CHAPTER 3.1. NEGOTIABLE INSTRUMENTS
IC 26-1-3.1
Chapter 3.1. Negotiable Instruments
IC 26-1-3.1-101
Short title
Sec. 101. IC 26-1-3.1 may be cited as Uniform Commercial Code. Negotiable Instruments.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-102
Subject matter
Sec. 102. (a) IC 26-1-3.1 applies to negotiable instruments. It doesnot apply to money, to payment orders governed by IC 26-1-4.1, orto securities governed by IC 26-1-8.1.
(b) If there is conflict between IC 26-1-3.1 and IC 26-1-4 orIC 26-1-9.1, IC 26-1-4, and IC 26-1-9.1 govern.
(c) Regulations of the Board of Governors of the Federal ReserveSystem and operating circulars of the Federal Reserve Bankssupersede any inconsistent provision of IC 26-1-3.1 to the extent ofthe inconsistency.
As added by P.L.222-1993, SEC.5. Amended by P.L.247-1995,SEC.4; P.L.57-2000, SEC.27.
IC 26-1-3.1-103
Definitions
Sec. 103. (a) In IC 26-1-3.1:
(1) "Acceptor" means a drawee who has accepted a draft.
(2) "Consumer account" means an account established by anindividual primarily for personal, family, or householdpurposes.
(3) "Consumer transaction" means a transaction in which anindividual incurs an obligation primarily for personal, family,or household purposes.
(4) "Drawee" means a person ordered in a draft to makepayment.
(5) "Drawer" means a person who signs or is identified in adraft as a person ordering payment.
(6) "Good faith" means honesty in fact and the observance ofreasonable commercial standards of fair dealing.
(7) "Maker" means a person who signs or is identified in a noteas a person undertaking to pay.
(8) "Order" means a written instruction to pay money signed bythe person giving the instruction. The instruction may beaddressed to any person, including the person giving theinstruction, or to one (1) or more persons jointly or in thealternative but not in succession. An authorization to pay is notan order unless the person authorized to pay is also instructedto pay.
(9) "Ordinary care" in the case of a person engaged in businessmeans observance of reasonable commercial standards
prevailing in the area in which the person is located, withrespect to the business in which the person is engaged. In thecase of a bank that takes an instrument for processing forcollection or payment by automated means, reasonablecommercial standards do not require the bank to examine theinstrument if the failure to examine does not violate the bank'sprescribed procedures and the bank's procedures do not varyunreasonably from general banking usage not disapproved byIC 26-1-3.1 or IC 26-1-4.
(10) "Party" means a party to an instrument.
(11) "Principal obligor", with respect to an instrument, meansthe accommodated party or any other party to the instrumentagainst whom a secondary obligor has recourse under thisarticle.
(12) "Promise" means a written undertaking to pay moneysigned by the person undertaking to pay. An acknowledgmentof an obligation by the obligor is not a promise unless theobligor also undertakes to pay the obligation.
(13) "Prove" with respect to a fact means to meet the burden ofestablishing the fact (IC 26-1-1-201(8)).
(14) "Remitter" means a person who purchases an instrumentfrom its issuer if the instrument is payable to an identifiedperson other than the purchaser.
(15) "Remotely-created consumer item" means an item that isdrawn on a consumer account, is not created by the payor bank,and does not bear a handwritten signature purporting to be thesignature of the drawer.
(16) "Secondary obligor", with respect to an instrument, means:
(A) an endorser or an accommodation party;
(B) a drawer having the obligation described inIC 26-1-3.1-414(d); or
(C) any other party to the instrument that has recourseagainst another party to the instrument underIC 26-1-3.1-116(b).
(b) Other definitions applying to IC 26-1-3.1 and the sections inwhich they appear are:
"Acceptance". IC 26-1-3.1-409.
"Accommodated party". IC 26-1-3.1-419.
"Accommodation party". IC 26-1-3.1-419.
"Alteration". IC 26-1-3.1-407.
"Anomalous endorsement". IC 26-1-3.1-205.
"Blank endorsement". IC 26-1-3.1-205.
"Cashier's check". IC 26-1-3.1-104.
"Certificate of deposit". IC 26-1-3.1-104.
"Certified check". IC 26-1-3.1-409.
"Check". IC 26-1-3.1-104.
"Consideration". IC 26-1-3.1-303.
"Draft". IC 26-1-3.1-104.
"Holder in due course". IC 26-1-3.1-302.
"Incomplete instrument". IC 26-1-3.1-115. "Endorsement". IC 26-1-3.1-204.
"Endorser". IC 26-1-3.1-204.
"Instrument". IC 26-1-3.1-104.
"Issue". IC 26-1-3.1-105.
"Issuer". IC 26-1-3.1-105.
"Negotiable instrument". IC 26-1-3.1-104.
"Negotiation". IC 26-1-3.1-201.
"Note". IC 26-1-3.1-104.
"Payable at a definite time". IC 26-1-3.1-108.
"Payable on demand". IC 26-1-3.1-108.
"Payable to bearer". IC 26-1-3.1-109.
"Payable to order". IC 26-1-3.1-109.
