Eyes on Indorsement
By James McGuire © Copyright March 1, 2011 j.mcguire@swbell.net

The United States Court of Appeals, Third Circuit in re: Adams v Madison Realty & Development

The New York Supreme Court in re: Bayview Loan Servicing, LLC v Bozymowski 00296-2010

United States District Court for the Western District of Texas, Austin Division in re: Valerie Norwood v Chase Home Finance LLC

United States Bankruptcy Court, District of New Jersey in re: Kemp v Countrywide

SUPREME COURT OF NEW HAMPSHIRE in re: Grafton, No. 96-322 GEORGE T. HATHORN & a. v. WILLIAM R. LOFTUS

New Jersey version Uniform Commercial Code Texas version Uniform Commercial Code Tennessee version Uniform Commercial Code

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“Proper Party”
All courts require a party of interest be known before the courts can have jurisdiction. Foreclosure in judicial states provides a process where the proper parties should be before the court; however, in non-judicial states the protection of making sure the “correct parties” are executing a foreclosure action is not available unless the obligor challenges the foreclosure action in court.

“Indorsement”
The United States Court of Appeals, Third Circuit in re: Adams v Madison Realty & Development addressed negotiation by stating: Mere ownership or possession of a note is insufficient to qualify an individual as a "holder." The instrument must be obtained through a process the Code terms "negotiation," defined as "the transfer of an instrument in such form that the transferee becomes a holder." U.C.C. Sec. 3-202(1). … We are aware that section 3-201(3) grants a transferee for value a specifically enforceable right to have the unqualified indorsement of the transferor. However, actual "[n]egotiation takes effect only when the indorsement is made and until that time there is no presumption that the transferee is the owner." U.C.C. Sec. 3-201(3). The New York Supreme Court in re: Bayview Loan Servicing, LLC v Bozymowski 00296-2010 referenced the following: A plaintiff has standing to maintain the action only where the plaintiff is the proper assignee of the mortgage and the underlying note at the time the foreclosure action was commenced (U.S. Bank, N.A. v Collymore, 68 AD3d 752, 890 NYS2d 578 [2d Dept 2009]; Federal Natl. Mtge. Assn. v Youkelsone, 303 AD2d 546, 755 NYS2d 730 [2d Dept 2003]; Wells Fargo Bank, N.A. v Marchione, 69 AD3d 204, 887 NYS2d 615 [2d Dept 2009]; First Trust Natl. Assn. v Meisels, 234 AD2d 414, 651 N.Y.S.2d
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121 [2d Dept 1996]). It remains settled that foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity (U.S. Bank, N.A. v Collymore, supra; Kluge v Fugazy, /2011/02/28/nysc-orders-all-witnesses-to... 145 AD2d 537, 536 NYS2d 92 [2d Dept 1988]). Furthermore, a plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable interest (Wells Fargo Bank, N.A. v Marchione, supra; Katz v East-Ville Realty Co., 249 AD2d 243, 672 NYS2d 308 [1st Dept 1998]) The United States District Court for the Western District of Texas, Austin Division in re: Valerie Norwood v Chase Home Finance LLC notes:

Statutorily, the Texas Business and Commercial Code sets out an apparently straightforward list of four types of entities that may enforce an instrument: (1) a holder of the instrument, (2) a nonholder in possession of the instrument who has the rights of a holder, (3) a person not in possession of the instrument who is entitled to enforce it as a lost, destroyed, or stolen instrument, or (4) a person not in possession of an instrument from whom a prior payment on the instrument has been recovered. TEX. BUS. & COM. CODE §§ 3.301, 3.309, 3.418(d). … ("Mere possession of a note payable to the order of another is not sufficient evidence to prove that one is the holder or owner.") (citing RTC v. Camp, 965 F.2d 25, 29 (5th Cir. 1992)). The court emphasizes the importance of possession: "A transferee of a note who has not yet acquired possession of it is not the holder of the note and therefore does not have a holder's right to receive payment of the note." Id. at 4 n.13 (emphasis added). … Even without the "holder's right to receive payment," an owner may enforce a note. Id. at 4. But this requires a party to "prove the transaction through which the note was acquired." Id. (emphasis added). While these cases allow non-holders to enforce a note, they do not eliminate possession requirements. The rationale for the strict requirement of possession is to protect the obligor from being subject to multiple demands for payment on a single note. See Camp, 965 F.2d at 29 (explaining that mere possession is insufficient because a later party may demand payment). The United States Bankruptcy Court, District of New Jersey in re: Kemp v Countrywide provided the clear definition of what is required of negotiation to a subsequent holder:

