COMMITTEE SUBSTITUTE
FOR
H. B. 2494
(By Delegate Pethtel)
[Originating in the House Committee on the Judiciary]
[March 26, 1993]
A BILL to amend and reenact sections two hundred one and two
hundred seven, article one, chapter forty-six of the code of
West Virginia, one thousand nine hundred thirty-one, as
amended; and to amend and reenact articles three and four of
said chapter, all relating generally to negotiable
instruments; providing definitions; excepting accord and
satisfaction from effect of reservation of rights; providing
for application of article and rules for resolving
inconsistent provisions of law; providing rules for
construing instruments; providing that instruments are not
payable with interest unless provision for interest is
stated in the instrument; providing rules for determining
when a postdated instrument is payable; providing
contribution rules for liable multiple parties to an
instrument; providing statute of limitations; notice of
right to defend action; negotiation, transfer and
involvement of instruments; reacquisition of an instrument;
persons entitled to enforce instrument; holders in due
course; when instrument is transferred for value or
consideration; defenses to the obligation of a party to pay
an instrument; rules for notices; claims of property or
possessory right in an instrument; enforcement of lost,
destroyed, or stolen instruments; effect of instruments on
obligations; rules for determining when a person is
obligated on an instrument; rules for determining when
signature on an instrument is given effect; acceptance of
instruments; obligations of parties issuing, accepting,
drawing, or indorsing certain instruments; establishing
burden of proof for signatures on an instrument; providing
for certain warranties with respect to an instrument;
damages upon an obligated bank's refusal to pay certain
instruments; instruments signed for accommodation;
conversion of instrument; presentment; dishonor; notice of
dishonor; discharge and effect of discharge; payment; tender
of payment; bank deposits and collections; electronic
presentment; agreements for electronic presentment;
permitting presentment by transmission of an image of an
item or encoded information rather than the item itself;
statute of limitations; depository bank holder of
unindorsed item; transfer, presentment, and encoding and
retention warranties; time of determining insufficiency of
account; permitting statements of bank accounts sufficient
to permit customer to reasonably identify items paid when
bank retains items for seven years.
Be it enacted by the Legislature of West Virginia:
That sections two hundred one and two hundred seven, article
one, chapter forty-six of the code of West Virginia, one thousandnine hundred thirty-one, as amended, be amended and reenacted;
and that articles three and four of said chapter be amended and
reenacted, all to read as follows:
ARTICLE 1. GENERAL PROVISIONS.
PART 2. GENERAL DEFINITIONS AND PRINCIPLES OF INTERPRETATION.
§46-1-201. General definitions.
Subject to additional definitions contained in the
subsequent articles of this chapter which are applicable to
specific articles or parts thereof, and unless the context
otherwise requires, in this chapter:
(1) "Action" in the sense of a judicial proceeding includes
recoupment, counterclaim, setoff, suit in equity and any other
proceedings in which rights are determined.
(2) "Aggrieved party" means a party entitled to resort to a
remedy.
(3) "Agreement" means the bargain of the parties in fact as
found in their language or by implication from other
circumstances including course of dealing or usage of trade or
course of performance as provided in this chapter (sections 1-205
and 2-208). Whether an agreement has legal consequences is
determined by the provisions of this chapter, if applicable;
otherwise by the law of contracts (section 1-103). (Compare
"Contract.")
(4) "Bank" means any person engaged in the business of
banking.
(5) "Bearer" means the person in possession of an
instrument, document of title, or certificated security payable
to bearer or indorsed in blank.
(6) "Bill of lading" means a document evidencing the receipt
of goods for shipment issued by a person engaged in the business
of transporting or forwarding goods, and includes an airbill.
"Airbill" means a document serving for air transportation as a
bill of lading for marine or rail transportation, and includes an
air consignment note or air waybill.
(7) "Branch" includes a separately incorporated foreign
branch of a bank.
(8) "Burden of establishing" a fact means the burden of
persuading the triers of fact that the existence of the fact is
more probable than its nonexistence.
(9) "Buyer in ordinary course of business" means a person
who in good faith and without knowledge that the sale to him is
in violation of the ownership rights or security interest of a
third party in the goods buys in ordinary course from a person in
the business of selling goods of that kind but does not include
a pawnbroker. All persons who sell minerals or the like
(including oil and gas) at wellhead or minehead shall be deemed
to be persons in the business of selling goods of that kind.
"Buying" may be for cash or by exchange of other property or on
secured or unsecured credit and includes receiving goods or
documents of title under a preexisting contract for sale but does
not include a transfer in bulk or as security for or in total or
partial satisfaction of a money debt.
(10) "Conspicuous" means a term or clause is conspicuous
when it is so written that a reasonable person against whom it is
to operate ought to have noticed it. A printed heading in
capitals (as: NONNEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is "conspicuous" if it is in
larger or other contrasting type or color. But in a telegram any
stated term is "conspicuous." Whether a term or clause is
"conspicuous" or not is for decision by the court.
(11) "Contract" means the total legal obligation which
results from the parties' agreement as affected by this chapter
and any other applicable rules of law. (Compare "Agreement.")
(12) "Creditor" includes a general creditor, a secured
creditor, a lien creditor and any representative of creditors,
including an assignee for the benefit of creditors, a trustee in
bankruptcy, a receiver in equity and an executor or administrator
of an insolvent debtor's or assignor's estate.
(13) "Defendant" includes a person in the position of
defendant in a cross action or counterclaim.
(14) "Delivery" with respect to instruments, documents of
title, chattel paper or certificated securities means voluntary
transfer of possession.
(15) "Document of title" includes bill of lading, dock
warrant, dock receipt, warehouse receipt or order for the
delivery of goods, and also any other document which in the
regular course of business or financing is treated as adequately
evidencing that the person in possession of it is entitled to
receive, hold and dispose of the document and the goods it
covers. To be a document of title a document must purport to be
issued by or addressed to a bailee and purport to cover goods in
the bailee's possession which are either identified or are
fungible portions of an identified mass.
(16) "Fault" means wrongful act, omission or breach.
(17) "Fungible" with respect to goods or securities means
goods or securities of which any unit is, by nature or usage of
trade, the equivalent of any other like unit. Goods which are
not fungible shall be deemed fungible for the purposes of this
chapter to the extent that under a particular agreement or
document unlike units are treated as equivalents.
(18) "Genuine" means free of forgery or counterfeiting.
(19) "Good faith" means honesty in fact in the conduct or
transaction concerned.
(20) "Holder" means a person who is in possession of a
document of title or an instrument or a certificated investment
security drawn, issued or endorsed to him or to his order or to
bearer or in blank with respect to a negotiable instrument means
the person in possession if the instrument is payable to bearer
or, in the case of an instrument payable to an identified person,
if the identified person is in possession. "Holder" with respect
to a document of title means the person in possession if the
goods are deliverable to the bearer or to the order of the person
in possession.
(21) To "honor" is to pay or to accept and pay, or where a
credit so engages to purchase or discount a draft complying with
the terms of the credit.
(22) "Insolvency proceedings" includes any assignment for
the benefit of creditors or other proceedings intended to
liquidate or rehabilitate the estate of the person involved.
(23) A person is "insolvent" who either has ceased to pay
his debts in the ordinary course of business or cannot pay his
debts as they become due or is insolvent within the meaning ofthe Federal Bankruptcy Law.
(24) "Money" means a medium of exchange authorized or
adopted by a domestic or foreign government as a part of its
currency and includes a monetary unit of account established by
an intergovernmental organization or by agreement between two or
more nations.
(25) A person has "notice" of a fact when:
(a) He has actual knowledge of it; or
(b) He has received a notice or notification of it; or
(c) From all the facts and circumstances known to him at the
time in question he has reason to know that it exists. A person
"knows" or has "knowledge" of a fact when he has actual knowledge
of it. "Discover" or "learn" or a word or phrase of similar
import refers to knowledge rather than to reason to know. The
time and circumstances under which a notice or notification may
cease to be effective are not determined by this chapter.
(26) A person "notifies" or "gives" a notice or notification
to another by taking such steps as may be reasonably required to
inform the other in ordinary course whether or not such other
actually comes to know of it. A person "receives" a notice or
notification when:
(a) It comes to his attention; or
(b) It is duly delivered at the place of business through
which the contract was made or at any other place held out by him
as the place for receipt of such communications.
(27) Notice, knowledge or a notice or notification received
by an organization is effective for a particular transaction from
the time when it is brought to the attention of the individualconducting that transaction, and in any event from the time when
it would have been brought to his attention if the organization
had exercised due diligence. An organization exercises due
diligence if it maintains reasonable routines for communicating
significant information to the person conducting the transaction
and there is reasonable compliance with the routines. Due
diligence does not require an individual acting for the
organization to communicate information unless such communication
is part of his regular duties or unless he has reason to know of
the transaction and that the transaction would be materially
affected by the information.
(28) "Organization" includes a corporation, government or
governmental subdivision or agency, business trust, estate,
trust, partnership or association, two or more persons having a
joint or common interest, or any other legal or commercial
entity.
(29) "Party," as distinct from "third party," means a person
who has engaged in a transaction or made an agreement within this
chapter.
(30) "Person" includes an individual or an organization (see
section 1-102).
(31) "Presumption" or "presumed" means that the trier of
fact must find the existence of the fact presumed unless and
until evidence is introduced which would support a finding of its
nonexistence.
(32) "Purchase" includes taking by sale, discount,
negotiation, mortgage, pledge, lien, issue or reissue, gift or
any other voluntary transaction creating an interest in property.
(33) "Purchaser" means a person who takes by purchase.
(34) "Remedy" means any remedial right to which an aggrieved
party is entitled with or without resort to a tribunal.
(35) "Representative" includes an agent, an officer of a
corporation or association, and a trustee, executor or
administrator of an estate, or any other person empowered to act
for another.
(36) "Rights" includes remedies.