"Payment". IC 26-1-3.1-602.
"Person entitled to enforce". IC 26-1-3.1-301.
"Presentment". IC 26-1-3.1-501.
"Reacquisition". IC 26-1-3.1-207.
"Special endorsement". IC 26-1-3.1-205.
"Teller's check". IC 26-1-3.1-104.
"Transfer of an instrument". IC 26-1-3.1-203.
"Traveler's check". IC 26-1-3.1-104.
"Value". IC 26-1-3.1-303.
(c) The following definitions in other IC 26-1-4 apply toIC 26-1-3.1:
"Banking day". IC 26-1-4-104.
"Clearing house". IC 26-1-4-104.
"Collecting bank". IC 26-1-4-105.
"Depositary bank". IC 26-1-4-105.
"Documentary draft". IC 26-1-4-104.
"Intermediary bank". IC 26-1-4-105.
"Item". IC 26-1-4-104.
"Payor bank". IC 26-1-4-105.
"Suspends payments". IC 26-1-4-104.
(d) In addition, IC 26-1-1 contains general definitions andprinciples of construction and interpretation applicable throughoutIC 26-1-3.1.
As added by P.L.222-1993, SEC.5. Amended by P.L.135-2009,SEC.2.
IC 26-1-3.1-104
Negotiable instrument
Sec. 104. (a) Except as provided in subsections (c) and (d),"negotiable instrument" means an unconditional promise or order topay a fixed amount of money, with or without interest or othercharges described in the promise or order, if it:
(1) is payable to bearer or to order at the time it is issued or firstcomes 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 theperson promising or ordering payment to do any act in additionto the payment of money, but the promise or order may contain: (A) an undertaking or power to give, maintain, or protectcollateral to secure payment;
(B) an authorization or power to the holder to confessjudgment or realize on or dispose of collateral; or
(C) a waiver of the benefit of any law intended for theadvantage 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, itcontains a conspicuous statement, however expressed, to the effectthat the promise or order is not negotiable or is not an instrumentgoverned by IC 26-1-3.1.
(e) An instrument is a "note" if it is a promise and is a "draft" ifit is an order. If an instrument falls within the definition of both"note" and "draft", a person entitled to enforce the instrument maytreat it as either.
(f) "Check" means:
(1) a draft, other than a documentary draft, payable on demandand drawn on a bank; or
(2) a cashier's check or teller's check.
An instrument may be a check even though it is described on its faceby another term, such as "money order".
(g) "Cashier's check" means a draft with respect to which thedrawer 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 asubstantially similar term; and
(4) requires, as a condition to payment, a countersignature by aperson whose specimen signature appears on the instrument.
(j) "Certificate of deposit" means an instrument containing anacknowledgment by a bank that a sum of money has been receivedby the bank and a promise by the bank to repay the sum of money. Acertificate of deposit is a note of the bank.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-105
Issue of instrument
Sec. 105. (a) "Issue" means the first delivery of an instrument bythe maker or drawer, whether to a holder or nonholder, for thepurpose of giving rights on the instrument to any person.
(b) An unissued instrument, or an unissued incomplete instrumentthat is completed, is binding on the maker or drawer, but nonissuance
is a defense. An instrument that is conditionally issued or is issuedfor a special purpose is binding on the maker or drawer, but failureof the condition or special purpose to be fulfilled is a defense.
(c) "Issuer" applies to issued and unissued instruments and meansa maker or drawer of an instrument.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-106
Unconditional promise or order
Sec. 106. (a) Except as provided in this section, for the purposesof IC 26-1-3.1-104(a), a promise or order is unconditional unless itstates:
(1) an express condition to payment;
(2) that the promise or order is subject to or governed byanother record; or
(3) that rights or obligations with respect to the promise ororder are stated in another record.
A reference to another record does not of itself make the promise ororder conditional.
(b) A promise or order is not made conditional:
(1) by a reference to another record for a statement of rightswith respect to collateral, prepayment, or acceleration; or
(2) because payment is limited to resort to a particular fund orsource.
(c) If a promise or order requires, as a condition to payment, acountersignature by a person whose specimen signature appears onthe promise or order, the condition does not make the promise ororder conditional for the purposes of IC 26-1-3.1-104(a). If theperson whose specimen signature appears on an instrument fails tocountersign the instrument, the failure to countersign is a defense tothe obligation of the issuer, but the failure does not prevent atransferee of the instrument from becoming a holder of theinstrument.
(d) If a promise or order at the time it is issued or first comes intopossession of a holder contains a statement, required by applicablestatutory or administrative law, to the effect that the rights of aholder or transferee are subject to claims or defenses that the issuercould assert against the original payee, the promise or order is notthereby made conditional for the purposes of IC 26-1-3.1-104(a), butif the promise or order is an instrument, there cannot be a holder indue course of the instrument.
As added by P.L.222-1993, SEC.5. Amended by P.L.135-2009,SEC.3.