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A "holder" is defined as "the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession." N.J.S.A. 12A:1-201(20). "Mere ownership or possession of a note is insufficient to qualify an individual as a 'holder'." Adams v. Madison Realty & Dev. Inc., 853 F.2d 163, 166 (3d Cir. 1988). Where, as here, the ownership of an instrument is transferred, the transferee's attainment of the status of "holder" depends on the negotiation of the instrument to the transferee. N.J.S.A. 12A:3-201(a). The two elements required for negotiation, both of which are missing here, are the transfer of possession of the instrument to the transferee, and its indorsement by the holder. N.J.S.A. 12A:3-201(b). … What we do know is that the note was purchased by the Bank of New York as Trustee, but never came into the physical possession of the Bank. Because the Bank of New York never had possession of the note, it can not qualify as a "holder" under the New Jersey UCC. See Dolin v. Darnall, 115 N.J.L. 508, 181 A. 201 (E&A 1935) ("Since the plaintiff was not 'in possession of the notes in question, he was neither the 'holder' nor the 'bearer' thereof. ").

The SUPREME COURT OF NEW HAMPSHIRE in re: Grafton, No. 96-322, GEORGE T. HATHORN & a. v. WILLIAM R. LOFTUS provides this comment: RSA 382-A:3-201 (1994) (proper negotiation for "holder" status requires indorsement)

“Holder - Negotiation by Indorsement”
The omission of indorsements upon the face of an allegedly negotiated promissory note does not reflect a proper negotiation of the note under the Texas Business and Commerce Code and fails to establish a proper chain of indorsement to assign either Holder in due course status with rights to enforce the Note or the Power of Sale clause in the Deed of Trust. Similarly, in a cursory review of the states’ equivalence of the Uniform Commercial Code notes the wording may vary from state to state, but the meanings are nearly identical. This writing contains excerpts of commercial laws for the states of New Jersey, Texas and Tennessee.
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“Conclusion”
Applying the requirements for indorsement appearing upon the face of the negotiable instrument allows transfer of enforcements rights, where failure to apply the requirements is sufficient to prohibit equitable action on the note. The lack of proper indorsements in utilizing an indorsement “in blank” causes a failure in identifying subsequent purchasers (Indorsers and Indorsees), thereby preventing further negotiation. These missing indorsements prevent the

negotiation required to attain Holder in due course status with rights of enforcement. Laws governing the Negotiable Instrument do allow the omission of indorsements to be cured. Importantly, the negotiable instrument (Note) is represented to all parties to be secured; however, the omission of identities on the note, in conjunction with state laws in transferring the security rights, has rendered the security a nullity and the Note unsecured. Regardless, the unsecured status cannot be cured even if the chain of indorsements is proved up to grant status as holder in due course.

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“Excerpts from States Statutes”
New Jersey version Uniform Commercial Code
12A:3‐104 Negotiable instrument   
 

    a.   Except as provided in subsections c. and d. of this section, "negotiable instrument" means  an unconditional promise or order to pay a fixed amount of money, with or without interest or  other charges described in the promise or order, if it:         (1)  is payable to bearer or to order at the time it is issued or first comes 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 the person promising or ordering  payment to do any act in addition to the payment of money, but the promise or order may  contain an undertaking or power to give, maintain, or protect collateral to secure payment, an  authorization or power to the holder to confess judgment or realize on or dispose of collateral,  or a waiver of the benefit of any law intended for the advantage or protection of an obligor.         b.   "Instrument" means a negotiable instrument.       c.   An order that meets all of the requirements of subsection a. of this section, except  paragraph (1), and otherwise falls within the definition of "check" in subsection f. of this section  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, it contains a conspicuous statement, however expressed, to  the effect that the promise or order is not negotiable or is not an instrument governed by this  chapter.         e.   An instrument is a "note" if it is a promise and is a "draft" if it is an order.  If an instrument  falls within the definition of both "note" and "draft," a person entitled to enforce the instrument  may treat it as either.         f.   "Check" means a draft, other than a documentary draft, payable on demand and drawn on  a bank or a cashier's check or teller's check.  An instrument may be a check even though it is  described on its face by another term, such as "money order."         g.   "Cashier's check" means a draft with respect to which the drawer and drawee are the same  Page | 6    

  bank or branches of the same bank.         h.   "Teller's check" means a draft drawn by a bank on another bank, or payable at or through a  bank.         i.   "Traveler's check" means an instrument that is payable on demand, is drawn on or payable  at or through a bank, is designated by the term "traveler's check" or by a substantially similar  term, and requires, as a condition to payment, a countersignature by a person whose specimen  signature appears on the instrument.         j.   "Certificate of deposit" means an instrument containing an acknowledgment by a bank that  a sum of money has been received by the bank and a promise by the bank to repay the sum of  money.  A certificate of deposit is a note of the bank.         L.1995,c.28,s.1. 

Texas version Uniform Commercial Code
Sec. 3.104. NEGOTIABLE INSTRUMENT.
(a) Except as provided in Subsections (c) and (d), "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: (1) is payable to bearer or to order at the time it is issued or first comes 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 the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain: (A) an undertaking or power to give, maintain, or protect collateral to secure payment; (B) an authorization or power to the holder to confess judgment or realize on or dispose of collateral; or (C) a waiver of the benefit of any law intended for the advantage 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, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this chapter. (e) An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within the definition of both "note" and "draft," a person entitled to enforce the instrument may treat it as either. (f) "Check" means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier's check or teller's check. An instrument may be a check even though it is described on its face by another term, such as "money order."

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(g) "Cashier's check" means a draft with respect to which the drawer 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 a substantially similar term; and (4) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument. (j) "Certificate of deposit" means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank. (k) Repealed by Acts 2007, 80th Leg., R.S., Ch. 427, Sec. 4, eff. September 1, 2007. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996; Acts 1997, 75th Leg., ch. 131, Sec. 2, eff. Sept. 1, 1997. Amended by: Acts 2007, 80th Leg., R.S., Ch. 427, Sec. 4, eff. September 1, 2007.

Tennessee version Uniform Commercial Code
47-3-104. Negotiable instrument. —
(a) Except as provided in subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: (1) Is payable to bearer or to order at the time it is issued or first comes 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 the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor. (b) “Instrument” means a negotiable instrument. (c) An order that meets all of the requirements of subsection (a), except paragraph (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, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this chapter.

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(e) An instrument is a “note” if it is a promise and is a “draft” if it is an order. If an instrument falls within the definition of both “note” and “draft,” a person entitled to enforce the instrument may treat it as either. (f) “Check” means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank, (ii) a cashier's check or teller's check, or (iii) a payee-initiated demand draft. An instrument may be a check even though it is described on its face by another term, such as “money order.” (g) “Cashier's check” means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank. (h) “Teller's check” means a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank. (i) “Traveler's check” means an instrument that (i) is payable on demand, (ii) is drawn on or payable at or through a bank, (iii) is designated by the term “traveler's check” or by a substantially similar term, and (iv) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument. (j) “Certificate of deposit” means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank. (k) “Payee-initiated demand draft” means a draft that is not signed by a customer, as defined in § 47-4104(5), and that is created by a third party under the purported authority of the customer for the purpose of charging the customer's account with a bank. A payee-initiated demand draft may contain any or all of the following: (1) The customer's printed or typewritten name or account number; (2) A notation that the customer authorized the draft; or (3) The statement “No signature required,” “Authorization on file,” “Signature on file,” or words to that effect. A payee-initiated demand draft shall not include a check purportedly drawn by and bearing the signature of a fiduciary, as defined in § 47-3-307(a)(1).

[Acts 1995, ch. 397, § 2; 2003, ch. 62, §§ 2, 3.]

New Jersey version Uniform Commercial Code
12A:3-201. Negotiation
a. "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. b. Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

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  L.1995,c.28,s.1.

Texas version Uniform Commercial Code
Sec. 3.201. NEGOTIATION.
(a) "Negotiation" means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. (b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996.

Tennessee version Uniform Commercial Code
47-3-201. Negotiation. —
(a) “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. (b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its endorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone. [Acts 1995, ch. 397, § 2.]

New Jersey version Uniform Commercial Code
12A:3-301 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 pursuant to 12A:3-309 or subsection d. of 12A:3-418. 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. L.1995,c.28,s.

Texas version Uniform Commercial Code
3.301. PERSON ENTITLED TO ENFORCE INSTRUMENT
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"Person entitled to enforce" an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3.309 or 3.418(d). 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. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996.

Tennessee version Uniform Commercial Code
47-3-301. Person entitled to enforce instrument. —
“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to § 47-3-309 or § 47-3-418(d). 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. [Acts 1995, ch. 397, § 2.]

New Jersey version Uniform Commercial Code
12A:3-309 Enforcement of lost, destroyed, or stolen instrument
a. A person not in possession of an instrument is entitled to enforce the instrument if the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, the loss of possession was not the result of a transfer by the person or a lawful seizure, and 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. b. A person seeking enforcement of an instrument under subsection a. of this section must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, 12A:3-308 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. L.1995,c.28,s.1.