(37) "Security interest" means an interest in personal
property or fixtures which secures payment or performance of an
obligation. The retention or reservation of title by a seller of
goods notwithstanding shipment or delivery to the buyer (section
2-401) is limited in effect to a reservation of a "security
interest." The term also includes any interest of a buyer of
accounts or chattel paper, which is subject to article 9. The
special property interest of a buyer of goods on identification
of such goods to a contract for sale under section 2-401 is not
a "security interest," but a buyer may also acquire a "security
interest" by complying with article 9. Unless a lease or
consignment is intended as security, reservation of title
thereunder is not a "security interest" but a consignment is in
any event subject to the provisions on consignment sales (section
2-326). Whether a lease is intended as security is to be
determined by the facts of each case; however, (a) the inclusion
of an option to purchase does not of itself make the lease one
intended for security, and (b) an agreement that upon compliance
with the terms of the lease the lessee shall become or has the
option to become the owner of the property for no additionalconsideration or for a nominal consideration does make the lease
one intended for security.
(38) "Send" in connection with any writing or notice means
to deposit in the mail or deliver for transmission by any other
usual means of communication with postage or cost of transmission
provided for and properly addressed and in the case of an
instrument to an address specified thereon or otherwise agreed,
or if there be none to any address reasonable under the
circumstances. The receipt of any writing or notice within the
time at which it would have arrived if properly sent has the
effect of a proper sending.
(39) "Signed" includes any symbol executed or adopted by a
party with present intention to authenticate a writing.
(40) "Surety" includes guarantor.
(41) "Telegram" includes a message transmitted by radio,
teletype, cable, any mechanical method of transmission, or the
like.
(42) "Term" means that portion of an agreement which relates
to a particular matter.
(43) "Unauthorized" signature or endorsement means one made
without actual, implied or apparent authority and includes a
forgery.
(44) "Value." Except as otherwise provided with respect to
negotiable instruments and bank collections (sections 3-303, 4-
208 and 4-209), a person gives "value" for rights if he acquires
them:
(a) In return for a binding commitment to extend credit or
for the extension of immediately available credit whether or notdrawn upon and whether or not a chargeback is provided for in the
event of difficulties in collection; or
(b) As security for or in total or partial satisfaction of
a preexisting claim; or
(c) By accepting delivery pursuant to a preexisting contract
for purchase; or
(d) Generally, in return for any consideration sufficient to
support a simple contract.
(45) "Warehouse receipt" means a receipt issued by a person
engaged in the business of storing goods for hire.
(46) "Written" or "writing" includes printing, typewriting
or any other intentional reduction to tangible form.
§46-1-207. Performance or acceptance under reservation of
rights.
(a) A party who with explicit reservation of rights performs
or promises performance or assents to performance in a manner
demanded or offered by the other party does not thereby prejudice
the rights reserved. Such words as "without prejudice," "under
protest" or the like are sufficient.
(b) Subsection (a) does not apply to an accord and
satisfaction.
ARTICLE 3. NEGOTIABLE INSTRUMENTS.
PART 1. GENERAL PROVISIONS AND DEFINITIONS.
§46-3-101. Short title.
This article shall be known and may be cited as Uniform
Commercial Code -- Negotiable Instruments.
§46-3-102. Subject matter.
(a) This article applies to negotiable instruments. It doesnot apply to money, to payment orders governed by article four-a,
or to securities governed by article eight.
(b) If there is conflict between this article and article
four or nine, articles four and nine govern.
(c) Regulations of the board of governors of the federal
reserve system and operating circulars of the federal reserve
banks supersede any inconsistent provision of this article to the
extent of the inconsistency.
§46-3-103. Definitions.
(a) In this article:
(1) "Acceptor" means a drawee who has accepted a draft.
(2) "Drawee" means a person ordered in a draft to make
payment.
(3) "Drawer" means a person who signs or is identified in a
draft as a person ordering payment.
(4) "Good faith" means honesty in fact and the observance of
reasonable commercial standards of fair dealing.
(5) "Maker" means a person who signs or is identified in a
note as a person undertaking to pay.
(6) "Order" means a written instruction to pay money signed
by the person giving the instruction. The instruction may be
addressed to any person, including the person giving the
instruction, or to one or more persons jointly or in the
alternative but not in succession. An authorization to pay is
not an order unless the person authorized to pay is also
instructed to pay.
(7) "Ordinary care" in the case of a person engaged in
business means observance of reasonable commercial standards,prevailing in the area in which the person is located, with
respect to the business in which the person is engaged. In the
case of a bank that takes an instrument for processing for
collection or payment by automated means, reasonable commercial
standards do not require the bank to examine the instrument if
the failure to examine does not violate the bank's prescribed
procedures and the bank's procedures do not vary unreasonably
from general banking usage not disapproved by this article or
article four.
(8) "Party" means a party to an instrument.
(9) "Promise" means a written undertaking to pay money
signed by the person undertaking to pay. An acknowledgment of an
obligation by the obligor is not a promise unless the obligor
also undertakes to pay the obligation.
(10) "Prove" with respect to a fact means to meet the burden
of establishing the fact (section 1-201(8)).
(11) "Remitter" means a person who purchases an instrument
from its issuer if the instrument is payable to an identified
person other than the purchaser.
(b) Other definitions applying to this article and the
sections in which they appear are:
"Acceptance" Section 3-409.
"Accommodated party"Section 3-419.
"Accommodation party" Section 3-419.
"Alteration" Section 3-407.
"Anomalous indorsement"Section 3-205.
"Blank indorsement"Section 3-205.
"Cashier's check"Section 3-104.
"Certificate of deposit" Section 3-104.
"Certified check"Section 3-409.
"Check" Section 3-104.
"Consideration"Section 3-303.
"Draft" Section 3-104.
"Holder in due course" Section 3-302.
"Incomplete instrument"Section 3-115.
"Indorsement"Section 3-204.
"Indorser"Section 3-204.
"Instrument"Section 3-104.
"Issue"Section 3-105.
"Issuer"Section 3-105.
"Negotiable instrument"Section 3-104.
"Negotiation" Section 3-201.
"Note" Section 3-104.
"Payable at a definite time"Section 3-108.
"Payable on demand"Section 3-108.
"Payable to bearer"Section 3-109.
"Payable to order"Section 3-109.
"Payment"Section 3-602.
"Person entitled to enforce"Section 3-301.
"Presentment" Section 3-501.
"Reacquisition"Section 3-207.
"Special indorsement" Section 3-205.
"Teller's check"Section 3-104.
"Transfer of instrument"Section 3-203.
"Traveler's check"Section 3-104.
"Value"Section 3-303.
(c) The following definitions in other articles apply to
this article:
"Bank" Section 4-105.
"Banking day"Section 4-104.
"Clearing house" Section 4-104.
"Collecting bank" Section 4-105.
"Depositary bank" Section 4-105.
"Documentary draft" Section 4-104.
"Intermediary bank" Section 4-105.
"Item" Section 4-104.
"Payor bank" Section 4-105.
"Suspends payments"Section 4-104.
(d) In addition article one contains general definitions and
principles of construction and interpretation applicable
throughout this article.
§46-3-104. Negotiable instrument.
(a) Except as provided in subsections (c) and (d),
"negotiable instrument" means an unconditional promise or order
to pay a fixed amount of money, with or without interest or other
charges described in the promise or order, if it:
(1) Is payable to bearer or to order at the time it is
issued or first comes into possession of a holder;
(2) Is payable on demand or at a definite time; and
(3) Does not state any other undertaking or instruction by
the person promising or ordering payment to do any act in
addition to the payment of money, but the promise or order may
contain (i) an undertaking or power to give, maintain or protect
collateral to secure payment, (ii) an authorization or power tothe holder to confess judgment or realize on or dispose of
collateral or (iii) a waiver of the benefit of any law intended
for the advantage or protection of an obligor.
(b) "Instrument" means a negotiable instrument.
(c) An order that meets all of the requirements of
subsection (a), except paragraph (1), and otherwise falls within
the definition of "check" in subsection (f) is a negotiable
instrument and a check.
(d) A promise or order other than a check is not an
instrument if, at the time it is issued or first comes into
possession of a holder, it contains a conspicuous statement,
however expressed, to the effect that the promise or order is not
negotiable or is not an instrument governed by this article.
(e) An instrument is a "note" if it is a promise and is a
"draft" if it is an order. If an instrument falls within the
definition of both "note" and "draft," a person entitled to
enforce the instrument may treat it as either.
(f) "Check" means (i) a draft, other than a documentary
draft, payable on demand and drawn on a bank or (ii) a cashier's
check or teller's check. An instrument may be a check even
though it is described on its face by another term, such as
"money order."
(g) "Cashier's check" means a draft with respect to which
the drawer and drawee are the same bank or branches of the same
bank.
(h) "Teller's check" means a draft drawn by a bank (i) on
another bank or (ii) payable at or through a bank.
(i) "Traveler's check" means an instrument that (i) ispayable on demand, (ii) is drawn on or payable at or through a
bank, (iii) is designated by the term "traveler's check" or by a
substantially similar term and (iv) requires, as a condition to
payment, a countersignature by a person whose specimen signature
appears on the instrument.
(j) "Certificate of deposit" means an instrument containing
an acknowledgment by a bank that a sum of money has been received
by the bank and a promise by the bank to repay the sum of money.
A certificate of deposit is a note of the bank.
§46-3-105. Issue of instrument.
(a) "Issue" means the first delivery of an instrument by the
maker or drawer, whether to a holder or nonholder, for the
purpose of giving rights on the instrument to any person.
(b) An unissued instrument, or an unissued incomplete
instrument that is completed, is binding on the maker or drawer,
but nonissuance is a defense. An instrument that is
conditionally issued or is issued for a special purpose is
binding on the maker or drawer, but failure of the condition or
special purpose to be fulfilled is a defense.
(c) "Issuer" applies to issued and unissued instruments and
means a maker or drawer of an instrument.
§46-3-106. Unconditional promise or order.
(a) Except as provided in this section, for the purposes of
section 3-104(a), a promise or order is unconditional unless it
states (i) an express condition to payment, (ii) that the promise
or order is subject to or governed by another writing or (iii)
that rights or obligations with respect to the promise or order
are stated in another writing. A reference to another writingdoes not of itself make the promise or order conditional.
