N.D. Cent. Code § 41-03-31
(3-305) Defenses and claims in recoupment
Redline — December 1, 2021 → current.View current text →
Current — January 1, 2022
As of December 1, 2021
(1) Except as stated in subsection 2, the right to enforce the obligation of a party to pay the instrument is subject to the following: A defense of the obligor based on infancy of the obligor to the extent it is a defense to a simple contract, duress, lack of legal capacity, or illegality of the transaction that nullifies the obligation of the obligor; fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms; and discharge of the obligor in insolvency proceedings.
(1) Except as stated in subsection 2, the right to enforce the obligation of a party to pay the instrument is subject to the following: A defense of the obligor based on infancy of the obligor to the extent it is a defense to a simple contract, duress, lack of legal capacity, or illegality of the transaction that nullifies the obligation of the obligor; fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms; and 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.
(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.
(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. 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.
(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. 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.
(4) 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 subdivision a of subsection 1, but is not subject to defenses of the obligor stated in subdivision b of subsection 1 or claims in recoupment stated in subdivision c of subsection 1 against a person other than the holder.
(4) 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 subdivision a of subsection 1, but is not subject to defenses of the obligor stated in subdivision b of subsection 1 or claims in recoupment stated in subdivision c of subsection 1 against a person other than the holder.
(5) 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 (section 41-03-32) 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.
(5) 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 (section 41-03-32) 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.
(6) In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert the person entitled to enforce the instrument any defense of 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, or lack of legal capacity.
(6) In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert the person entitled to enforce the instrument any defense of 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, or lack of legal capacity.
(7) Subsection (d) applies to instruments signed for accommodation (Section 3-419) and this subsection equates the obligation of the accommodation party to that of the accommodated party. The accommodation party can assert whatever defense or claim the accommodated party had against the person enforcing the instrument. The only exceptions are discharge in bankruptcy, infancy and lack of capacity. The same rule does not apply to an indorsement by a holder of the instrument in negotiating the instrument. The indorser, as transferor, makes a warranty to the indorsee, as transferee, that no defense or claim in recoupment is good against the indorser. Section 3-416(a)(4). Thus, if the indorsee sues the indorser because of dishonor of the instrument, the indorser may not assert the defense or claim in recoupment of the maker or drawer against the indorsee.
(8) Subsection (e) is added to clarify the treatment of an instrument that omits the notice currently required by the Federal Trade Commission Rule related to certain consumer credit sales and consumer purchase money loans (16 C.F.R. Part 433). This subsection adopts the view that the instrument should be treated as if the language required by the FTC Rule were present. It is based on the language describing that rule in Section 3-106(d) and the analogous provision in Section 9-404(d).
(9) Subsection (f) is modeled on Sections 9-403(e) and 9-404(c). It ensures that Section 3-305 is interpreted to accommodate relevant consumer-protection laws. The absence of such a provision from other sections in Article 3 should not justify any inference about the meaning of those sections.
(10) Articles 28 and 30 of the Convention on International Bills of Exchange and International Promissory Notes includes a similar dichotomy, with a narrower group of defenses available against a protected holder under Articles 28(1) and 30 than are available under Article 28(2) against a holder that is not a protected holder.
Official source: North Dakota Legislative Branch. Reproduced from public-domain North Dakota statutes; confirm against the official source for the current text. Not legal advice.