Chapter 403

403.301 403.301 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 under s. 403.309 or 403.418 (4). 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.

403.301 History History: 1995 a. 449.

403.301 Annotation Possession of the original note by counsel for the foreclosing bank in counsel’s capacity as legal representative of the bank does not impair the bank’s status as bearer. When counsel presents the original note to the circuit court, counsel is not acting to enforce the note himself, but on behalf of the client. Deutsche Bank National Trust Company v. Wuensch, 2018 WI 35, 380 Wis. 2d 727, 911 N.W.2d 1, 15-0175. See also Federal National Mortgage Association v. Thompson, 2018 WI 57, 381 Wis. 2d 609, 912 N.W.2d 364, 16-1496.

403.302 403.302 Holder in due course.

403.302(1) (1) Subject to sub. (3) and s. 403.106 (4), “holder in due course” means the holder of an instrument if all of the following apply:

403.302(1)(a) (a) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity.

403.302(1)(b) (b) The holder took the instrument:

403.302(1)(b)1. 1. For value;

403.302(1)(b)2. 2. In good faith;

403.302(1)(b)3. 3. Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series;

403.302(1)(b)4. 4. Without notice that the instrument contains an unauthorized signature or has been altered;

403.302(1)(b)5. 5. Without notice of any claim to the instrument described in s. 403.306; and

403.302(1)(b)6. 6. Without notice that any party has a defense or claim in recoupment described in s. 403.305 (1).

403.302(2) (2) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under sub. (1), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment or claim to the instrument.

403.302(3) (3) Except to the extent that a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken in any of the following ways:

403.302(3)(a) (a) By legal process or by purchase in an execution, bankruptcy or creditor’s sale or similar proceeding.

403.302(3)(b) (b) By purchase as part of a bulk transaction not in ordinary course of business of the transferor.

403.302(3)(c) (c) As the successor in interest to an estate or other organization.

403.302(4) (4) If under s. 403.303 (1) (a) the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

403.302(5) (5) If the person entitled to enforce an instrument has only a security interest in the instrument and the person obliged to pay the instrument has a defense, claim in recoupment or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

403.302(6) (6) To be effective, notice shall be received at a time and in a manner that gives a reasonable opportunity to act on it.

403.302(7) (7) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

403.302 History History: 1995 a. 449.

403.302 Annotation A creditor bank was not a holder in due course as to a contractor’s checks because the bank, having canceled the checks received from the contractor and presumably having returned them to the contractor on whose account they were drawn, was not “in possession.” Schneider Fuel v. West Allis State Bank, 70 Wis. 2d 1041, 236 N.W.2d 266 (1975).

403.302 Annotation A holder in due course is not subject to a common law conversion claim. United Catholic Parish Schools of Beaver Dam v. Card Services Center, 2001 WI App 229, 248 Wis. 2d 463, 636 N.W.2d 206, 00-2029.

403.303 403.303 Value and consideration.

403.303(1) (1) An instrument is issued or transferred for value if any of the following applies:

403.303(1)(a) (a) The instrument is issued or transferred for a promise of performance, to the extent that the promise has been performed.

403.303(1)(b) (b) The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding.

403.303(1)(c) (c) The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due.

403.303(1)(d) (d) The instrument is issued or transferred in exchange for a negotiable instrument.

403.303(1)(e) (e) The instrument is issued or transferred in exchange for incurring an irrevocable obligation to a 3rd party by the person taking the instrument.

403.303(2) (2) “Consideration” means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent that performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in sub. (1), the instrument is also issued for consideration.

403.303 History History: 1995 a. 449.

403.304 403.304 Overdue instrument.

403.304(1) (1) An instrument payable on demand becomes overdue at the earliest of the following times:

403.304(1)(a) (a) On the day after the day on which demand for payment is duly made.

403.304(1)(b) (b) If the instrument is a check, 90 days after its date.

403.304(1)(c) (c) If the instrument is not a check, when the instrument has been outstanding for a period of time after its date which is unreasonably long under the circumstances of the particular case in light of the nature of the instrument and usage of the trade.

403.304(2) (2) With respect to an instrument payable at a definite time the following rules apply:

403.304(2)(a) (a) If the principal is payable in installments and a due date has not been accelerated, the instrument becomes overdue upon default under the instrument for nonpayment of an installment, and the instrument remains overdue until the default is cured.

403.304(2)(b) (b) If the principal is not payable in installments and the due date has not been accelerated, the instrument becomes overdue on the day after the due date.

403.304(2)(c) (c) If a due date with respect to principal has been accelerated, the instrument becomes overdue on the day after the accelerated due date.

403.304(3) (3) Unless the due date of principal has been accelerated, an instrument does not become overdue if there is default in payment of interest but no default in payment of principal.

403.304 History History: 1995 a. 449.

403.305 403.305 Defenses and claims in recoupment.

403.305(1) (1) Except as stated in sub. (2), the right to enforce the obligation of a party to pay an instrument is subject to the following:

403.305(1)(a) (a) A defense of the obligor based on any of the following:

403.305(1)(a)1. 1. Infancy of the obligor to the extent that it is a defense to a simple contract.

403.305(1)(a)2. 2. Duress, lack of legal capacity or illegality of the transaction which, under other law, nullifies the obligation of the obligor.