(b) A promise or order is not made conditional (i) by a
reference to another writing for a statement of rights with
respect to collateral, prepayment or acceleration or (ii) because
payment is limited to resort to a particular fund or source.
(c) If a promise or order requires, as a condition to
payment, a countersignature by a person whose specimen signature
appears on the promise or order, the condition does not make the
promise or order conditional for the purpose of section 3-104(a).
§46-3-107. Instrument payable in foreign money.
Unless the instrument otherwise provides, an instrument that
states the amount payable in foreign money may be paid in the
foreign money or in an equivalent amount in dollars calculated by
using the current bank offered spot rate at the place of payment
for the purchase of dollars on the day on which the instrument is
paid.
§46-3-108. Payable on demand or at definite time.
(a) A promise or order is "payable on demand" if it (i)
states that it is payable on demand or at sight, or otherwise
indicates that it is payable at the will of the holder or (ii)
does not state any time of payment.
(b) A promise or order is "payable at a definite time" if it
is payable on elapse of a definite period of time after sight or
acceptance or at a fixed date or dates or at a time or times
readily ascertainable at the time the promise or order is issued,
subject to rights of (i) prepayment, (ii) acceleration, (iii)
extension at the option of the holder or (iv) extension to a
further definite time at the option of the maker or acceptor orautomatically upon or after a specified act or event.
(c) If an instrument, payable at a fixed date, is also
payable upon demand made before the fixed date, the instrument is
payable on demand until the fixed date and, if demand for payment
is not made before that date, becomes payable at a definite time
on the fixed date.
§46-3-109. Payable to bearer or to order.
(a) A promise or order is payable to bearer if it:
(1) States that it is payable to bearer or to the order of
bearer or otherwise indicates that the person in possession of
the promise or order is entitled to payment;
(2) Does not state a payee; or
(3) States that it is payable to or to the order of cash or
otherwise indicates that it is not payable to an identified
person.
(b) A promise or order that is not payable to bearer is
payable to order if it is payable (i) to the order of an
identified person or (ii) to an identified person or order. A
promise or order that is payable to order is payable to the
identified person.
(c) An instrument payable to bearer may become payable to an
identified person if it is specially indorsed pursuant to section
3-205(a). An instrument payable to an identified person may
become payable to bearer if it is indorsed in blank pursuant to
section 3-205(b).
§46-3-110. Identification of person to whom instrument is
payable.
(a) The person to whom an instrument is initially payable isdetermined by the intent of the person, whether or not
authorized, signing as, or in the name or behalf of, the issuer
of the instrument. The instrument is payable to the person
intended by the signer even if that person is identified in the
instrument by a name or other identification that is not that of
the intended person. If more than one person signs in the name
or behalf of the issuer of an instrument and all the signers do
not intend the same person as payee, the instrument is payable to
any person intended by one or more of the signers.
(b) If the signature of the issuer of an instrument is made
by automated means, such as a check-writing machine, the payee of
the instrument is determined by the intent of the person who
supplied the name or identification of the payee, whether or not
authorized to do so.
(c) A person to whom an instrument is payable may be
identified in any way, including by name, identifying number,
office, or account number. For the purpose of determining the
holder of an instrument, the following rules apply:
(1) If an instrument is payable to an account and the
account is identified only by number, the instrument is payable
to the person to whom the account is payable. If an instrument
is payable to an account identified by number and by the name of
a person, the instrument is payable to the named person, whether
or not that person is the owner of the account identified by
number.
(2) If an instrument is payable to (i) a trust, an estate,
or a person described as trustee or representative of a trust or
estate, the instrument is payable to the trustee, therepresentative, or a successor of either, whether or not the
beneficiary or estate is also named, (ii) a person described as
agent or similar representative of a named or identified person,
the instrument is payable to the represented person, the
representative, or a successor of the representative, (iii) a
fund or organization that is not a legal entity, the instrument
is payable to a representative of the members of the fund or
organization or (iv) an office or to a person described as
holding an office, the instrument is payable to the named person,
the incumbent of the office, or a successor to the incumbent.
(d) If an instrument is payable to two or more persons
alternatively, it is payable to any of them and may be
negotiated, discharged, or enforced by any or all of them in
possession of the instrument. If an instrument is payable to two
or more persons not alternatively, it is payable to all of them
and may be negotiated, discharged, or enforced only by all of
them. If an instrument payable to two or more persons is
ambiguous as to whether it is payable to the persons
alternatively, the instrument is payable to the persons
alternatively.
§46-3-111. Place of payment.
Except as otherwise provided for items in article four, an
instrument is payable at the place of payment stated in the
instrument. If no place of payment is stated, an instrument is
payable at the address of the drawee or maker stated in the
instrument. If no address is stated, the place of payment is the
place of business of the drawee or maker. If a drawee or maker
has more than one place of business, the place of payment is anyplace of business of the drawee or maker chosen by the person
entitled to enforce the instrument. If the drawee or maker has
no place of business, the place of payment is the residence of
the drawee or maker.
§46-3-112. Interest.
(a) Unless otherwise provided in the instrument (i) an
instrument is not payable with interest and (ii) interest on an
interest-bearing instrument is payable from the date of the
instrument.
(b) Interest may be stated in an instrument as a fixed or
variable amount of money or it may be expressed as a fixed or
variable rate or rates. The amount or rate of interest may be
stated or described in the instrument in any manner and may
require reference to information not contained in the instrument.
If an instrument provides for interest, but the amount of
interest payable cannot be ascertained from the description,
interest is payable at the judgment rate in effect at the place
of payment of the instrument and at the time interest first
accrues.
§46-3-113. Date of instrument.
(a) An instrument may be antedated or postdated. The date
stated determines the time of payment if the instrument is
payable at a fixed period after date. Except as provided in
section 4-401 (c), an instrument payable on demand is not payable
before the date of the instrument.
(b) If an instrument is undated, its date is the date of its
issue or, in the case of an unissued instrument, the date it
first comes into possession of a holder.
§46-3-114. Contradictory terms of instrument.
If an instrument contains contradictory terms, typewritten
terms prevail over printed terms, hand written terms prevail over
both, and words prevail over numbers.
§46-3-115. Incomplete instrument.
(a) "Incomplete instrument" means a signed writing, whether
or not issued by the signer, the contents of which show at the
time of signing that it is incomplete but that the signer
intended it to be completed by the addition of words or numbers.
(b) Subject to subsection (c), if an incomplete instrument
is an instrument under section 3-104, it may be enforced
according to its terms if it is not completed, or according to
its terms as augmented by completion. If an incomplete
instrument is not an instrument under section 3-104, but, after
completion, the requirements of section 3-104 are met, the
instrument may be enforced according to its terms as augmented by
completion.
(c) If words or numbers are added to an incomplete
instrument without authority of the signer, there is an
alteration of the incomplete instrument under section 3-407.
(d) The burden of establishing that words or numbers were
added to an incomplete instrument without authority of the signer
is on the person asserting the lack of authority.
§46-3-116. Joint and several liability; contribution.
(a) Except as otherwise provided in the instrument, two or
more persons who have the same liability on an instrument as
makers, drawers, acceptors, indorsers who indorse as joint
payees, or anomalous indorsers are jointly and severally liablein the capacity in which they sign.
(b) Except as provided in section 3-419(e) or by agreement
of the affected parties, a party having joint and several
liability who pays the instrument is entitled to receive from any
party having the same joint and several liability contribution in
accordance with applicable law.
(c) Discharge of one party having joint and several
liability by a person entitled to enforce the instrument does not
affect the right under subsection (b) of a party having the same
joint and several liability to receive contribution from the
party discharged.
§46-3-117. Other agreements affecting instrument.
Subject to applicable law regarding exclusion of proof of
contemporaneous or previous agreements, the obligation of a party
to an instrument to pay the instrument may be modified,
supplemented, or nullified by a separate agreement of the obligor
and a person entitled to enforce the instrument, if the
instrument is issued or the obligation is incurred in reliance on
the agreement or as part of the same transaction giving rise to
the agreement. To the extent an obligation is modified,
supplemented, or nullified by agreement under this section, the
agreement is a defense to the obligation.
§46-3-118. Statute of limitations.
(a) Except as provided in subsection (e), an action to
enforce the obligation of a party to pay a note payable at a
definite time must be commenced within six years after the due
date or dates stated in the note or, if a due date is
accelerated, within six years after the accelerated due date.
(b) Except as provided in subsection (d) or (e), if demand
for payment is made to the maker of a note payable on demand, an
action to enforce the obligation of a party to pay the note must
be commenced within six years after the demand. If no demand for
payment is made to the maker, an action to enforce the note is
barred if neither principal nor interest on the note has been
paid for a continuous period of ten years.
(c) Except as provided in subsection (d), an action to
enforce the obligation of a party to an unaccepted draft to pay
the draft must be commenced within three years after dishonor of
the draft or ten years after the date of the draft, whichever
period expires first.
(d) An action to enforce the obligation of the acceptor of
a certified check or the issuer of a teller's check, cashier's
check, or traveler's check must be commenced within three years
after demand for payment is made to the acceptor or issuer, as
the case may be.
(e) An action to enforce the obligation of a party to a
certificate of deposit to pay the instrument must be commenced
within six years after demand for payment is made to the maker,
but if the instrument states a due date and the maker is not
required to pay before that date, the six-year period begins when
a demand for payment is in effect and the due date has passed.
(f) An action to enforce the obligation of a party to pay an
accepted draft, other than a certified check, must be commenced
(i) within six years after the due date or dates stated in the
draft or acceptance if the obligation of the acceptor is payable
at a definite time or (ii) within six years after the date of theacceptance if the obligation of the acceptor is payable on
demand.
(g) Unless governed by other law regarding claims for
indemnity or contribution, an action (i) for conversion of an
instrument, for money had and received, or like action based on
conversion, (ii) for breach of warranty or (iii) to enforce an
obligation, duty, or right arising under this article and not
governed by this section must be commenced within three years
after the cause of action accrues.