IC 26-1-3.1-107
Instrument payable in foreign money
Sec. 107. Unless the instrument otherwise provides, an instrumentthat states the amount payable in foreign money may be paid in theforeign money or in an equivalent amount in dollars calculated byusing the current bank-offered spot rate at the place of payment for
the purchase of dollars on the day on which the instrument is paid.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-108
Payable on demand or at definite time
Sec. 108. (a) A promise or order is "payable on demand" if it:
(1) states that it is payable on demand or at sight, or otherwiseindicates that it is payable at the will of the holder; or
(2) does not state any time of payment.
(b) A promise or order is "payable at a definite time" if it ispayable on elapse of a definite period of time after sight oracceptance or at a fixed date or dates or at a time or times readilyascertainable at the time the promise or order is issued, subject torights of:
(1) prepayment;
(2) acceleration;
(3) extension at the option of the holder; or
(4) extension to a further definite time at the option of themaker or acceptor or automatically upon or after a specified actor event.
(c) If an instrument, payable at a fixed date, is also payable upondemand made before the fixed date, the instrument is payable ondemand until the fixed date and, if demand for payment is not madebefore that date, becomes payable at a definite time on the fixed date.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-109
Payable to bearer or to order
Sec. 109. (a) A promise or order is payable to bearer if it:
(1) states that it is payable to bearer or to the order of bearer orotherwise indicates that the person in possession of the promiseor order is entitled to payment;
(2) does not state a payee; or
(3) states that it is payable to or to the order of cash orotherwise indicates that it is not payable to an identified person.
(b) A promise or order that is not payable to bearer is payable toorder if it is payable:
(1) to the order of an identified person; or
(2) to an identified person or order.
A promise or order that is payable to order is payable to theidentified person.
(c) An instrument payable to bearer may become payable to anidentified person if it is specially endorsed under IC 26-1-3.1-205(a).An instrument payable to an identified person may become payableto bearer if it is endorsed in blank under IC 26-1-3.1-205(b).
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-110
Identification of person to whom instrument is payable
Sec. 110. (a) The person to whom an instrument is initially
payable is determined by the intent of the person, whether or notauthorized, signing as, or in the name or behalf of, the issuer of theinstrument. The instrument is payable to the person intended by thesigner even if that person is identified in the instrument by a name orother identification that is not that of the intended person. If morethan one (1) person signs in the name or behalf of the issuer of aninstrument and all the signers do not intend the same person aspayee, the instrument is payable to any person intended by one (1) ormore of the signers.
(b) If the signature of the issuer of an instrument is made byautomated means, such as a check-writing machine, the payee of theinstrument is determined by the intent of the person who supplied thename or identification of the payee, whether or not authorized to doso.
(c) A person to whom an instrument is payable may be identifiedin any way, including by name, identifying number, office, oraccount number. For the purpose of determining the holder of aninstrument, the following rules apply:
(1) If an instrument is payable to an account and the account isidentified only by number, the instrument is payable to theperson to whom the account is payable. If an instrument ispayable to an account identified by number and by the name ofa person, the instrument is payable to the named person,whether or not that person is the owner of the account identifiedby number.
(2) If an instrument is payable to:
(A) a trust, an estate, or a person described as trustee orrepresentative of a trust or estate, the instrument is payableto the trustee, the representative, or a successor of either,whether or not the beneficiary or estate is also named;
(B) a person described as agent or similar representative ofa named or identified person, the instrument is payable to therepresented person, the representative, or a successor of therepresentative;
(C) a fund or organization that is not a legal entity, theinstrument is payable to a representative of the members ofthe fund or organization; or
(D) an office or to a person described as holding an office,the instrument is payable to the named person, theincumbent of the office, or a successor to the incumbent.
(d) If an instrument is payable to two (2) or more personsalternatively, it is payable to any of them and may be negotiated,discharged, or enforced by any or all of them in possession of theinstrument. If an instrument is payable to two (2) or more persons notalternatively, it is payable to all of them and may be negotiated,discharged, or enforced only by all of them. If an instrument payableto two (2) or more persons is ambiguous as to whether it is payableto the persons alternatively, the instrument is payable to the personsalternatively.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-111
Place of payment
Sec. 111. Except as otherwise provided for items in IC 26-1-4, aninstrument is payable at the place of payment stated in theinstrument. If no place of payment is stated, an instrument is payableat the address of the drawee or maker stated in the instrument. If noaddress is stated, the place of payment is the place of business of thedrawee or maker. If a drawee or maker has more than one (1) placeof business, the place of payment is any place of business of thedrawee or maker chosen by the person entitled to enforce theinstrument. If the drawee or maker has no place of business, the placeof payment is the residence of the drawee or maker.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-112
Interest
Sec. 112. (a) Unless otherwise provided in the instrument:
(1) an instrument is not payable with interest; and
(2) interest on an interest-bearing instrument is payable fromthe date of the instrument.