403.305(1)(a)3. 3. Fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms.

403.305(1)(a)4. 4. Discharge of the obligor in insolvency proceedings.

403.305(1)(b) (b) 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.

403.305(1)(c) (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 that the action is brought.

403.305(2) (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 sub. (1) (a), but is not subject to defenses of the obligor stated in sub. (1) (b) or claims in recoupment stated in sub. (1) (c) against a person other than the holder.

403.305(3) (3) Except as stated in sub. (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, a claim in recoupment or a claim to the instrument under s. 403.306 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.

403.305(4) (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 sub. (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.

403.305 History History: 1995 a. 449.

403.305 Annotation Extending immediate credit on a deposited check was not contrary to reasonable commercial standards of fair dealing when the account owner had always deposited funds to cover previous overdrafts when alerted to the problem and the bank had no reason to suspect there would be a problem if immediate credit was extended. Consequently, the bank was a holder in due course who had the right to recover its losses from the check’s issuer who had stopped payment. Mid Wisconsin Bank v. Forsgard Trading, Inc. 2003 WI App 186, 266 Wis. 2d 685, 668 N.W.2d 830, 03-0123.

403.306 403.306 Claims to an instrument. A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.

403.306 History History: 1995 a. 449.

403.307 403.307 Notice of breach of fiduciary duty.

403.307(1) (1) In this section:

403.307(1)(a) (a) “Fiduciary” means an agent, trustee, partner, corporate officer or director or other representative owing a fiduciary duty with respect to an instrument.

403.307(1)(b) (b) “Represented person” means the principal, beneficiary, partnership, corporation or other person to whom the duty stated in par. (a) is owed.

403.307(2) (2) If an instrument is taken from a fiduciary for payment or collection or for value, the taker has knowledge of the fiduciary status of the fiduciary and the represented person makes a claim to the instrument or its proceeds on the basis that the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply:

403.307(2)(a) (a) Notice of breach of fiduciary duty by the fiduciary is notice of the claim of the represented person.

403.307(2)(b) (b) In the case of an instrument payable to the represented person or the fiduciary as such, the taker has notice of the breach of fiduciary duty if the instrument is taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary or is taken in a transaction known by the taker to be for the personal benefit of the fiduciary.

403.307(2)(c) (c) If an instrument is issued by the represented person or the fiduciary as such, and made payable to the fiduciary personally, the taker does not have notice of the breach of fiduciary duty unless the taker knows of the breach of fiduciary duty.

403.307(2)(d) (d) If an instrument is issued by the represented person or the fiduciary as such to the taker as payee, the taker has notice of the breach of fiduciary duty if the instrument is taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary or is taken in a transaction known by the taker to be for the personal benefit of the fiduciary.

403.307 History History: 1995 a. 449.

403.308 403.308 Proof of signatures and status as holder in due course.

403.308(1) (1) In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or adjudicated incompetent at the time of trial of the issue of validity of the signature. If an action to enforce the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument, the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person under s. 403.402 (1).

403.308(2) (2) If the validity of signatures is admitted or proved and there is compliance with sub. (1), a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under s. 403.301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim.

403.308 History History: 1995 a. 449; 2005 a. 387.

403.309 403.309 Enforcement of lost, destroyed or stolen instrument.

403.309(1) (1) A person not in possession of an instrument is entitled to enforce the instrument if all of the following apply:

403.309(1)(a) (a) The person was in possession of the instrument and entitled to enforce it when loss of possession occurred.

403.309(1)(b) (b) The loss of possession was not the result of a transfer by the person or a lawful seizure.

403.309(1)(c) (c) 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.

403.309(2) (2) A person seeking enforcement of an instrument under sub. (1) shall prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, s. 403.308 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.

403.309 History History: 1995 a. 449.

403.310 403.310 Effect of instrument on obligation for which taken.

403.310(1) (1) Unless otherwise agreed, if a certified check, cashier’s check or teller’s check is taken for an obligation, the obligation is discharged to the same extent that discharge would result if an amount of money equal to the amount of the instrument were taken in payment of the obligation. Discharge of the obligation does not affect any liability that the obligor may have as an endorser of the instrument.

403.310(2) (2) Unless otherwise agreed and except as provided in sub. (1), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent that the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply:

403.310(2)(a) (a) In the case of an uncertified check, suspension of the obligation continues until dishonor of the check or until it is paid or certified. Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check.

403.310(2)(b) (b) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in discharge of the obligation to the extent of the payment.

403.310(2)(c) (c) Except as provided in par. (d), if the check or note is dishonored and the obligee of the obligation for which the instrument was taken is the person entitled to enforce the instrument, the obligee may enforce either the instrument or the obligation. In the case of an instrument of a 3rd person which is negotiated to the obligee by the obligor, discharge of the obligor on the instrument also discharges the obligation.

403.310(2)(d) (d) If the person entitled to enforce the instrument taken for an obligation is a person other than the obligee, the obligee may not enforce the obligation to the extent that the obligation is suspended. If the obligee is the person entitled to enforce the instrument but no longer has possession of it because it was lost, stolen or destroyed, the obligation may not be enforced to the extent of the amount payable on the instrument, and to that extent the obligee’s rights against the obligor are limited to enforcement of the instrument.