§46-3-119. Notice of right to defend action.
In an action for breach of an obligation for which a third
person is answerable over pursuant to this article or article
four, the defendant may give the third person written notice of
the litigation, and the person notified may then give similar
notice to any other person who is answerable over. If the notice
states (i) that the person notified may come in and defend and
(ii) that failure to do so will bind the person notified in an
action later brought by the person giving the notice as to any
determination of fact common to the two litigations, the person
notified is so bound unless after seasonable receipt of the
notice the person notified does come in and defend.
PART 2. NEGOTIATION TRANSFER, AND INDORSEMENT.
§46-3-201. Negotiation.
(a) "Negotiation" means a transfer of possession, whether
voluntary or involuntary, or an instrument by a person other than
the issuer to a person who thereby becomes its holder.
(b) Except for negotiation by a remitter, if an instrument
is payable to an identified person, negotiation requires transferof possession of the instrument and its indorsement by the
holder. If an instrument is payable to bearer, it may be
negotiated by transfer of possession alone.
§46-3-202. Negotiation subject to rescission.
(a) Negotiation is effective even if obtained (i) from an
infant, a corporation exceeding its powers, or a person without
capacity, (ii) by fraud, duress, or mistake or (iii) in breach of
duty or as part of an illegal transaction.
(b) To the extent permitted by other law, negotiation may be
rescinded or may be subject to other remedies, but those remedies
may not be asserted against a subsequent holder in due course or
a person paying the instrument in good faith and without
knowledge of facts that are a basis for rescission or other
remedy.
§46-3-203. Transfer of instrument; rights acquired by transfer.
(a) An instrument is transferred when it is delivered by a
person other than its issuer for the purpose of giving to the
person receiving delivery the right to enforce the instrument.
(b) Transfer of an instrument, whether or not the transfer
is a negotiation, vests in the transferee any right of the
transferor to enforce the instrument, including any right as a
holder in due course, but the transferee cannot acquire rights of
a holder in due course by a transfer, directly or indirectly,
from a holder in due course if the transferee engaged in fraud or
illegality affecting the instrument.
(c) Unless otherwise agreed, if an instrument is transferred
for value and the transferee does not become a holder because of
lack of indorsement by the transferor, the transferee has aspecifically enforceable right to the unqualified indorsement of
the transferor, but negotiation of the instrument does not occur
until the indorsement is made.
(d) If a transferor purports to transfer less than the
entire instrument, negotiation of the instrument does not occur.
The transferee obtains no rights under this article and has only
the rights of a partial assignee.
§46-3-204. Indorsement.
(a) "Indorsement" means a signature, other than that of a
signer as maker, drawer, or acceptor, that alone or accompanied
by other words is made on an instrument for the purpose of (i)
negotiating the instrument, (ii) restricting payment of the
instrument or (iii) incurring indorser's liability on the
instrument, but regardless of the intent of the signer, a
signature and its accompanying words is an indorsement unless the
accompanying words, terms of the instrument, place of the
signature, or other circumstances unambiguously indicate that the
signature was made for a purpose other than indorsement. For the
purpose of determining whether a signature is made on an
instrument, a paper affixed to the instrument is a part of the
instrument.
(b) "Indorser" means a person who makes an indorsement.
(c) For the purpose of determining whether the transferee of
an instrument is a holder, an indorsement that transfers a
security interest in the instrument is effective as an
unqualified indorsement of the instrument.
(d) If an instrument is payable to a holder under a name
that is not the name of the holder, indorsement may be made bythe holder in the name stated in the instrument or in the
holder's name or both, but signature in both names may be
required by a person paying or taking the instrument for value or
collection.
§46-3-205. Special indorsement; blank indorsement; anomalous
indorsement.
(a) If an indorsement is made by the holder of an
instrument, whether payable to an identified person or payable to
bearer, and the indorsement identifies a person to whom it makes
the instrument payable, it is a "special indorsement." When
specially indorsed, an instrument becomes payable to the
identified person and may be negotiated only by the indorsement
of that person. The principles stated in section 3-110 apply to
special indorsements.
(b) If an indorsement is made by the holder of an instrument
and it is not a special indorsement, it is a "blank indorsement."
When indorsed in blank, an instrument becomes payable to bearer
and may be negotiated by transfer of possession alone until
specially indorsed.
(c) The holder may convert a blank indorsement that consists
only of a signature into a special indorsement by writing, above
the signature of the indorser, words identifying the person to
whom the instrument is made payable.
(d) "Anomalous indorsement" means an indorsement made by a
person who is not the holder of the instrument. An anomalous
indorsement does not affect the manner in which the instrument
may be negotiated.
§46-3-206. Restrictive indorsement.
(a) An indorsement limiting payment to a particular person
or otherwise prohibiting further transfer or negotiation of the
instrument is not effective to prevent further transfer or
negotiation of the instrument.
(b) An indorsement stating a condition to the right of the
indorsee to receive payment does not affect the right of the
indorsee to enforce the instrument. A person paying the
instrument or taking it for value or collection may disregard the
condition, and the rights and liabilities of that person are not
affected by whether the condition has been fulfilled.
(c) If an instrument bears an indorsement (i) described in
section 4-201(b) or (ii) in blank or to a particular bank using
the words "for deposit," "for collection," or other words
indicating a purpose of having the instrument collected by a bank
for the indorser or for a particular account, the following rules
apply:
(1) A person, other than a bank, who purchases the
instrument when so indorsed converts the instrument unless the
amount paid for the instrument is received by the indorser or
applied consistently with the indorsement.
(2) A depositary bank that purchases the instrument or takes
it for collection when so indorsed converts the instrument unless
the amount paid by the bank with respect to the instrument is
received by the indorser or applied consistently with the
indorsement.
(3) A payor bank that is also the depositary bank or that
takes the instrument for immediate payment over the counter from
a person other than a collecting bank converts the instrumentunless the proceeds of the instrument are received by the
indorser or applied consistently with the indorsement.
(4) Except as otherwise provided in paragraph (3), a payor
bank or intermediary bank may disregard the indorsement and is
not liable if the proceeds of the instrument are not received by
the indorser or applied consistently with the indorsement.
(d) Except for an indorsement covered by subsection (c), if
an instrument bears an indorsement using words to the effect that
payment is to be made to the indorsee as agent, trustee, or other
fiduciary for the benefit of the indorser or another person, the
following rules apply:
(1) Unless there is notice of breach of fiduciary duty as
provided in section 3-307, a person who purchases the instrument
from the indorsee or takes the instrument from the indorsee for
collection or payment may pay the proceeds of payment or the
value given for the instrument to the indorsee without regard to
whether the indorsee violates a fiduciary duty to the indorser.
(2) A subsequent transferee of the instrument or person who
pays the instrument is neither given notice nor otherwise
affected by the restriction in the indorsement unless the
transferee or payor knows that the fiduciary dealt with the
instrument or its proceeds in breach of fiduciary duty.
(e) The presence on an instrument of an indorsement to which
this section applies does not prevent a purchaser of the
instrument from becoming a holder in due course of the instrument
unless the purchaser is a converter under subsection (c) or has
notice or knowledge of breach of fiduciary duty as stated in
subsection (d).
(f) In an action to enforce the obligation of a party to pay
the instrument, the obligor has a defense if payment would
violate an indorsement to which this section applies and the
payment is not permitted by this section.
§46-3-207. Reacquisition.
Reacquisition of an instrument occurs if it is transferred
to a former holder, by negotiation or otherwise. A former holder
who reacquires the instrument may cancel indorsements made after
the reacquirer first became a holder of the instrument. If the
cancellation causes the instrument to be payable to the
reacquirer or to bearer, the reacquirer may negotiate the
instrument. An indorser whose indorsement is canceled is
discharged, and the discharge is effective against any subsequent
holder.
PART 3. ENFORCEMENT OF INSTRUMENTS.
§46-3-301. Person entitled to enforce instrument.
"Person entitled to enforce" an instrument means (i) the
holder of the instrument, (ii) a nonholder in possession of the
instrument who has the rights of a holder or (iii) a person not
in possession of the instrument who is entitled to enforce the
instrument pursuant to section 3-309 or 3-418(d). A person may
be a person entitled to enforce the instrument even though the
person is not the owner of the instrument or is in wrongful
possession of the instrument.
§46-3-302. Holder in due course.
(a) Subject to subsection (c) and section one hundred six-d,
"holder in due course" means the holder of an instrument if:
(1) The instrument when issued or negotiated to the holderdoes not bear such apparent evidence of forgery or alteration or
is not otherwise so irregular or incomplete as to call into
question its authenticity; and
(2) The holder took the instrument (i) for value, (ii) in
good faith, (iii) without notice that the instrument is overdue
or has been dishonored or that there is an uncured default with
respect to payment of another instrument issued as part of the
same series, (iv) without notice that the instrument contains an
unauthorized signature or has been altered, (v) without notice of
any claim to the instrument described in section 3-306 and (vi)
without notice that any party has a defense or claim in
recoupment described in section 3-305(a).
(b) Notice of discharge of a party, other than discharge in
an insolvency proceeding, is not notice of a defense under
subsection (a), but discharge is effective against a person who
became a holder in due course with notice of the discharge.
Public filing or recording of a document does not of itself
constitute notice of a defense, claim in recoupment, or claim to
the instrument.
(c) Except to the extent a transferor or predecessor in
interest has rights as a holder in due course, a person does not
acquire rights of a holder in due course of an instrument taken
(i) by legal process or by purchase in an execution, bankruptcy,
or creditor's sale or similar proceeding, (ii) by purchase as
part of a bulk transaction not in ordinary course of business of
the transferor or (iii) as the successor in interest to an estate
or other organization.
(d) If, under section 3-303(a)(1), the promise ofperformance that is the consideration for an instrument has been
partially performed, the holder may assert rights as a holder in
due course of the instrument only to the fraction of the amount
payable under the instrument equal to the value of the partial
performance divided by the value of the promised performance.