(b) Interest may be stated in an instrument as a fixed or variableamount of money or it may be expressed as a fixed or variable rateor rates. The amount or rate of interest may be stated or described inthe instrument in any manner and may require reference toinformation not contained in the instrument. If an instrumentprovides for interest, but the amount of interest payable cannot beascertained from the description, interest is payable at the judgmentrate in effect at the place of payment of the instrument and at thetime interest first accrues.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-113
Date of instrument
Sec. 113. (a) An instrument may be antedated or postdated. Thedate stated determines the time of payment if the instrument ispayable at a fixed period after date. Except as provided inIC 26-1-4-401(c), an instrument payable on demand is not payablebefore the date of the instrument.
(b) If an instrument is undated, its date is the date of its issue or,in the case of an unissued instrument, the date it first comes intopossession of a holder.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-114
Contradictory terms of instrument
Sec. 114. If an instrument contains contradictory terms,typewritten terms prevail over printed terms, handwritten termsprevail over both, and words prevail over numbers.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-115
Incomplete instrument
Sec. 115. (a) "Incomplete instrument" means a signed writing,whether or not issued by the signer, the contents of which show atthe time of signing that it is incomplete but that the signer intendedit to be completed by the addition of words or numbers.
(b) Subject to subsection (c), if an incomplete instrument is aninstrument under IC 26-1-3.1-104, it may be enforced according toits terms if it is not completed, or according to its terms asaugmented by completion. If an incomplete instrument is not aninstrument under IC 26-1-3.1-104, but, after completion, therequirements of IC 26-1-3.1-104 are met, the instrument may beenforced according to its terms as augmented by completion.
(c) If words or numbers are added to an incomplete instrumentwithout authority of the signer, there is an alteration of theincomplete instrument under IC 26-1-3.1-407.
(d) The burden of establishing that words or numbers were addedto an incomplete instrument without authority of the signer is on theperson asserting the lack of authority.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-116
Joint and several liability; contribution
Sec. 116. (a) Except as otherwise provided in the instrument, two(2) or more persons who have the same liability on an instrument asmakers, drawers, acceptors, endorsers who endorse as joint payees,or anomalous endorsers are jointly and severally liable in thecapacity in which they sign.
(b) Except as provided in IC 26-1-3.1-419(f) or by agreement ofthe affected parties, a party having joint and several liability whopays the instrument is entitled to receive from any party having thesame joint and several liability contribution in accordance withapplicable law.
As added by P.L.222-1993, SEC.5. Amended by P.L.135-2009,SEC.4.
IC 26-1-3.1-117
Other agreements affecting instrument
Sec. 117. Subject to applicable law regarding exclusion of proofof contemporaneous or previous agreements, the obligation of a partyto an instrument to pay the instrument may be modified,supplemented, or nullified by a separate agreement of the obligor anda person entitled to enforce the instrument, if the instrument is issuedor the obligation is incurred in reliance on the agreement or as partof the same transaction giving rise to the agreement. To the extent anobligation is modified, supplemented, or nullified by an agreementunder this section, the agreement is a defense to the obligation.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-118 Statute of limitations
Sec. 118. (a) Except as provided in subsection (e), an action toenforce the obligation of a party to pay a note payable at a definitetime must be commenced within six (6) years after the due date ordates stated in the note or, if a due date is accelerated, within six (6)years after the accelerated due date.
(b) Except as provided in subsection (d) or (e), if demand forpayment is made to the maker of a note payable on demand, an actionto enforce the obligation of a party to pay the note must becommenced within six (6) years after the demand. If no demand forpayment is made to the maker, an action to enforce the note is barredif neither principal nor interest on the note has been paid for acontinuous period of ten (10) years.
(c) Except as provided in subsection (d), an action to enforce theobligation of a party to an unaccepted draft to pay the draft must becommenced within three (3) years after dishonor of the draft or ten(10) years after the date of the draft, whichever period expires first.
(d) An action to enforce the obligation of the acceptor of acertified check or the issuer of a teller's check, cashier's check, ortraveler's check must be commenced within three (3) years afterdemand for payment is made to the acceptor or issuer, as the casemay be.
(e) An action to enforce the obligation of a party to a certificateof deposit to pay the instrument must be commenced within six (6)years after demand for payment is made to the maker, but if theinstrument states a due date and the maker is not required to paybefore that date, the six (6) year period begins when a demand forpayment is in effect and the due date has passed.
(f) An action to enforce the obligation of a party to pay anaccepted draft, other than a certified check, must be commenced:
(1) within six (6) years after the due date or dates stated in thedraft or acceptance if the obligation of the acceptor is payableat a definite time; or
(2) within six (6) years after the date of the acceptance if theobligation of the acceptor is payable on demand.
(g) Unless governed by other law regarding claims for indemnityor contribution, an action:
(1) for conversion of an instrument, for money had andreceived, or like action based on conversion;
(2) for breach of warranty; or
(3) to enforce an obligation, duty, or right arising underIC 26-1-3.1;
and not governed by this section must be commenced within three (3)years after the cause of action accrues.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-119
Notice of right to defend action
Sec. 119. In an action for breach of an obligation for which a thirdperson is answerable over pursuant to IC 26-1-3.1 or IC 26-1-4, the
defendant may give the third person notice of the litigation in arecord, and the person notified may then give similar notice to anyother person who is answerable over. If the notice states:
(1) that the person notified may come in and defend; and
(2) that failure to do so will bind the person notified in an actionlater brought by the person giving the notice as to anydetermination of fact common to the two (2) litigations;
the person notified is so bound unless after reasonable receipt of thenotice the person notified does come in and defend.
