                                 CODE OF VIRGINIA

DEFENSES AND CLAIMS IN RECOUPMENT (§ 8.3A-305)

a. Except as stated in subsection (b), 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 (i) infancy of the obligor to the extent
   it is a defense to a simple contract, (ii) duress, lack of legal capacity, or
   illegality of the transaction which, under other law, nullifies the obligation
   of the obligor, (iii) 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 (iv) discharge of the obligor in insolvency
   proceedings;

   2. a defense of the obligor stated in another section of this title 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 stated 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 (&#xA7; 8.3A-306) of another person, but the other person&#8217;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.

HISTORY: Code 1950, §§ 6-367, 6-368, 6-380 through 6-409, 6-411; 1964, c. 219,
§§ 8.3-305, 8.3-306; 1992, c. 693.