(e) If (i) the person entitled to enforce an instrument has
only a security interest in the instrument and (ii) the person
obliged to pay the instrument has a defense, claim in recoupment,
or claim to the instrument that may be asserted against the
person who granted the security interest, the person entitled to
enforce the instrument may assert rights as a holder in due
course only to an amount payable under the instrument which, at
the time of enforcement of the instrument, does not exceed the
amount of the unpaid obligation secured.
(f) To be effective, notice must be received at a time and
in a manner that gives a reasonable opportunity to act on it.
(g) This section is subject to any law limiting status as a
holder in due course in particular classes of transactions.
§46-3-303. Value and consideration.
(a) An instrument is issued or transferred for value if:
(1) The instrument is issued or transferred for a promise of
performance, to the extent the promise has been performed;
(2) The transferee acquires a security interest or other
lien in the instrument other than a lien obtained by judicial
proceeding;
(3) The instrument is issued or transferred as payment of,
or as security for, an antecedent claim against any person,
whether or not the claim is due;
(4) The instrument is issued or transferred in exchange for
a negotiable instrument; or
(5) The instrument is issued or transferred in exchange for
the incurring of an irrevocable obligation to a third party by
the person taking the instrument.
(b) "Consideration" means any consideration sufficient to
support a simple contract. The drawer or maker of an instrument
has a defense if the instrument is issued without consideration.
If an instrument is issued for a promise of performance, the
issuer has a defense to the extent performance of the promise is
due and the promise has not been performed. If an instrument is
issued for value as stated in subsection (a), the instrument is
also issued for consideration.
§46-3-304. Overdue instrument.
(a) An instrument payable on demand becomes overdue at the
earliest of the following times:
(1) On the day after the day demand for payment is duly
made;
(2) If the instrument is a check, ninety days after its
date; or
(3) If the instrument is not a check, when the instrument
has been outstanding for a period of time after its date which is
unreasonably long under the circumstances of the particular case
in light of the nature of the instrument and usage of the trade.
(b) With respect to an instrument payable at a definite time
the following rules apply:
(1) If the principal is payable in installments and a due
date has not been accelerated, the instrument becomes overdueupon default under the instrument for nonpayment of an
installment, and the instrument remains overdue until the default
is cured;
(2) If the principal is not payable in installments and the
due date has not been accelerated, the instrument becomes overdue
on the day after the due date;
(3) If a due date with respect to principal has been
accelerated, the instrument becomes overdue on the day after the
accelerated due date.
(c) Unless the due date or principal has been accelerated,
an instrument does not become overdue if there is default in
payment of interest but no default in payment of principal.
§46-3-305. Defenses and claims in recoupment.
(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 article 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 (section 3-306) 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 theaccommodated 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.
§46-3-306. Claims to an instrument.
A person taking an instrument, other than a person having
rights of a holder in due course, is subject to a claim of a
property or possessory right in the instrument or its proceeds,
including a claim to rescind a negotiation and to recover the
instrument or its proceeds. A person having rights of a holder
in due course takes free of the claim to the instrument.
§46-3-307. Notice of breach of fiduciary duty.
(a) In this section:
(1) "Fiduciary" means an agent, trustee, partner, corporate
officer or director or other representative owing a fiduciary
duty with respect to an instrument.
(2) "Represented person" means the principal, beneficiary,
partnership, corporation or other person to whom the duty stated
in paragraph (1) is owed.
(b) If (i) an instrument is taken from a fiduciary for
payment or collection or for value, (ii) the taker has knowledge
of the fiduciary status of the fiduciary and (iii) the
represented person makes a claim to the instrument or its
proceeds on the basis that the transaction of the fiduciary is a
breach of fiduciary duty, the following rules apply:
(1) Notice of breach of fiduciary duty by the fiduciary is
notice of the claim of the represented person.
(2) In the case of an instrument payable to the represented
person or the fiduciary as such, the taker has notice of thebreach of fiduciary duty if the instrument is (i) taken in
payment of or as security for a debt known by the taker to be the
personal debt of the fiduciary, (ii) taken in a transaction known
by the taker to be for the personal benefit of the fiduciary or
(iii) deposited to an account other than an account of the
fiduciary, as such, or an account of the represented person.
(3) If an instrument is issued by the represented person or
the fiduciary as such, and made payable to the fiduciary
personally, the taker does not have notice of the breach of
fiduciary duty unless the taker knows of the breach of fiduciary
duty.
(4) If an instrument is issued by the represented person or
the fiduciary as such, to the taker as payee, the taker has
notice of the breach of fiduciary duty if the instrument is (i)
taken in payment of or as security for a debt known by the taker
to be the personal debt of the fiduciary, (ii) taken in a
transaction known by the taker to be for the personal benefit of
the fiduciary or (iii) deposited to an account other than an
account of the fiduciary, as such, or an account of the
represented person.
§46-3-308. Proof of signatures and status as holder in due
course.
(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 authenticand 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 3-402(a).
(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 3-301, 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.
§46-3-309. Enforcement of lost, destroyed, or stolen instrument.
(a) A person not in possession of an instrument is entitled
to enforce the instrument if (i) the person was in possession of
the instrument and entitled to enforce it when loss of possession
occurred, (ii) the loss of possession was not the result of a
transfer by the person or a lawful seizure and (iii) the person
cannot reasonably obtain possession of the instrument because the
instrument was destroyed, its whereabouts cannot be determined,
or it is in the wrongful possession of an unknown person or a
person that cannot be found or is not amenable to service ofprocess.
(b) A person seeking enforcement of an instrument under
subsection (a) must prove the terms of the instrument and the
person's right to enforce the instrument. If that proof is made,
section 3-308 applies to the case as if the person seeking
enforcement had produced the instrument. The court may not enter
judgment in favor of the person seeking enforcement unless it
finds that the person required to pay the instrument is
adequately protected against loss that might occur by reason of
a claim by another person to enforce the instrument. Adequate
protection may be provided by any reasonable means.
§46-3-310. Effect of instrument on obligation for which taken.
(a) Unless otherwise agreed, if a certified check, cashier's
check or teller's check is taken for an obligation, the
obligation is discharged to the same extent discharge would
result if an amount of money equal to the amount of the
instrument were taken in payment of the obligation. Discharge of
the obligation does not affect any liability that the obligor may
have as an indorser of the instrument.
(b) Unless otherwise agreed and except as provided in
subsection (a), if a note or an uncertified check is taken for an
obligation, the obligation is suspended to the same extent the
obligation would be discharged if an amount of money equal to the
amount of the instrument were taken, and the following rules
apply:
(1) In the case of an uncertified check, suspension of the
obligation continues until dishonor of the check or until it is
paid or certified. Payment or certification of the check resultsin discharge of the obligation to the extent of the amount of the
check.
(2) In the case of a note, suspension of the obligation
continues until dishonor of the note or until it is paid.
Payment of the note results in discharge of the obligation to the
extent of the payment.
(3) Except as provided in paragraph (4), if the check or
note is dishonored and the obligee of the obligation for which
the instrument was taken is the person entitled to enforce the
instrument, the obligee may enforce either the instrument or the
obligation. In the case of an instrument of a third person which
is negotiated to the obligee by the obligor, discharge of the
obligor on the instrument also discharges the obligation.
(4) If the person entitled to enforce the instrument taken
for an obligation is a person other than the obligee, the obligee
may not enforce the obligation to the extent the obligation is
suspended. If the obligee is the person entitled to enforce the
instrument but no longer has possession of it because it was
lost, stolen or destroyed, the obligation may not be enforced to
the extent of the amount payable on the instrument, and to that
extent the obligee's rights against the obligor are limited to
enforcement of the instrument.
(c) If an instrument other than one described in subsection
(a) or (b) is taken for an obligation, the effect is (i) that
stated in subsection (a) if the instrument is one on which a bank
is liable as maker or acceptor or (ii) that stated in subsection
(b) in any other case.
§46-3-311. Accord and satisfaction by use of instrument.
(a) If a person against whom a claim is asserted proved that
(i) that person in good faith tendered an instrument to the
claimant as full satisfaction of the claim, (ii) the amount of
the claim was unliquidated or subject to a bona fide dispute and
(iii) the claimant obtained payment of the instrument, the
following subsections apply.
(b) Unless subsection (c) applies, the claim is discharged
if the person against whom the claim is asserted proves that the
instrument or an accompanying written communication contained a
conspicuous statement to the effect that the instrument was
tendered as full satisfaction of the claim.
(c) Subject to subsection (d), a claim is not discharged
under subsection (b) if either of the following applies:
(1) The claimant, if an organization, proves that (i) within
a reasonable time before the tender, the claimant sent a
conspicuous statement to the person against whom the claim is
asserted that communications concerning disputed debts, including
an instrument tendered as full satisfaction of a debt, are to be
sent to a designated person, office, or place and (ii) the
instrument or accompanying communication was sent to a lock box
for the receipt of payments of undisputed claims.
(2) The claimant, whether or not an organization, proves
that within ninety days after payment of the instrument, the
claimant tendered repayment of the amount of the instrument to
the person against whom the claim is asserted. This paragraph
does not apply if the claimant is an organization that sent a
statement complying with paragraph (1)(i).
(d) A claim is discharged if the person against whom theclaim is asserted proves that within a reasonable time before
collection of the instrument was initiated, the claimant, or an
agent of the claimant having direct responsibility with respect
to the disputed obligation, knew that the instrument was tendered
in full satisfaction of the claim.
§46-3-312. Lost, destroyed, or stolen cashier's check, teller's
check or certified check.
(a) In this section:
(1) "Check" means a cashier's check, teller's check or
certified check.
(2) "Claimant" means a person who claims the right to
receive the amount of a cashier's check, teller's check or
certified check that was lost, destroyed or stolen.
(3) "Declaration of loss" means a written statement, made
under penalty of perjury, to the effect that (i) the declarer
lost possession of a check, (ii) the declarer is the drawer or
payee of the check, in the case of a certified check, or the
remitter or payee of the check, in the case of a cashier's check
or teller's check, (iii) the loss of possession was not the
result of a transfer by the declarer or a lawful seizure and (iv)
the declarer cannot reasonably obtain possession of the check
because the check was destroyed, its whereabouts cannot be
determined or it is in the wrongful possession of an unknown
person or a person that cannot be found or is not amenable to
service of process.