As added by P.L.222-1993, SEC.5. Amended by P.L.135-2009,SEC.5.
IC 26-1-3.1-201
Negotiation
Sec. 201. (a) "Negotiation" means a transfer of possession,whether voluntary or involuntary, of an instrument by a person otherthan the issuer to a person who thereby becomes its holder.
(b) Except for negotiation by a remitter, if an instrument ispayable to an identified person, negotiation requires transfer ofpossession of the instrument and its endorsement by the holder. If aninstrument is payable to bearer, it may be negotiated by transfer ofpossession alone.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-202
Negotiation subject to rescission
Sec. 202. (a) Negotiation is effective even if obtained:
(1) from an infant, a corporation exceeding its powers, or aperson without capacity;
(2) by fraud, duress, or mistake; or
(3) in breach of duty or as part of an illegal transaction.
(b) To the extent permitted by other law, negotiation may berescinded or may be subject to other remedies, but those remediesmay not be asserted against a subsequent holder in due course or aperson paying the instrument in good faith and without knowledgeof facts that are a basis for rescission or other remedy.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-203
Transfer of instrument; rights acquired by transfer
Sec. 203. (a) An instrument is transferred when it is delivered bya person other than its issuer for the purpose of giving to the personreceiving delivery the right to enforce the instrument.
(b) Transfer of an instrument, whether or not the transfer is anegotiation, vests in the transferee any right of the transferor toenforce the instrument, including any right as a holder in due course,but the transferee cannot acquire rights of a holder in due course bya transfer, directly or indirectly, from a holder in due course if thetransferee engaged in fraud or illegality affecting the instrument.
(c) Unless otherwise agreed, if an instrument is transferred for
value and the transferee does not become a holder because of lack ofendorsement by the transferor, the transferee has a specificallyenforceable right to the unqualified endorsement of the transferor,but negotiation of the instrument does not occur until theendorsement is made.
(d) If a transferor purports to transfer less than the entireinstrument, negotiation of the instrument does not occur. Thetransferee obtains no rights under IC 26-1-3.1 and has only the rightsof a partial assignee.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-204
Endorsement
Sec. 204. (a) "Endorsement" means a signature, other than that ofa signer as maker, drawer, or acceptor, that alone or accompanied byother words is made on an instrument for the purpose of:
(1) negotiating the instrument;
(2) restricting payment of the instrument; or
(3) incurring endorser's liability on the instrument;
but regardless of the intent of the signer, a signature and itsaccompanying words is an endorsement unless the accompanyingwords, terms of the instrument, place of the signature, or othercircumstances unambiguously indicate that the signature was madefor a purpose other than endorsement. For the purpose of determiningwhether a signature is made on an instrument, a paper affixed to theinstrument is a part of the instrument.
(b) "Endorser" means a person who makes an endorsement.
(c) For the purpose of determining whether the transferee of aninstrument is a holder, an endorsement that transfers a securityinterest in the instrument is effective as an unqualified endorsementof the instrument.
(d) If an instrument is payable to a holder under a name that is notthe name of the holder, endorsement may be made by the holder inthe name stated in the instrument or in the holder's name, or both, butsignature in both names may be required by a person paying or takingthe instrument for value or collection.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-205
Special endorsement; blank endorsement; anomalous endorsement
Sec. 205. (a) If an endorsement is made by the holder of aninstrument, whether payable to an identified person or payable tobearer, and the endorsement identifies a person to whom it makes theinstrument payable, it is a "special endorsement". When speciallyendorsed, an instrument becomes payable to the identified personand may be negotiated only by the endorsement of that person. Theprinciples stated in IC 26-1-3.1-110 apply to special endorsements.
(b) If an endorsement is made by the holder of an instrument andit is not a special endorsement, it is a "blank endorsement". Whenendorsed in blank, an instrument becomes payable to bearer and may
be negotiated by transfer of possession alone until speciallyendorsed.
(c) The holder may convert a blank endorsement that consists onlyof a signature into a special endorsement by writing, above thesignature of the endorser, words identifying the person to whom theinstrument is made payable.
(d) "Anomalous endorsement" means an endorsement made by aperson who is not the holder of the instrument. An anomalousendorsement does not affect the manner in which the instrument maybe negotiated.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-206
Restrictive endorsement
Sec. 206. (a) An endorsement limiting payment to a particularperson or otherwise prohibiting further transfer or negotiation of theinstrument is not effective to prevent further transfer or negotiationof the instrument.
(b) An endorsement stating a condition to the right of the endorseeto receive payment does not affect the right of the endorsee toenforce the instrument. A person paying the instrument or taking itfor value or collection may disregard the condition, and the rightsand liabilities of that person are not affected by whether thecondition has been fulfilled.
