(a) 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 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 Section 55-3-402(a) NMSA 1978.

(b) If the validity of signatures is admitted or proved and there is compliance with Subsection (a), a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under Section 55-3-301 NMSA 1978, 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.

History: 1978 Comp., § 55-3-308, enacted by Laws 1992, ch. 114, § 121.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

1. Section 3-308 [55-3-308 NMSA 1978] is a modification of former Section 3-307. The first two sentences of subsection (a) are a restatement of former Section 3-307(1). The purpose of the requirement of a specific denial in the pleadings is to give the plaintiff notice of the defendant's claim of forgery or lack of authority as to the particular signature, and to afford the plaintiff an opportunity to investigate and obtain evidence. If local rules of pleading permit, the denial may be on information and belief, or it may be a denial of knowledge or information sufficient to form a belief. It need not be under oath unless the local statutes or rules require verification. In the absence of such specific denial the signature stands admitted, and is not in issue. Nothing in this section is intended, however, to prevent amendment of the pleading in a proper case.

The question of the burden of establishing the signature arises only when it has been put in issue by specific denial. "Burden of establishing" is defined in Section 1-201 [55-1-201 NMSA 1978]. The burden is on the party claiming under the signature, but the signature is presumed to be authentic and authorized except as stated in the second sentence of subsection (a). "Presumed" is defined in Section 1-201 [55-1-201 NMSA 1978] and means that until some evidence is introduced which would support a finding that the signature is forged or unauthorized, the plaintiff is not required to prove that it is valid. The presumption rests upon the fact that in ordinary experience forged or authorized signatures are very uncommon, and normally any evidence is within the control of, or more accessible to, the defendant. The defendant is therefore required to make some sufficient showing of the grounds for the denial before the plaintiff is required to introduce evidence. The defendant's evidence need not be sufficient to require a directed verdict, but it must be enough to support the denial by permitting a finding in the defendant's favor. Until introduction of such evidence the presumption requires a finding for the plaintiff. Once such evidence is introduced the burden of establishing the signature by a preponderance of the total evidence is on the plaintiff. The presumption does not arise if the action is to enforce the obligation of a purported signer who has died or become incompetent before the evidence is required, and so is disabled from obtaining or introducing it. "Action" is defined in Section 1-201 [55-1-201 NMSA 1978] and includes a claim asserted against the estate of a deceased or an incompetent.

The last sentence of subsection (a) is a new provision that is necessary to take into account Section 3-402(a) [55-3-402 NMSA 1978] that allows an undisclosed principal to be liable on an instrument signed by an authorized representative. In that case the person enforcing the instrument must prove that the undisclosed principal is liable.

2. Subsection (b) restates former Section 3-307(2) and (3). Once signatures are proved or admitted a holder, by mere production of the instrument, proves "entitlement to enforce the instrument" because under Section 3-301 [55-3-301 NMSA 1978] a holder is a person entitled to enforce the instrument. Any other person in possession of an instrument may recover only if that person has the rights of a holder. Section 3-301 [55-3-301 NMSA 1978]. That person must prove a transfer giving that person such rights under Section 3-203(b) [55-3-203 NMSA 1978] or that such rights were obtained by subrogation or succession.

If a plaintiff producing the instrument proves entitlement to enforce the instrument, either as a holder or a person with rights of a holder, the plaintiff is entitled to recovery unless the defendant proves a defense or claim in recoupment. Until proof of a defense or claim in recoupment is made, the issue as to whether the plaintiff has rights of a holder in due course does not arise. In the absence of a defense or claim in recoupment, any person entitled to enforce the instrument is entitled to recover. If a defense or claim in recoupment is proved, the plaintiff may seek to cut off the defense or claim in recoupment by proving that the plaintiff is a holder in due course or that the plaintiff has rights of a holder in due course under Section 3-203(b) [55-3-203 NMSA 1978] or by subrogation or succession. All elements of Section 3-302(a) [55-3-302 NMSA 1978] must be proved.

Nothing in this section is intended to say that the plaintiff must necessarily prove rights as a holder in due course. The plaintiff may elect to introduce no further evidence, in which case a verdict may be directed for the plaintiff or the defendant, or the issue of the defense or claim in recoupment may be left to the trier of fact, according to the weight and sufficiency of the defendant's evidence. The plaintiff may elect to rebut the defense or claim in recoupment by proof to the contrary, in which case a verdict may be directed for either party or the issue may be for the trier of fact. Subsection (b) means only that if the plaintiff claims the rights of a holder in due course against the defense or claim in recoupment, the plaintiff has the burden of proof on that issue.

Effective dates. — Laws 1992, ch. 114, § 238 made the act effective July 1, 1992.

Holder's burden when maker shows fraud. — In a suit by the holder of a negotiable instrument acquired from the payee before maturity, where the maker shows fraud in the inception of the instrument, the burden is upon the holder to show that he acquired title to the paper in due course. Gebby v. Carrillo, 1918-NMSC-135, 25 N.M. 120, 177 P. 894 (decided under former law).

Valid indorsement. — Where plaintiff bank filed its initial complaint of foreclosure against defendant, attaching to the complaint a copy of a promissory note executed by defendant which was unindorsed and contained a title company stamp, and where plaintiff filed a second complaint for foreclosure after the initial complaint was voluntarily dismissed, attaching to the complaint a copy of a promissory note which contained a blank indorsement signed by an executive vice-president of the original mortgage lender, the district court did not err in concluding that the indorsement was valid where defendant failed to introduce any evidence to support a finding that the note's indorsement was either forged or unauthorized, and instead only presented her own speculation and inferences. Bank of N.Y. Mellon v. Luu, 2019-NMCA-053.

Law reviews. — For article, "Essential Attributes of Commercial Paper - Part I," see 1 N.M. L. Rev. 479 (1971).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 11 Am. Jur. 2d Bills and Notes § 333; 12 Am. Jur. 2d Bills and Notes §§ 1137, 1155, 1158, 1167, 1187, 1213, 1296, 1297, 1301, 1319.

Direction of verdict based on testimony of party or interested witness as to good faith of holder, 72 A.L.R. 61.

Taking negotiable paper in payment of pre-existing indebtedness as sustaining one's character as holder in due course, 80 A.L.R. 671.

10 C.J.S. Bills and Notes § 284 et seq.