary or involuntary, of aninstrument by a person other than the issuer to a person who thereby becomes its holder.

b. Except for negotiation by a remitter, if an instrument is payable to an identified person,

negotiation requires transfer of possession of the instrument and its indorsement by the holder. If

an instrument is payable to bearer, it may be negotiated by transfer of possession alone.


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L.1995,c.28,s.1.


Sec. 3.201. NEGOTIATION.

(a) "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an

instrument by a person other than the issuer to a person who thereby becomes its holder.

(b) Except for negotiation by a remitter, if an instrument is payable to an identified person,

negotiation requires transfer of possession of the instrument and its indorsement by the holder. If

an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

Amended by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996.


47-3-201. Negotiation.

(a) Negotiation means a transfer of possession, whether voluntary or involuntary, of

an instrument by a person other than the issuer to a person who thereby becomes its

holder.

(b) Except for negotiation by a remitter, if an instrument is payable to an identifiedperson, negotiation requires transfer of possession of the instrument and its endorsement

by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of

possession alone.

[Acts 1995, ch. 397, 2.]


12A:3-301 Person entitled to enforce instrument

"Person entitled to enforce" an instrument means the holder of the instrument, a nonholder in possession of

the instrument who has the rights of a holder, or a person not in possession of the instrument who is entitled

to enforce the instrument pursuant to 12A:3-309 or subsection d. of 12A:3-418. A person may be a person

entitled to enforce the instrument even though the person is not the owner of the instrument or is in

wrongful possession of the instrument.

L.1995,c.28,s.


3.301. PERSON ENTITLED TO ENFORCE INSTRUMENT


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"Person entitled to enforce" an instrument means (i) the holder of the instrument, (ii) a nonholder in

possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the

instrument who is entitled to enforce the instrument pursuant to Section 3.309 or 3.418(d). A person may

be a person entitled to enforce the instrument even though the person is not the owner of the instrument or

is in wrongful possession of the instrument.



47-3-301. Person entitled to enforce instrument.

Person entitled to enforce an instrument means (i) the holder of the instrument, (ii) a nonholder in

possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the

instrument who is entitled to enforce the instrument pursuant to 47-3-309 or 47-3-418(d). A person

may be a person entitled to enforce the instrument even though the person is not the owner of the

instrument or is in wrongful possession of the instrument.

[Acts 1995, ch. 397, 2.]


12A:3-309 Enforcement of lost, destroyed, or stolen instrument

a. A person not in possession of an instrument is entitled to enforce the instrument if the person was in

possession of the instrument and entitled to enforce it when loss of possession occurred, the loss of

possession was not the result of a transfer by the person or a lawful seizure, and the person cannot

reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts

cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot befound or is not amenable to service of process.

b. A person seeking enforcement of an instrument under subsection a. of this section must prove the

terms of the instrument and the person's right to enforce the instrument. If that proof is made, 12A:3-308

applies to the case as if the person seeking enforcement had produced the instrument. The court may not

enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the

instrument is adequately protected against loss that might occur by reason of a claim by another person to

enforce the instrument. Adequate protection may be provided by any reasonable means.

L.1995,c.28,s.1.


Sec. 3.309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN

INSTRUMENT.

(a) A person who is not in possession of an instrument is entitled to enforce the instrument if: (1) the

person seeking to enforce the instrument: (A) was entitled to enforce the instrument when loss of

possession occurred; or (B) has directly or indirectly acquired ownership of the instrument from a person


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who was entitled to enforce the instrument when loss of possession occurred; (2) the loss of possession

was not the result of a transfer by the person or a lawful seizure; and (3) the person cannot reasonably

obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be

determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is

not amenable to service of process.

(b) A person seeking enforcement of an instrument under Subsection (a) must prove the terms of the

instrument and the person's right to enforce the instrument. If that proof is made, Section 3.308 applies to

the case as if the person seeking enforcement had produced the instrument. The court may not enter

judgment in favor of the person seeking enforcement unless it finds that the person required to pay the

instrument is adequately protected against loss that might occur by reason of a claim by another person to

enforce the instrument. Adequate protection may be provided by any reasonable means.

Added by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996.

Amended by: Acts 2005, 79th Leg., Ch. 95, Sec. 6, eff. September 1, 2005.


47-3-309. Enforcement of lost, destroyed, or stolen instrument.

(a) A person not in possession of an instrument is entitled to enforce the instrument if:

(1) The person seeking to enforce the instrument:

(A) Was entitled to enforce the instrument when loss of possession occurred; or

(B) Has directly or indirectly acquired ownership of the instrument from a person who was entitled

to enforce the instrument when loss of possession occurred;

(2) The loss of possession was not the result of a transfer by the person or a lawful seizure; or

(3) The person cannot reasonably obtain possession of the instrument because the instrument was

destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown personor a person that cannot be found or is not amendable to service of process.