(c) If an instrument bears an endorsement (i) described inIC 26-1-4-201(b), or (ii) in blank or to a particular bank using thewords "for deposit", "for collection", or other words indicating apurpose of having the instrument collected by a bank for the endorseror for a particular account, the following rules apply:
(1) A person, other than a bank, who purchases the instrumentwhen so endorsed converts the instrument unless the amountpaid for the instrument is received by the endorser or appliedconsistently with the endorsement.
(2) A depositary bank that purchases the instrument or takes itfor collection when so endorsed converts the instrument unlessthe amount paid by the bank with respect to the instrument isreceived by the endorser or applied consistently with theendorsement.
(3) A payor bank that is also the depositary bank or that takesthe instrument for immediate payment over the counter from aperson other than a collecting bank converts the instrumentunless the proceeds of the instrument are received by theendorser or applied consistently with the endorsement.
(4) Except as otherwise provided in subdivision (3), a payorbank or intermediary bank may disregard the endorsement andis not liable if the proceeds of the instrument are not receivedby the endorser or applied consistently with the endorsement.
(d) Except for an endorsement covered by subsection (c), if aninstrument bears an endorsement using words to the effect thatpayment is to be made to the endorsee as agent, trustee, or other
fiduciary for the benefit of the endorser or another person, thefollowing rules apply:
(1) Unless there is notice of breach of fiduciary duty asprovided in IC 26-1-3.1-307, a person who purchases theinstrument from the endorsee or takes the instrument from theendorsee for collection or payment may pay the proceeds ofpayment or the value given for the instrument to the endorseewithout regard to whether the endorsee violates a fiduciary dutyto the endorser.
(2) A subsequent transferee of the instrument or person whopays the instrument is neither given notice nor otherwiseaffected by the restriction in the endorsement unless thetransferee or payor knows that the fiduciary dealt with theinstrument or its proceeds in breach of fiduciary duty.
(e) The presence on an instrument of an endorsement to whichthis section applies does not prevent a purchaser of the instrumentfrom becoming a holder in due course of the instrument unless thepurchaser is a converter under subsection (c) or has notice orknowledge of breach of fiduciary duty as stated in subsection (d).
(f) In an action to enforce the obligation of a party to pay theinstrument, the obligor has a defense if payment would violate anendorsement to which this section applies and the payment is notpermitted by this section.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-207
Reacquisition
Sec. 207. Reacquisition of an instrument occurs if it is transferredto a former holder, by negotiation or otherwise. A former holder whoreacquires the instrument may cancel endorsements made after thereacquirer first became a holder of the instrument. If the cancellationcauses the instrument to be payable to the reacquirer or to bearer, thereacquirer may negotiate the instrument. An endorser whoseendorsement is canceled is discharged, and the discharge is effectiveagainst any subsequent holder.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-301
Person entitled to enforce instrument
Sec. 301. "Person entitled to enforce" an instrument means:
(1) the holder of the instrument;
(2) a nonholder in possession of the instrument who has therights of a holder; or
(3) a person not in possession of the instrument who is entitledto enforce the instrument under IC 26-1-3.1-309 orIC 26-1-3.1-418(d).
A person may be a person entitled to enforce the instrument eventhough the person is not the owner of the instrument or is in wrongfulpossession of the instrument.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-302
Holder in due course
Sec. 302. (a) Subject to subsection (c) and IC 26-1-3.1-106(d),"holder in due course" means the holder of an instrument if:
(1) the instrument when issued or negotiated to the holder doesnot bear such apparent evidence of forgery or alteration or is nototherwise so irregular or incomplete as to call into question itsauthenticity; and
(2) the holder took the instrument:
(A) for value;
(B) in good faith;
(C) without notice that the instrument is overdue or has beendishonored or that there is an uncured default with respect topayment of another instrument issued as part of the sameseries;
(D) without notice that the instrument contains anunauthorized signature or has been altered;
(E) without notice of any claim to the instrument describedin IC 26-1-3.1-306; and
(F) without notice that any party has a defense or claim inrecoupment described in IC 26-1-3.1-305(a).
(b) Notice of discharge of a party, other than discharge in aninsolvency proceeding, is not notice of a defense under subsection(a), but discharge is effective against a person who became a holderin due course with notice of the discharge. Public filing or recordingof a document does not of itself constitute notice of a defense, claimin recoupment, or claim to the instrument.
(c) Except to the extent a transferor or predecessor in interest hasrights as a holder in due course, a person does not acquire rights ofa holder in due course of an instrument taken:
(1) by legal process or by purchase in an execution, bankruptcy,or creditor's sale or similar proceeding;
(2) by purchase as part of a bulk transaction not in ordinarycourse of business of the transferor; or
(3) as the successor in interest to an estate or other organization.
(d) If, under IC 26-1-3.1-303(a)(1), the promise of performancethat is the consideration for an instrument has been partiallyperformed, the holder may assert rights as a holder in due course ofthe instrument only to the fraction of the amount payable under theinstrument equal to the value of the partial performance divided bythe value of the promised performance.