(4) "Obligated bank" means the issuer of a cashier's check
or teller's check or the acceptor of a certified check.
(b) A claimant may assert a claim to the amount of a checkby a communication to the obligated bank describing the check
with reasonable certainty and requesting payment of the amount of
the check, if (i) the claimant is the drawer or payee of a
certified check or the remitter or payee of a cashier's check or
teller's check, (ii) the communication contains or is accompanied
by a declaration of loss of the claimant with respect to the
check, (iii) the communication is received at a time and in a
manner affording the bank a reasonable time to act on it before
the check is paid and (iv) the claimant provides reasonable
identification if requested by the obligated bank. Delivery of
a declaration of loss is a warranty of the truth of the
statements made in the declaration. If a claim is asserted in
compliance with this subsection, the following rules apply:
(1) The claim becomes enforceable at the later of (i) the
time the claim is asserted or (ii) the ninetieth day following
the date of the check, in the case of a cashier's check or
teller's check, or the ninetieth day following the date of the
acceptance, in the case of a certified check.
(2) Until the claim becomes enforceable, it has no legal
effect and the obligated bank may pay the check or, in the case
of a teller's check, may permit the drawee to pay the check.
Payment to a person entitled to enforce the check discharges all
liability of the obligated bank with respect to the check.
(3) If the claim becomes enforceable before the check is
presented for payment, the obligated bank is not obliged to pay
the check.
(4) When the claim becomes enforceable, the obligated bank
becomes obliged to pay the amount of the check to the claimant ifpayment of the check has not been made to a person entitled to
enforce the check. Subject to section 4-302(a)(1), payment to
the claimant discharges all liability of the obligated bank with
respect to the check.
(c) If the obligated bank pays the amount of a check to a
claimant under subsection (b)(4) and the check is presented for
payment by a person having rights of a holder in due course, the
claimant is obliged to (i) refund the payment to the obligated
bank if the check is paid or (ii) pay the amount of the check to
the person having rights of a holder in due course if the check
is dishonored.
(d) If a claimant has the right to assert a claim under
subsection (b) and is also a person entitled to enforce a
cashier's check, teller's check or certified check which is lost,
destroyed or stolen, the claimant may assert rights with respect
to the check either under this section or section 3-309.
PART 4. LIABILITY OF PARTIES.
§46-3-401. Signature.
(a) A person is not liable on an instrument unless (i) the
person signed the instrument or (ii) the person is represented by
an agent or representative who signed the instrument and the
signature is binding on the represented person under section 3-
402.
(b) A signature may be made (i) manually or by means of a
device or machine and (ii) by the use of any name, including a
trade or assumed name, or by a word, mark, or symbol executed or
adopted by a person with present intention to authenticate a
writing.
§46-3-402. Signature by representative.
(a) If a person acting, or purporting to act, as a
representative signs an instrument by signing either the name of
the represented person or the name of the signer, the represented
person is bound by the signature to the same extent the
represented person would be bound if the signature were on a
simple contract. If the represented person is bound, the
signature of the representative is the "authorized signature of
the represented person" and the represented person is liable on
the instrument, whether or not identified in the instrument.
(b) If a representative signs the name of the representative
to an instrument and the signature is an authorized signature of
the represented person, the following rules apply:
(1) If the form of the signature shows unambiguously that
the signature is made on behalf of the represented person who is
identified in the instrument, the representative is not liable on
the instrument.
(2) Subject to subsection (c), if (i) the form of the
signature does not show unambiguously that the signature is made
in a representative capacity or (ii) the represented person is
not identified in the instrument, the representative is liable on
the instrument to a holder in due course that took the instrument
without notice that the representative was not intended to be
liable on the instrument. With respect to any other person, the
representative is liable on the instrument unless the
representative proves that the original parties did not intend
the representative to be liable on the instrument.
(c) If a representative signs the name of the representativeas drawer of a check without indication of the representative
status and the check is payable from an account of the
represented person who is identified on the check, the signer is
not liable on the check if the signature is an authorized
signature of the represented person.
§46-3-403. Unauthorized signature.
(a) Unless otherwise provided in this article or article
four, an unauthorized signature is ineffective except as the
signature of the unauthorized signer in favor of a person who in
good faith pays the instrument or takes it for value. An
unauthorized signature may be ratified for all purposes of this
article.
(b) If the signature of more than one person is required to
constitute the authorized signature of an organization, the
signature of the organization is unauthorized if one of the
required signatures is lacking.
(c) The civil or criminal liability of a person who makes an
unauthorized signature is not affected by any provision of this
article which makes the unauthorized signature effective for the
purposes of this article.
§46-3-404. Impostors; fictitious payees.
(a) If an impostor, by use of the mails or otherwise,
induces the issuer of an instrument to issue the instrument to
the impostor, or to a person acting in concert with the impostor,
by impersonating the payee of the instrument or a person
authorized to act for the payee, an indorsement of the instrument
by any person in the name of the payee is effective as the
indorsement of the payee in favor of a person who, in good faith,pays the instrument or takes it for value of for collection.
(b) If (i) a person whose intent determines to whom an
instrument is payable (section 3-110(a) or (b)) does not intend
the person identified as payee to have any interest in the
instrument or (ii) the person identified as payee of an
instrument is a fictitious person, the following rules apply
until the instrument is negotiated by special indorsement:
(1) Any person in possession of the instrument is its
holder.
(2) An indorsement by any person in the name of the payee
stated in the instrument is effective as the indorsement of the
payee in favor of a person who, in good faith, pays the
instrument or takes it for value or for collection.
(c) Under subsection (a) or (b), an indorsement is made in
the name of a payee if (i) it is made in a name substantially
similar to that of the payee or (ii) the instrument, whether or
not indorsed, is deposited in a depositary bank to an account in
a name substantially similar to that of the payee.
(d) With respect to an instrument to which subsection (a) or
(b) applies, if a person paying the instrument or taking it for
value or for collection fails to exercise ordinary care in paying
or taking the instrument and that failure substantially
contributes to loss resulting from payment of the instrument, the
person bearing the loss may recover from the person failing to
exercise ordinary care to the extent the failure to exercise
ordinary care contributed to the loss.
§46-3-405. Employer's responsibility for fraudulent indorsement
by employee.
(a) In this section:
(1) "Employee" includes an independent contractor and
employee of an independent contractor retained by the employer.
(2) "Fraudulent indorsement" means (i) in the case of an
instrument payable to the employer, a forged indorsement
purporting to be that of the employer or (ii) in the case of an
instrument with respect to which the employer is the issuer, a
forged indorsement purporting to be that of the person identified
as payee.
(3) "Responsibility" with respect to instruments means
authority (i) to sign or indorse instruments on behalf of the
employer, (ii) to process instruments received by the employer
for bookkeeping purposes, for deposit to an account or for other
disposition, (iii) to prepare or process instruments for issue in
the name of the employer, (iv) to supply information determining
the names or addresses of payees of instruments to be issued in
the name of the employer, (v) to control the disposition of
instruments to be issued in the name of the employer or (vi) to
act otherwise with respect to instruments in a responsible
capacity. "Responsibility" does not include authority that
merely allows an employee to have access to instruments or blank
or incomplete instrument forms that are being stored, transported
or are part of incoming or outgoing mail, or similar access.
(b) For the purpose of determining the rights and
liabilities of a person who, in good faith, pays an instrument or
takes it for value or for collection, if an employer entrusted an
employee with responsibility with respect to the instrument and
the employee or a person acting in concert with the employeemakes a fraudulent indorsement of the instrument, the indorsement
is effective as the indorsement of the person to whom the
instrument is payable if it is made in the name of that person.
If the person paying the instrument or taking it for value or for
collection fails to exercise ordinary care in paying or taking
the instrument and that failure substantially contributes to loss
resulting from the fraud, the person bearing the loss may recover
from the person failing to exercise ordinary care to the extent
the failure to exercise ordinary care contributed to the loss.
(c) Under subsection (b), an indorsement is made in the name
of the person to whom an instrument is payable if (i) it is made
in a name substantially similar to the name of that person or
(ii) the instrument, whether or not indorsed, is deposited in a
depositary bank to an account in a name substantially similar to
the name of that person.
§46-3-406. Negligence contributing to forged signature or
alteration of instrument.
(a) A person whose failure to exercise ordinary care
substantially contributes to an alteration of an instrument or to
the making of a forged signature on an instrument is precluded
from asserting the alteration or the forgery against a person
who, in good faith, pays the instrument or takes it for value or
for collection.
(b) Under subsection (a), if the person asserting the
preclusion fails to exercise ordinary care in paying or taking
the instrument and that failure substantially contributes to
loss, the loss is allocated between the person precluded and the
person asserting the preclusion according to the extent to whichthe failure of each to exercise ordinary care contributed to the
loss.
(c) Under subsection (a), the burden of proving failure to
exercise ordinary care is on the person asserting the preclusion.
Under subsection (b), the burden of proving failure to exercise
ordinary care is on the person precluded.
§46-3-407. Alteration.
(a) "Alteration" means (i) an unauthorized change in an
instrument that purports to modify in any respect the obligation
of a party or (ii) an unauthorized addition of words or numbers
or other change to an incomplete instrument relating to the
obligation of a party.
(b) Except as provided in subsection (c), an alteration
fraudulently made discharges a party whose obligation is affected
by the alteration unless that party assents or is precluded from
asserting the alteration. No other alteration discharges a
party, and the instrument may be enforced according to its
original terms.
(c) A payor bank or drawee paying a fraudulently altered
instrument or a person taking it for value, in good faith and
without notice of the alteration, may enforce rights with respect
to the instrument (i) according to its original terms or (ii) in
the case of an incomplete instrument altered by unauthorized
completion, according to its terms as completed.
§46-3-408. Drawee not liable on unaccepted draft.
