Defenses. James Balkus died without leaving a will. A few days later, Ann Vesely, his sister, discovered in his personal effects two promissory notes made payable to her in the amount of $6,000. She presented the notes to the Security First National

Question

Bank of Sheboygan Trust Department, the personal representative for the estate of Balkus, for payment. The personal representative refused to pay the notes, claiming that Vesely was not a holder in due course and that nondelivery of the notes to her was a proper defense. The trial court upheld the personal representative's claim, and Vesely appealed. Discuss whether nondelivery is a proper defense against Vesely.

Answer 1

Defenses
The court held that nondelivery was a proper defense against Vesely because Vesely was not a holder in due course. To be a holder in due course the holder must take the instrument without notice of a claim or defense to it. Here, as "payee of the notes, Vesely necessarily had notice and knowledge of the personal representative's defense of nondelivery because the notes were never delivered to her." Since Vesely was not to be a holder in due course, she takes the notes subject to any defense asserted by the personal representative. The court held that the nondelivery was a personal defense, and the personal representative was not obligated to pay the notes.