(e) If:
(1) the person entitled to enforce an instrument has only asecurity interest in the instrument; and
(2) the person obliged to pay the instrument has a defense,claim in recoupment, or claim to the instrument that may beasserted against the person who granted the security interest;
the person entitled to enforce the instrument may assert rights as aholder in due course only to an amount payable under the instrumentwhich, at the time of enforcement of the instrument, does not exceed
the amount of the unpaid obligation secured.
(f) To be effective, notice must be received at a time and in amanner that gives a reasonable opportunity to act on it.
(g) This section is subject to any law limiting status as a holder indue course in particular classes of transactions.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-303
Value and consideration
Sec. 303. (a) An instrument is issued or transferred for value if:
(1) the instrument is issued or transferred for a promise ofperformance, to the extent the promise has been performed;
(2) the transferee acquires a security interest or other lien in theinstrument other than a lien obtained by judicial proceeding;
(3) the instrument is issued or transferred as payment of, or assecurity for, an antecedent claim against any person, whether ornot the claim is due;
(4) the instrument is issued or transferred in exchange for anegotiable instrument; or
(5) the instrument is issued or transferred in exchange for theincurring of an irrevocable obligation to a third party by theperson taking the instrument.
(b) "Consideration" means any consideration sufficient to supporta simple contract. The drawer or maker of an instrument has adefense if the instrument is issued without consideration. If aninstrument is issued for a promise of performance, the issuer has adefense to the extent performance of the promise is due and thepromise has not been performed. If an instrument is issued for valueas stated in subsection (a), the instrument is also issued forconsideration.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-304
Overdue instrument
Sec. 304. (a) An instrument payable on demand becomes overdueat the earliest of the following times:
(1) on the day after the day demand for payment is duly made;
(2) if the instrument is a check, ninety (90) days after its date;or
(3) if the instrument is not a check, when the instrument hasbeen outstanding for a period of time after its date which isunreasonably long under the circumstances of the particularcase in light of the nature of the instrument and usage of thetrade.
(b) With respect to an instrument payable at a definite time thefollowing rules apply:
(1) If the principal is payable in installments and a due date hasnot been accelerated, the instrument becomes overdue upondefault under the instrument for nonpayment of an installment,and the instrument remains overdue until the default is cured. (2) If the principal is not payable in installments and the duedate has not been accelerated, the instrument becomes overdueon the day after the due date.
(3) If a due date with respect to principal has been accelerated,the instrument becomes overdue on the day after the accelerateddue date.
(c) Unless the due date of principal has been accelerated, aninstrument does not become overdue if there is default in payment ofinterest but no default in payment of principal.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-305
Defenses and claims in recoupment
Sec. 305. (a) Except as otherwise provided in this section, theright to enforce the obligation of a party to pay an instrument issubject to the following:
(1) a defense of the obligor based on:
(A) infancy of the obligor to the extent it is a defense to asimple contract;
(B) duress, lack of legal capacity, or illegality of thetransaction which, under other law, nullifies the obligationof the obligor;
(C) fraud that induced the obligor to sign the instrument withneither knowledge nor reasonable opportunity to learn of itscharacter or its essential terms; or
(D) discharge of the obligor in insolvency proceedings;
(2) a defense of the obligor stated in another section ofIC 26-1-3.1 or a defense of the obligor that would be availableif the person entitled to enforce the instrument were enforcinga right to payment under a simple contract; and
(3) a claim in recoupment of the obligor against the originalpayee of the instrument if the claim arose from the transactionthat gave rise to the instrument, but the claim of the obligor maybe asserted against a transferee of the instrument only to reducethe amount owing on the instrument at the time the action isbrought.
(b) The right of a holder in due course to enforce the obligation ofa party to pay the instrument is subject to defenses of the obligorstated in subsection (a)(1), but is not subject to defenses of theobligor stated in subsection (a)(2) or claims in recoupment stated insubsection (a)(3) against a person other than the holder.
(c) Except as stated in subsection (d), in an action to enforce theobligation of a party to pay the instrument, the obligor may not assertagainst the person entitled to enforce the instrument a defense, claimin recoupment, or claim to the instrument (IC 26-1-3.1-306) ofanother person, but the other person's claim to the instrument may beasserted by the obligor if the other person is joined in the action andpersonally asserts the claim against the person entitled to enforce theinstrument. An obligor is not obliged to pay the instrument if theperson seeking enforcement of the instrument does not have rights of
a holder in due course and the obligor proves that the instrument isa lost or stolen instrument.
(d) In an action to enforce the obligation of an accommodationparty to pay an instrument, the accommodation party may assertagainst the person entitled to enforce the instrument any defense orclaim in recoupment under subsection (a) that the accommodatedparty could assert against the person entitled to enforce theinstrument, except the defenses of discharge in insolvencyproceedings, infancy, and lack of legal capacity.
(e) In a consumer transaction, if law other than this articlerequires that an instrument include a statement to the effect that therights of a holder or transferee are subject to a claim or defense thatthe issuer could assert against the original payee, and the instrumentdoes not include such a statement:
(1) the instrument has the same effect as if the instrumentincluded such a statement;
(2) the issuer may assert against the holder or transferee allclaims and defenses that would have been available if theinstrument included such a statement; and
(3) the extent to which claims may be asserted against theholder or transferee is determined as if the instrument includedsuch a statement.