A check or other draft does not of itself operate as an
assignment of funds in the hands of the drawee available for its
payment, and the drawee is not liable on the instrument until thedrawee accepts it.
§46-3-409. Acceptance of draft; certified check.
(a) "Acceptance" means the drawee's signed agreement to pay
a draft as presented. It must be written on the draft and may
consist of the drawee's signature alone. Acceptance may be made
at any time and becomes effective when notification pursuant to
instructions is given or the accepted draft is delivered for the
purpose of giving rights on the acceptance to any person.
(b) A draft may be accepted although it has not been signed
by the drawer, is otherwise incomplete, is overdue or has been
dishonored.
(c) If a draft is payable at a fixed period after sight and
the acceptor fails to date the acceptance, the holder may
complete the acceptable by supplying a date in good faith.
(d) "Certified check" means a check accepted by the bank on
which it is drawn. Acceptance may be made as stated in
subsection (a) or by a writing on the check which indicates that
the check is certified. The drawee of a check has no obligation
to certify the check, and refusal to certify is not dishonor of
the check.
§46-3-410. Acceptance varying draft.
(a) If the terms of a drawee's acceptance vary from the
terms of the draft as presented, the holder may refuse the
acceptance and treat the draft as dishonored. In that case, the
drawee may cancel the acceptance.
(b) The terms of a draft are not varied by an acceptance to
pay at the particular bank or place in the United States, unless
the acceptance states that the draft is to be paid only at thatbank or place.
(c) If the holder assents to an acceptance varying the terms
of a draft, the obligation of each drawer and indorser that does
not expressly assent to the acceptance is discharged.
§46-3-411. Refusal to pay cashier's checks, teller's checks and
certified checks.
(a) In this section, "obligated bank" means the acceptor of
a certified check or the issuer of a cashier's check or teller's
check bought from the issuer.
(b) If the obligation bank wrongfully (i) refuses to pay a
cashier's check or certified check, (ii) stops payment of a
teller's check or (iii) refuses to pay a dishonored teller's
check, the person asserting the right to enforce the check is
entitled to compensation for expenses and loss of interest
resulting from the nonpayment and may recover consequential
damages if the obligated bank refuses to pay after receiving
notice of particular circumstances giving rise to the damages.
(c) Expenses or consequential damages under subsection (b)
are not recoverable if the refusal of the obligated bank to pay
occurs because (i) the bank suspends payments, (ii) the obligated
bank asserts a claim or defense of the bank that it has
reasonable grounds to believe is available against the person
entitled to enforce the instrument, (iii) the obligated bank has
a reasonable doubt whether the person demanding payment is the
person entitled to enforce the instrument or (iv) payment is
prohibited by law.
§46-3-412. Obligation of issuer of note or cashier's check.
The issuer of a note or cashier's check or other draft drawnon the drawer is obliged to pay the instrument (i) according to
its terms at the time it was issued or, if not issued, at the
time it first came into possession of a holder or (ii) if the
issuer signed an incomplete instrument, according to its terms
when completed, to the extent stated in sections 3-115 and 3-407.
The obligation is owed to a person entitled to enforce the
instrument or to an indorser who paid the instrument under
section 3-415.
§46-3-413. Obligation of acceptor.
(a) The acceptor of a draft is obliged to pay the draft (i)
according to its terms at the time it was accepted, even though
the acceptance states that the draft is payable "as originally
drawn" or equivalent terms, (ii) if the acceptance varies the
terms of the draft, according to the terms of the draft as varied
or (iii) if the acceptance is of a draft that is an incomplete
instrument, according to its terms when completed, to the extent
stated in sections 3-115 and 3-407. The obligation is owed to a
person entitled to enforce the draft or to the drawer or an
indorser who paid the draft under section 3-414 or 3-415.
(b) If the certification of a check or other acceptance of
a draft states the amount certified or accepted, the obligation
of the acceptor is that amount. If (i) the certification or
acceptance does not state an amount, (ii) the amount of the
instrument is subsequently raised and (iii) the instrument is
then negotiated to a holder in due course, the obligation of the
acceptor is the amount of the instrument at the time it was taken
by the holder in due course.
§46-3-414. Obligation of drawer.
(a) This section does not apply to cashier's checks or other
drafts drawn on the drawer.
(b) If an unaccepted draft is dishonored, the drawer is
obliged to pay the draft (i) according to its terms at the time
it was issued or, if not issued, at the time it first came into
possession of a holder or (ii) if the drawer signed an incomplete
instrument, according to its terms when completed, to the extent
stated in sections 3-115 and 3-407. The obligation is owed to a
person entitled to enforce the draft or to an indorser who paid
the draft under section 3-415.
(c) If a draft is accepted by a bank, the drawer is
discharged, regardless of when or by whom acceptance was
obtained.
(d) If a draft is accepted and the acceptor is not a bank,
the obligation of the drawer to pay the draft if the draft is
dishonored by the acceptor is the same as the obligation of an
indorser under sections 3-415(a) and (c).
(e) If a draft states that it is drawn "without recourse" or
otherwise disclaims liability of the drawer to pay the draft, the
drawer is not liable under subsection (b) to pay the draft if the
draft is not a check. A disclaimer of the liability stated in
subsection (b) is not effective if the draft is a check.
(f) If (i) a check is not presented for payment or given to
a depositary bank for collection within thirty days after its
date, (ii) the drawee suspends payments after expiration of the
thirty-day period without paying the check and (iii) because of
the suspension of payments, the drawer is deprived of funds
maintained with the drawee to cover payment of the check, thedrawer to the extent deprived of funds may discharge its
obligation to pay the check by assigning to the person entitled
to enforce the check the rights of the drawer against the drawee
with respect to the funds.
§46-3-415. Obligation of indorser.
(a) Subject to subsections (b), (c), (d) and (e), if an
instrument is dishonored, an indorser is obliged to pay the
amount due on the instrument (i) according to the terms of the
instrument at the time it was indorsed or (ii) if the indorser
indorsed an incomplete instrument, according to its terms when
completed, to the extent stated in sections 3-115 and 3-407. The
obligation of the indorser is owed to a person entitled to
enforce the instrument or to a subsequent indorser who paid the
instrument under this section.
(b) If an indorsement states that it is made "without
recourse" or otherwise disclaims liability of the indorser, the
indorser is not liable under subsection (a) to pay the
instrument.
(c) If notice of dishonor of an instrument is required by
section 3-503 and notice of dishonor complying with that section
is not given to an indorser, the liability of the indorser under
subsection (a) is discharged.
(d) If a draft is accepted by a bank after an indorsement is
made, the liability of the indorser under subsection (a) is
discharged.
(e) If an indorser of a check is liable under subsection (a)
and the check is not presented for payment, or given to a
depositary bank for collection, within thirty days after the daythe indorsement was made, the liability of the indorser under
subsection (a) is discharged.
§46-3-416. Transfer warranties.
(a) A person who transfers an instrument for consideration
warrants to the transferee and, if the transfer is by
indorsement, to any subsequent transferee that:
(1) The warrantor is a person entitled to enforce the
instrument;
(2) All signatures on the instrument are authentic and
authorized;
(3) The instrument has not been altered;
(4) The instrument is not subject to a defense or claim in
recoupment of any party which can be asserted against the
warrantor; and
(5) The warrantor has no knowledge of any insolvency
proceeding commenced with respect to the maker or acceptor or, in
the case of an unaccepted draft, the drawer.
(b) A person to whom the warranties under subsection (a) are
made and who took the instrument in good faith may recover from
the warrantor as damages for breach of warranty an amount equal
to the loss suffered as a result of the breach, but not more than
the amount of the instrument plus expenses and loss of interest
incurred as a result of the breach.
(c) The warranties stated in subsection (a) cannot be
disclaimed with respect to checks. Unless notice of a claim for
breach of warranty is given to the warrantor within thirty days
after the claimant has reason to know of the breach and the
identity of the warrantor, the liability of the warrantor undersubsection (b) is discharged to the extent of any loss caused by
the delay in giving notice of the claim.
(d) A (cause of action) for breach of warranty under this
section accrues when the claimant has reason to know of the
breach.
§46-3-417. Presentment warranties.
(a) If an unaccepted draft is presented to the drawee for
payment of acceptance and the drawee pays or accepts the draft,
(i) the person obtaining payment or acceptance, at the time of
presentment and (ii) a previous transferor of the draft, at the
time of transfer, warrant to the drawee making payment or
accepting the draft in good faith that:
(1) The warrantor is, or was, at the time the warrantor
transferred the draft, a person entitled to enforce the draft or
authorized to obtain payment or acceptance of the draft on behalf
of a person entitled to enforce the draft;
(2) The draft has not been altered; and
(3) The warrantor has no knowledge that the signature of the
drawer of the draft is unauthorized.
(b) A drawee making payment may recover from any warrantor
damages for breach of warranty equal to the amount paid by the
drawee less the amount the drawee received or is entitled to
receive from the drawer because of the payment. In addition, the
drawee is entitled to compensation for expenses and loss of
interest resulting from the breach. The right of the drawee to
recover damages under this subsection is not affected by any
failure of the drawee to exercise ordinary care in making
payment. If the drawee accepts the draft, breach of warranty isa defense to the obligation of the acceptor. If the acceptor
makes payment with respect to the draft, the acceptor is entitled
to recover from any warrantor for breach of warranty the amounts
stated in this subsection.
(c) If a drawee asserts a claim for breach of warranty under
subsection (a) based on an unauthorized indorsement of the draft
or an alteration of the draft, the warrantor may defend by
proving that the indorsement is effective under section 3-404 or
3-405 or the drawer is precluded under section 3-406 or 4-406
from asserting against the drawee the unauthorized indorsement or
alteration.
(d) If (i) a dishonored draft is presented for payment to
the drawer or an indorser or (ii) any other instrument is
presented for payment to a party obliged to pay the instrument
and (iii) payment is received, the following rules apply:
(1) The person obtaining payment and prior transferor of the
instrument warrant to the person making payment in good faith
that the warrantor is, or was, at the time the warrantor
transferred the instrument, a person entitled to enforce the
instrument or authorized to obtain payment on behalf of a person
entitled to enforce the instrument.
