Chapter 403

403.202(1)(b) (b) By fraud, duress or mistake.

403.202(1)(c) (c) In breach of duty or as part of an illegal transaction.

403.202(2) (2) To the extent permitted by other law, negotiation may be rescinded or may be subject to other remedies, but those remedies may not be asserted against a subsequent holder in due course or a person paying the instrument in good faith and without knowledge of facts that are a basis for rescission or other remedy.

403.202 History History: 1995 a. 449.

403.203 403.203 Transfer of instrument; rights acquired by transfer.

403.203(1) (1) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.

403.203(2) (2) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee may not acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.

403.203(3) (3) Unless otherwise agreed, if an instrument is transferred for value and the transferee does not become a holder because of lack of endorsement by the transferor, the transferee has a specifically enforceable right to the unqualified endorsement of the transferor, but negotiation of the instrument does not occur until the endorsement is made.

403.203(4) (4) If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this chapter and has only the rights of a partial assignee.

403.203 History History: 1995 a. 449.

403.204 403.204 Endorsement.

403.204(1) (1) “Endorsement” means a signature, other than that of a signer as maker, drawer or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of negotiating the instrument, restricting payment of the instrument or incurring the endorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an endorsement unless the accompanying words, terms of the instrument, place of the signature or other circumstances unambiguously indicate that the signature was made for a purpose other than endorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.

403.204(2) (2) “Endorser” means a person who makes an endorsement.

403.204(3) (3) For the purpose of determining whether the transferee of an instrument is a holder, an endorsement that transfers a security interest in the instrument is effective as an unqualified endorsement of the instrument.

403.204(4) (4) If an instrument is payable to a holder under a name that is not the name of the holder, endorsement may be made by the holder in the name stated in the instrument or in the holder’s name or both, but signature in both names may be required by a person paying or taking the instrument for value or collection.

403.204 History History: 1995 a. 449.

403.205 403.205 Special endorsement; blank endorsement; anomalous endorsement.

403.205(1) (1) If an endorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the endorsement identifies a person to whom it makes the instrument payable, it is a special endorsement. If specially endorsed, an instrument becomes payable to the identified person and may be negotiated only by the endorsement of that person. The principles stated in s. 403.110 apply to special endorsements.

403.205(2) (2) If an endorsement is made by the holder of an instrument and it is not a special endorsement, it is a blank endorsement. If endorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially endorsed.

403.205(3) (3) The holder may convert a blank endorsement that consists only of a signature into a special endorsement by writing, above the signature of the endorser, words identifying the person to whom the instrument is made payable.

403.205(4) (4) “Anomalous endorsement” means an endorsement made by a person who is not the holder of the instrument. An anomalous endorsement does not affect the manner in which the instrument may be negotiated.

403.205 History History: 1995 a. 449.

403.205 Annotation When the plaintiff was the bearer of a note that was endorsed in blank, the note was payable to the plaintiff under sub. (2). PNC Bank, N.A. v. Bierbrauer, 2013 WI App 11, 346 Wis. 2d 1, 827 N.W.2d 124, 12-0456.

403.205 Annotation Under sub. (2), a note endorsed in blank is payable to the bearer and is negotiated by transfer of possession alone. A plaintiff may not enforce a note endorsed in blank that is in the possession of another, including the entity that services the loan for the plaintiff. Bank of New York Mellon v. Klomsten, 2018 WI App 25, 381 Wis. 2d 218, 911 N.W.2d 364, 17-0405.

403.206 403.206 Restrictive endorsement.

403.206(1) (1) An endorsement limiting payment to a particular person or otherwise prohibiting further transfer or negotiation of the instrument is not effective to prevent further transfer or negotiation of the instrument.

403.206(2) (2) An endorsement stating a condition to the right of the endorsee to receive payment does not affect the right of the endorsee to enforce the instrument. A person paying the instrument or taking it for value or collection may disregard the condition, and the rights and liabilities of that person are not affected by whether the condition has been fulfilled.

403.206(3) (3) If an instrument bears an endorsement described in s. 404.201 (2), or an endorsement in blank or to a particular bank using the words “for deposit”, “for collection”, or other words indicating a purpose of having the instrument collected by a bank for the endorser or for a particular account, the following rules apply:

403.206(3)(a) (a) A person, other than a bank, who purchases the instrument when so endorsed converts the instrument unless the amount paid for the instrument is received by the endorser or applied consistently with the endorsement.

403.206(3)(b) (b) A depositary bank that purchases the instrument or takes it for collection when so endorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the endorser or applied consistently with the endorsement.

403.206(3)(c) (c) A payer bank that is also the depositary bank or that takes the instrument for immediate payment over the counter from a person other than a collecting bank converts the instrument unless the proceeds of the instrument are received by the endorser or applied consistently with the endorsement.

403.206(3)(d) (d) Except as otherwise provided in par. (c), a payer bank or intermediary bank may disregard the endorsement and is not liable if the proceeds of the instrument are not received by the endorser or applied consistently with the endorsement.

403.206(4) (4) Except for an endorsement covered by sub. (3), if an instrument bears an endorsement using words to the effect that payment is to be made to the endorsee as agent, trustee or other fiduciary for the benefit of the endorser or another person, the following rules apply:

403.206(4)(a) (a) Unless there is notice of breach of fiduciary duty as provided in s. 403.307, a person who purchases the instrument from the endorsee or takes the instrument from the endorsee for collection or payment may pay the proceeds of payment or the value given for the instrument to the endorsee without regard to whether the endorsee violates a fiduciary duty to the endorser.

403.206(4)(b) (b) A subsequent transferee of the instrument or person who pays the instrument is neither given notice nor otherwise affected by the restriction in the endorsement unless the transferee or payer knows that the fiduciary dealt with the instrument or its proceeds in breach of fiduciary duty.

403.206(5) (5) The presence on an instrument of an endorsement to which this section applies does not prevent a purchaser of the instrument from becoming a holder in due course of the instrument unless the purchaser is a converter under sub. (3) or has notice or knowledge of breach of fiduciary duty as stated in sub. (4).

403.206(6) (6) In an action to enforce the obligation of a party to pay the instrument, the obligor has a defense if payment would violate an endorsement to which this section applies and the payment is not permitted by this section.

403.206 History History: 1995 a. 449.

403.207 403.207 Reacquisition. Reacquisition of an instrument occurs if it is transferred to a former holder, by negotiation or otherwise. A former holder who reacquires the instrument may cancel endorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An endorser whose endorsement is canceled is discharged, and the discharge is effective against any subsequent holder.

403.207 History History: 1995 a. 449.

subch. III of ch. 403 SUBCHAPTER III

ENFORCEMENT OF INSTRUMENTS

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: