Tex. Bus. & Com. Code Section 3.305
Defenses and Claims in Recoupment


(a)

Except as otherwise provided in this section, the right to enforce the obligation of a party to pay an instrument is subject to the following:

(1)

a defense of the obligor based on:

(A)

infancy of the obligor to the extent it is a defense to a simple contract;

(B)

duress, lack of legal capacity, or illegality of the transaction that, under other law, nullifies the obligation of the obligor;

(C)

fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms; or

(D)

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; and

(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; 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 the action is brought.

(b)

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 Subsection (a)(1), but is not subject to defenses of the obligor stated in Subsection (a)(2) or claims in recoupment stated in Subsection (a)(3) against a person other than the holder.

(c)

Except as provided in Subsection (d), 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 3.306 (Claims to an Instrument)) 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.

(d)

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 Subsection (a) 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.

(e)

In a consumer transaction, if law other than this chapter requires that an instrument include a statement to the effect that the rights of a holder or transferee are subject to a claim or defense that the issuer could assert against the original payee, and the instrument does not include such a statement:

(1)

the instrument has the same effect as if the instrument included such a statement;

(2)

the issuer may assert against the holder or transferee all claims and defenses that would have been available if the instrument included such a statement; and

(3)

the extent to which claims may be asserted against the holder or transferee is determined as if the instrument included such a statement.
If an instrument includes or is deemed to include a statement under this subsection, a holder or transferee who is liable under the statement to the issuer, but who is not the seller of the goods or services, shall be entitled to full indemnity from the seller for any liability under the statement incurred by the holder or transferee that results from the issuer’s claims or defenses against the seller, plus reasonable attorney’s fees. The provision in this section for express indemnity does not affect any right of indemnity, subrogation, or recovery to which a holder or transferee may be entitled under any rule, written contract, judicial decision, or other statute. This section is not intended to provide a holder or transferee indemnity from the seller with respect to the holder or transferee’s direct liability to the issuer for the holder or transferee’s own actionable misconduct unrelated to derivative liability under the statement.

(f)

This section is subject to law other than this chapter that establishes a different rule for consumer transactions.
Amended by Acts 1995, 74th Leg., ch. 921, Sec. 1, eff. Jan. 1, 1996.
Amended by:
Acts 2005, 79th Leg., Ch. 95 (S.B. 1563), Sec. 5, eff. September 1, 2005.

Source: Section 3.305 — Defenses and Claims in Recoupment, https://statutes.­capitol.­texas.­gov/Docs/BC/htm/BC.­3.­htm#3.­305 (accessed Mar. 23, 2024).

3.101
Short Title
3.102
Subject Matter
3.103
Definitions
3.104
Negotiable Instrument
3.105
Issue of Instrument
3.106
Unconditional Promise or Order
3.107
Instrument Payable in Foreign Money
3.108
Payable on Demand or at Definite Time
3.109
Payable to Bearer or to Order
3.110
Identification of Person to Whom Instrument Is Payable
3.111
Place of Payment
3.112
Interest
3.113
Date of Instrument
3.114
Contradictory Terms of Instrument
3.115
Incomplete Instrument
3.116
Joint and Several Liability
3.117
Other Agreements Affecting Instrument
3.118
Statute of Limitations
3.119
Notice of Right to Defend Action
3.201
Negotiation
3.202
Negotiation Subject to Rescission
3.203
Transfer of Instrument
3.204
Indorsement
3.205
Special Indorsement
3.206
Restrictive Indorsement
3.207
Reacquisition
3.301
Person Entitled to Enforce Instrument
3.302
Holder in Due Course
3.303
Value and Consideration
3.304
Overdue Instrument
3.305
Defenses and Claims in Recoupment
3.306
Claims to an Instrument
3.307
Notice of Breach of Fiduciary Duty
3.308
Proof of Signatures and Status as Holder in Due Course
3.309
Enforcement of Lost, Destroyed, or Stolen Instrument
3.310
Effect of Instrument on Obligation for Which Taken
3.311
Accord and Satisfaction by Use of Instrument
3.312
Lost, Destroyed, or Stolen Cashier’s Check, Teller’s Check, or Certified Check
3.401
Signature
3.402
Signature by Representative
3.403
Unauthorized Signature
3.404
Impostors
3.405
Employer’s Responsibility for Fraudulent Indorsement by Employee
3.406
Negligence Contributing to Forged Signature or Alteration of Instrument
3.407
Alteration
3.408
Drawee Not Liable on Unaccepted Draft
3.409
Acceptance of Draft
3.410
Acceptance Varying Draft
3.411
Refusal to Pay Cashier’s Checks, Teller’s Checks, and Certified Checks
3.412
Obligation of Issuer of Note or Cashier’s Check
3.413
Obligation of Acceptor
3.414
Obligation of Drawer
3.415
Obligation of Indorser
3.416
Transfer Warranties
3.417
Presentment Warranties
3.418
Payment or Acceptance by Mistake
3.419
Instruments Signed for Accommodation
3.420
Conversion of Instrument
3.501
Presentment
3.502
Dishonor
3.503
Notice of Dishonor
3.504
Excused Presentment and Notice of Dishonor
3.505
Evidence of Dishonor
3.506
Processing Fee by Holder of Payment Device
3.507
Delivery Notification Fee by Holder of Check or Similar Sight Order
3.601
Discharge and Effect of Discharge
3.602
Payment
3.603
Tender of Payment
3.604
Discharge by Cancellation or Renunciation
3.605
Discharge of Secondary Obligors

Accessed:
Mar. 23, 2024

§ 3.305’s source at texas​.gov