(f) This section is subject to law other than this article thatestablishes a different rule for consumer transactions.
As added by P.L.222-1993, SEC.5. Amended by P.L.135-2009,SEC.6.
IC 26-1-3.1-306
Claims to an instrument
Sec. 306. A person taking an instrument, other than a personhaving rights of a holder in due course, is subject to a claim of aproperty or possessory right in the instrument or its proceeds,including a claim to rescind a negotiation and to recover theinstrument or its proceeds. A person having rights of a holder in duecourse takes free of the claim to the instrument.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-307
Notice of breach of fiduciary duty
Sec. 307. (a) In this section:
(1) "Fiduciary" means an agent, trustee, partner, corporateofficer or director, or other representative owing a fiduciaryduty with respect to an instrument.
(2) "Represented person" means the principal, beneficiary,partnership, corporation, or other person to whom the dutystated in subdivision (1) is owed.
(b) If (i) an instrument is taken from a fiduciary for payment orcollection or for value, (ii) the taker has knowledge of the fiduciarystatus of the fiduciary, and (iii) the represented person makes a claimto the instrument or its proceeds on the basis that the transaction of
the fiduciary is a breach of fiduciary duty, the following rules apply:
(1) Notice of breach of fiduciary duty by the fiduciary is noticeof the claim of the represented person.
(2) In the case of an instrument payable to the representedperson or the fiduciary as such, the taker has notice of thebreach of fiduciary duty if the instrument is:
(A) taken in payment of or as security for a debt known bythe taker to be the personal debt of the fiduciary;
(B) taken in a transaction known by the taker to be for thepersonal benefit of the fiduciary; or
(C) deposited to an account other than an account of thefiduciary, as such, or an account of the represented personand the bank receiving the deposit has:
(i) actual knowledge that the fiduciary is committing abreach of its obligation as fiduciary in making the deposit;or
(ii) knowledge of other facts that the bank's action inreceiving the deposit constitutes bad faith.
(3) If an instrument is issued by the represented person or thefiduciary as such, and made payable to the fiduciary personally,the taker does not have notice of the breach of fiduciary dutyunless the taker knows of the breach of fiduciary duty.
(4) If an instrument is issued by the represented person or thefiduciary as such, to the taker as payee, the taker has notice ofthe breach of fiduciary duty if the instrument is:
(A) taken in payment of or as security for a debt known bythe taker to be the personal debt of the fiduciary;
(B) taken in a transaction known by the taker to be for thepersonal benefit of the fiduciary; or
(C) deposited to an account other than an account of thefiduciary, as such, or an account of the represented personand the bank receiving the deposit has:
(i) actual knowledge that the fiduciary is committing abreach of its obligation as fiduciary in making the deposit;or
(ii) knowledge of other facts that the bank's action inreceiving the deposit constitutes bad faith.
As added by P.L.222-1993, SEC.5. Amended by P.L.129-1994,SEC.1.
IC 26-1-3.1-308
Proof of signatures and status as holder in due course
Sec. 308. (a) In an action with respect to an instrument, theauthenticity of, and authority to make, each signature on theinstrument is admitted unless specifically denied in the pleadings. Ifthe validity of a signature is denied in the pleadings, the burden ofestablishing validity is on the person claiming validity, but thesignature is presumed to be authentic and authorized unless theaction is to enforce the liability of the purported signer and the signeris dead or incompetent at the time of trial of the issue of validity of
the signature. If an action to enforce the instrument is brought againsta person as the undisclosed principal of a person who signed theinstrument as a party to the instrument, the plaintiff has the burdenof establishing that the defendant is liable on the instrument as arepresented person under IC 26-1-3.1-402(a).
(b) If the validity of signatures is admitted or proved and there iscompliance with subsection (a), a plaintiff producing the instrumentis entitled to payment if the plaintiff proves entitlement to enforcethe instrument under IC 26-1-3.1-301, unless the defendant proves adefense or claim in recoupment. If a defense or claim in recoupmentis proved, the right to payment of the plaintiff is subject to thedefense or claim, except to the extent the plaintiff proves that theplaintiff has rights of a holder in due course which are not subject tothe defense or claim.
As added by P.L.222-1993, SEC.5.
IC 26-1-3.1-309
Enforcement of lost, destroyed, or stolen instrument
Sec. 309. (a) A person not in possession of an instrument isentitled to enforce the instrument if:
(1) the person seeking to enforce the instrument:
(A) was entitled to enforce the instrument when loss ofpossession occurred; or
(B) has directly or indirectly acquired ownership of theinstrument from a person who was entitled to enforce theinstrument when loss of possession occurred;
(2) the loss of possession was not the result of a transfer by theperson or a lawful seizure; and
(3) the person cannot reasonably obtain possession of theinstrument because the instrument was destroyed, itswhereabouts cannot be determined, or it is in the wrongfulpossession 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 undersubsection (a) must prove the terms of the instrument and theperson's right to enforce the instrument. If that proof is made,IC 26-1-3.1-308 applies to the case as if the person see