47-3305

47-3305. Defenses and claims in
recoupment

A. Except as stated in subsection B of this 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:

(a) Infancy of the obligor to the extent it is a defense to a simple contract;

(b) Duress, lack of legal capacity or illegality of the transaction which, under
other law, nullifies the obligation of the obligor;

(c) 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

(d) Discharge of the obligor in insolvency proceedings.

2. A defense of the obligor stated in another section of this chapter 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 subsection A, paragraph 1
of this section but is not subject to defenses of the obligor stated in subsection A,
paragraph 2 of this section or claims in recoupment stated in subsection A, paragraph 3
of this section against a person other than the holder.

C. Except as stated in subsection D of this 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 (section 47-3306) 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.

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 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.