Texas version Uniform Commercial Code
Sec. 3.309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN INSTRUMENT.
(a) A person who is not in possession of an instrument is entitled to enforce the instrument if: (1) the person seeking to enforce the instrument: (A) was entitled to enforce the instrument when loss of possession occurred; or (B) has directly or indirectly acquired ownership of the instrument from a person

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who was entitled to enforce the instrument when loss of possession occurred; (2) the loss of possession was not the result of a transfer by the person or a lawful seizure; and (3) 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. (b) A person seeking enforcement of an instrument under Subsection (a) must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, Section 3.308 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. Added by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996. Amended by: Acts 2005, 79th Leg., Ch. 95, Sec. 6, eff. September 1, 2005.

Tennessee version Uniform Commercial Code
47-3-309. Enforcement of lost, destroyed, or stolen instrument. —
(a) A person not in possession of an instrument is entitled to enforce the instrument if: (1) The person seeking to enforce the instrument: (A) Was entitled to enforce the instrument when loss of possession occurred; or (B) Has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred; (2) The loss of possession was not the result of a transfer by the person or a lawful seizure; or (3) 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 amendable to service of process. (b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, § 47-3-308 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. [Acts 1995, ch. 397, § 2; 2003, ch. 62, § 23.]

New Jersey version Uniform Commercial Code
12A:3-418. Payment or acceptance by mistake
a. Except as provided in subsection c. of this section, if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief that payment of the draft had not been stopped pursuant to 12A:4-403 or the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draft from the person to whom
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or for whose benefit payment was made or, in the case of acceptance, may revoke the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to exercise ordinary care in paying or accepting the draft. b. Except as provided in subsection c. of this section, if an instrument has been paid or accepted by mistake and the case is not covered by subsection a. of this section, the person paying or accepting may, to the extent permitted by the law governing mistake and restitution, recover the payment from the person to whom or for whose benefit payment was made or in the case of acceptance, may revoke the acceptance. c. The remedies provided by subsection a. or b. of this subsection may not be asserted against a person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance. This subsection does not limit remedies provided by 12A:3-417 or 12A:4-407. d. Notwithstanding 12A:4-215, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or revokes acceptance under subsection a. or b. of this section, the instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument. L.1995,c.28,s.1.

Texas version Uniform Commercial Code
Sec. 3.418. PAYMENT OR ACCEPTANCE BY MISTAKE.
(a) Except as provided in Subsection (c), if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief that (i) payment of the draft had not been stopped pursuant to Section 4.403, or (ii) the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draft from the person to whom or for whose benefit payment was made or, in the case of acceptance, may revoke the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to exercise ordinary care in paying or accepting the draft. (b) Except as provided in Subsection (c), if an instrument has been paid or accepted by mistake and the case is not covered by Subsection (a), the person paying or accepting may, to the extent permitted by the law governing mistake and restitution: (1) recover the payment from the person to whom or for whose benefit payment was made; or (2) in the case of acceptance, revoke the acceptance. (c) The remedies provided by Subsection (a) or (b) may not be asserted against a person who took the instrument in good faith and for value or who in good faith changed
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position in reliance on the payment or acceptance. This subsection does not limit remedies provided by Section 3.417 or 4.407. (d) Notwithstanding Section 4.215, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or revokes acceptance under Subsection (a) or (b), the instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996.

Tennessee version Uniform Commercial Code
47-3-418. Payment or acceptance by mistake. —
(a) Except as provided in subsection (c), if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief that (i) payment of the draft had not been stopped pursuant to § 47-4-403 or (ii) the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draft from the person to whom or for whose benefit payment was made or, in the case of acceptance, may revoke the acceptance. Rights of the drawee under this subsection are not affected by failure of the drawee to exercise ordinary care in paying or accepting the draft. (b) Except as provided in subsection (c), if an instrument has been paid or accepted by mistake and the case is not covered by subsection (a), the person paying or accepting may, to the extent permitted by the law governing mistake and restitution, (i) recover the payment from the person to whom or for whose benefit payment was made or (ii) in the case of acceptance, may revoke the acceptance. (c) The remedies provided by subsection (a) or (b) may not be asserted against a person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance. This subsection does not limit remedies provided by § 47-3-417 or § 47-4-407. (d) Notwithstanding § 47-4-215, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or revokes acceptance under subsection (a) or (b), the instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument. [Acts 1995, ch. 397, § 2.]

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