What rules apply if a holder of a negotiable instrument loses the instrument?

An obligor is generally only obligated to pay the instrument upon presentment. If an instrument is lost and has not been presented to the obligor for payment, the obligor may pay the instrument when the party losing the instrument requests payment (without actual presentment of the instrument). Paying the proper payee of a lost instrument will discharge the obligors duty to pay the instrument, including satisfying the obligor's obligations to other parties who may find the lost instrument. To be entitled to payment of a lost instrument, the payee losing the instrument must prove:

• Possession - She was in possession and entitled to enforce when instrument was lost;
• Accidental Loss - The loss was not the result of transfer or lawful seizure;
• Location Unknown - The instrument's location cannot be determined; and
• Instrument Terms - She must provide adequate evidence of the terms of instrument.

Even if these condition are met, the payee must provide adequate protection, such as a surety bond, to protect the payor in the event the instrument is wrongfully paid.

Note: State statutory or common law may provide a cause of action against and individual who has no property rights in an instrument but presents a lost instrument for payment. These state law protections are pursuant to property law and not part of the UCC.

Related Topics

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• Commercial Paper Funding Program
• What is Negotiability and why is it important?
• What is required for commercial paper to be negotiable?
• Sum Certain (Contracts)
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• What are the various types of indorsement?
• Bank Endorsement
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• What rules apply if a holder loses a negotiable instrument?
• When is payment of a negotiable instrument overdue?
• What effect does a negotiable instrument have on the underlying obligation?
• What is a holder in due course?
• What are the requirements for a holder to become a holder in due course?
• Receive an instrument for value?
• Receive an instrument in good faith?
• Receive an instrument without notice of a valid defense?
• How does discharge of the Underlying Obligation affect a holder in due course?
• What is the Shelter Rule?
• Can you limit a transferee from becoming a holder in due course?
• Personal Defenses?
• Real Defenses?
• What is a Claim in Recoupment?
• What are the rights of a holder in due course if the instrument involves a consumer transaction?
• What happens if a negotiable instrument is Forged?
• What happens if a negotiable instrument is Stolen?
• Guaranty or Guarantee
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• Surety 
  
• Cosign
• Accommodation Paper Definition
• Secondary Liability
• Avalize Definition
• What is an Accord & Satisfaction?
• What is primary and secondary liability on an instrument?
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• What is a warrantors liability for a dishonored note or draft?
• What is the time limitation for warranty of a negotiable instrument?
• When are the warranties of a negotiable instrument discharged?