(b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the

instrument and the person's right to enforce the instrument. If that proof is made, 47-3-308 applies to the

case as if the person seeking enforcement had produced the instrument. The court may not enter judgment

in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is

adequately protected against loss that might occur by reason of a claim by another person to enforce the

instrument. Adequate protection may be provided by any reasonable means.

[Acts 1995, ch. 397, 2; 2003, ch. 62, 23.]


12A:3-418. Payment or acceptance by mistake

a. Except as provided in subsection c. of this section, if the drawee of a draft pays or

accepts the draft and the drawee acted on the mistaken belief that payment of the draft

had not been stopped pursuant to 12A:4-403 or the signature of the drawer of the draftwas authorized, the drawee may recover the amount of the draft from the person to whom


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or for whose benefit payment was made or, in the case of acceptance, may revoke theacceptance. Rights of the drawee under this subsection are not affected by failure of the

drawee to exercise ordinary care in paying or accepting the draft.

b. Except as provided in subsection c. of this section, if an instrument has been paid or

accepted by mistake and the case is not covered by subsection a. of this section, theperson paying or accepting may, to the extent permitted by the law governing mistakeand restitution, recover the payment from the person to whom or for whose benefit

payment was made or in the case of acceptance, may revoke the acceptance.

c. The remedies provided by subsection a. or b. of this subsection may not be assertedagainst a 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. This subsection does not limit

remedies provided by 12A:3-417 or 12A:4-407.

d. Notwithstanding 12A:4-215, if an instrument is paid or accepted by mistake and the

payor or acceptor recovers payment or revokes acceptance under subsection a. or b. ofthis section, the instrument is deemed not to have been paid or accepted and is treated as

dishonored, and the person from whom payment is recovered has rights as a person

entitled to enforce the dishonored instrument.

L.1995,c.28,s.1.


Sec. 3.418. PAYMENT OR ACCEPTANCE BY MISTAKE.

(a) Except as provided in Subsection (c), if the drawee of a draft pays or accepts the draftand the drawee acted on the mistaken belief that (i) payment of the draft had not been

stopped pursuant to Section 4.403, or (ii) the signature of the drawer of the draft was

authorized, the drawee may recover the amount of the draft from the person to whom or

for whose benefit payment was made or, in the case of acceptance, may revoke the

acceptance. Rights of the drawee under this subsection are not affected by failure of the

drawee to exercise ordinary care in paying or accepting the draft.

(b) Except as provided in Subsection (c), if an instrument has been paid or accepted by

mistake and the case is not covered by Subsection (a), the person paying or acceptingmay, to the extent permitted by the law governing mistake and restitution:

(1) recover the payment from the person to whom or for whose benefit payment was

made; or

(2) in the case of acceptance, revoke the acceptance.

(c) The remedies provided by Subsection (a) or (b) may not be asserted against a person

who took the instrument in good faith and for value or who in good faith changed


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position in reliance on the payment or acceptance. This subsection does not limitremedies provided by Section 3.417 or 4.407.

(d) Notwithstanding Section 4.215, if an instrument is paid or accepted by mistake and

the payor or acceptor recovers payment or revokes acceptance under Subsection (a) or(b), the instrument is deemed not to have been paid or accepted and is treated as

dishonored, and the person from whom payment is recovered has rights as a person

entitled to enforce the dishonored instrument.



47-3-418. Payment or acceptance by mistake.

(a) Except as provided in subsection (c), if the drawee of a draft pays or accepts the draft and the drawee

acted on the mistaken belief that (i) payment of the draft had not been stopped pursuant to 47-4-403 or

(ii) the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draftfrom the person to whom or for whose benefit payment was made or, in the case of acceptance, may revoke

the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to

exercise ordinary care in paying or accepting the draft.

(b) Except as provided in subsection (c), if an instrument has been paid or accepted by mistake and the

case is not covered by subsection (a), the person paying or accepting may, to the extent permitted by the

law governing mistake and restitution, (i) recover the payment from the person to whom or for whose

benefit payment was made or (ii) in the case of acceptance, may revoke the acceptance.

(c) The remedies provided by subsection (a) or (b) may not be asserted against a 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. This subsection does not limit remedies provided by 47-3-417 or 47-4-407.

(d) Notwithstanding 47-4-215, if an instrument is paid or accepted by mistake and the payor or acceptorrecovers payment or revokes acceptance under subsection (a) or (b), the instrument is deemed not to have

been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has

rights as a person entitled to enforce the dishonored instrument.

[Acts 1995, ch. 397, 2.]

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