(2) The person making payment may recover from any warrantor
for breach of warranty an amount equal to the amount paid plus
expenses and loss of interest resulting from the breach.
(3) The warranties stated in subsections (a) and (d) cannot
be disclaimed with respect to checks. Unless notice of a claim
for breach of warranty is given to the warrantor within thirty
days after the claimant has reason to know of the breach and theidentity of the warrantor, the liability of the warrantor under
subsection (b) or (d) is discharged to the extent of any loss
caused by the delay in giving notice of the claim.
(e) A (cause of action) for breach of warranty under this
section accrues when the claimant has reason to know of the
breach.
§46-3-418. Payment of acceptance by mistake.
(a) Except as provided in subsection (c), if the drawee of
a draft pays or accepts the draft and the drawee acted on the
mistaken belief that (i) payment of the draft had not been
stopped pursuant to section 4-403 or (ii) the signature of the
drawer of the draft was authorized, the drawee may recover the
amount of the draft from the person to whom or for whose benefit
payment was made or, in the case of acceptance, may revoke the
acceptance. Rights of the drawee under this subsection are not
affected by failure of the drawee to exercise ordinary care in
paying or accepting the draft.
(b) Except as provided in subsection (c), if an instrument
has been paid or accepted by mistake and the case is not covered
by subsection (a), the person paying or accepting may, to the
extent permitted by the law governing mistake and restitution,
(i) recover the payment from the person to whom or for whose
benefit payment was made or (ii) in the case of acceptance, may
revoke the acceptance.
(c) The remedies provided by subsection (a) or (b) may not
be asserted against a person who took the instrument in good
faith and for value or who in good faith changed position in
reliance on the payment or acceptance. This subsection does notlimit remedies provided by section 3-417 or 4-407.
(d) Notwithstanding section 4-215, if an instrument is paid
or accepted by mistake and the payor or acceptor recovers payment
or revokes acceptance under subsection (a) or (b), the instrument
is deemed not to have been paid or accepted and is treated as
dishonored, and the person from whom payment is recovered has
rights as a person entitled to enforce the dishonored instrument.
§46-3-419. Instruments signed for accommodation.
(a) If an instrument is issued for value given for the
benefit of a party to the instrument ("accommodated party") and
another party to the instrument ("accommodation party") signs the
instrument for the purpose of incurring liability on the
instrument without being a direct beneficiary of the value given
for the instrument, the instrument is signed by the accommodation
party "for accommodation."
(b) An accommodation party may sign the instrument as maker,
drawer, acceptor or indorser and, subject to subsection (d), is
obliged to pay the instrument in the capacity in which the
accommodation party signs. The obligation of an accommodation
party may be enforced notwithstanding any statute of frauds and
whether or not the accommodation party receives consideration for
the accommodation.
(c) A person signing an instrument is presumed to be an
accommodation party and there is notice that the instrument is
signed for accommodation if the signature is an anomalous
indorsement or is accompanied by words indicating that the signer
is acting as surety or guarantor with respect to the obligation
of another party to the instrument. Except as provided insection 3-605, the obligation of an accommodation party to pay
the instrument is not affected by the fact that the person
enforcing the obligation had notice when the instrument was taken
by that person that the accommodation party signed the instrument
for accommodation.
(d) If the signature of a party to an instrument is
accompanied by words indicating unambiguously that the party is
guaranteeing collection rather than payment of the obligation of
another party to the instrument, the signer is obliged to pay the
amount due on the instrument to a person entitled to enforce the
instrument only if (i) execution of judgment against the other
party has been returned unsatisfied, (ii) the other party is
insolvent or in an insolvency proceeding, (iii) the other party
cannot be served with process or (iv) it is otherwise apparent
that payment cannot be obtained from the other party.
(e) An accommodation party who pays the instrument is
entitled to reimbursement from the accommodated party and is
entitled to enforce the instrument against the accommodated
party. An accommodated party who pays the instrument has no
right of recourse against, and is not entitled to contribution
from, an accommodation party.
§46-3-420. Conversion of instrument.
(a) The law applicable to conversion of personal property
applies to instruments. An instrument is also converted if it is
taken by the transfer, other than a negotiation, from a person
not entitled to enforce the instrument or a bank makes or obtains
payment with respect to the instrument for a person not entitled
to enforce the instrument or receive payment. An action forconversion of a instrument may not be brought by (i) the issuer
or acceptor of the instrument or (ii) a payee or indorsee who did
not receive delivery of the instrument either directly or through
delivery to an agent or a copayee.
(b) In an action under subsection (a), the measure of
liability is presumed to be the amount payable on the instrument,
but recovery may not exceed the amount of the plaintiff's
interest in the instrument.
(c) A representative, other than a depositary bank, who has
in good faith dealt with an instrument or its proceeds on behalf
of one who was not the person entitled to enforce the instrument
is not liable in conversion to that person beyond the amount of
any proceeds that it has not paid out.
PART 5. DISHONOR.
§46-3-501. Presentment.
(a) "Presentment" means a demand made by or on behalf of a
person entitled to enforce an instrument (i) to pay the
instrument made to the drawee or a party obliged to pay the
instrument or, in the case of a note or accepted draft payable at
a bank, to the bank or (ii) to accept a draft made to the drawee.
(b) The following rules are subject to article four,
agreement of the parties, and clearing-house rules and the like:
(1) Presentment may be made at the place of payment of the
instrument and must be made at the place of payment if the
instrument is payable at a bank in the United States; may be made
by any commercially reasonable means, including an oral, written,
or electronic communication; is effective when the demand for
payment or acceptance is received by the person to whompresentment is made; and is effective if made to any one of two
or more makers, acceptors, drawers or other payors.
(2) Upon demand of the person to whom presentment is made,
the person making presentment must (i) exhibit the instrument,
(ii) give reasonable identification and, if presentment is made
on behalf of another person, reasonable evidence of authority to
do so and (iii) sign a receipt on the instrument for any payment
made or surrender the instrument if full payment is made.
(3) Without dishonoring the instrument, the party to whom
presentment is made may (i) return the instrument for lack of a
necessary indorsement or (ii) refuse payment or acceptance for
failure of the presentment to comply with the terms of the
instrument, an agreement of the parties, or other applicable law
or rule.
(4) The party to whom presentment is made may treat
presentment as occurring on the next business day after the day
of presentment if the party to whom presentment is made has
established a cutoff hour not earlier than two p.m. for the
receipt and processing of instruments presented for payment or
acceptance and presentment is made after the cutoff hour.
§46-3-502. Dishonor.
(a) Dishonor of a note is governed by the following rules:
(1) If the note is payable on demand, the note is dishonored
if presentment is duly made to the maker and the note is not paid
on the day of presentment.
(2) If the note is not payable on demand and is payable at
or through a bank or the terms of the note require presentment,
the note is dishonored if presentment is duly made and the noteis not paid on the day it becomes payable or the day of
presentment, whichever is later.
(3) If the note is not payable on demand and paragraph (2)
does not apply, the note is dishonored if it is not paid on the
day it becomes payable.
(b) Dishonor of an unaccepted draft other than a documentary
draft is governed by the following rules:
(1) If a check is duly presented for payment to the payor
bank otherwise than for immediate payment over the counter, the
check is dishonored if the payor bank makes timely return of the
check or sends timely notice of dishonor or nonpayment under
section 4-301 or 4-302, or becomes accountable for the amount of
the check under section 4-302.
(2) If a draft is payable on demand and paragraph (1) does
not apply, the draft is dishonored if presentment for payment is
duly made to the drawee and the draft is not paid on the day of
presentment.
(3) If a draft is payable on a date stated in the draft, the
draft is dishonored if (i) presentment for payment is duly made
to the drawee and payment is not made on the day the draft
becomes payable or the day of presentment, whichever is later or
(ii) presentment for acceptance is duly made before the day the
draft becomes payable and the draft is not accepted on the day of
presentment.
(4) If a draft is payable on elapse of a period of time
after sight or acceptance, the draft is dishonored if presentment
for acceptance is duly made and the draft is not accepted on the
day of presentment.
(c) Dishonor of an unaccepted documentary draft occurs
according to the rules stated in subsection (b)(2), (3) and (4),
except that payment or acceptance may be delayed without dishonor
until no later than the close of the third business day of the
drawee following the day on which payment or acceptance is
required by those paragraphs.
(d) Dishonor of an accepted draft is governed by the
following rules:
(1) If the draft is payable on demand, the draft is
dishonored if presentment for payment is duly made to the
acceptor and the draft is not paid on the day of presentment.
(2) If the draft is not payable on demand, the draft is
dishonored if presentment for payment is duly made to the
acceptor and payment is not made on the day it becomes payable or
the day of presentment, whichever is later.
(e) In any case in which presentment is otherwise required
for dishonor under this section and presentment is excused under
section 3-504, dishonor occurs without presentment if the
instrument is not duly accepted or paid.
(f) If a draft is dishonored because timely acceptance of
the draft was not made and the person entitled to demand
acceptance consents to a late acceptance, from the time of
acceptance the draft is treated as never having been dishonored.
§46-3-503. Notice of dishonor.
(a) The obligation of an indorser stated in section 3-415(a)
and the obligation of a drawer stated in section 3-414(d) may not
be enforced unless (i) the indorser or drawer is given notice of
dishonor of the instrument complying with this section or (ii)notice of dishonor is excused under section 3-504(b).
(b) Notice of dishonor may be given by any person; may be
given by any commercially reasonable means, including an oral,
written or electronic communication; and is sufficient if it
reasonably identifies the instrument and indicates that the
instrument has been dishonored or has not been paid or accepted.
Return of an instrument given to a bank for collection is
sufficient notice of dishonor.
(c) Subject to section 3-504(c), with respect to an
instrument taken for collection by a collecting bank, notice of
dishonor must be given (i) by the bank before midnight of the
next banking day following the banking day on which the bank
receives notice of dishonor of the instrument or (ii) by any
other person within thirty days following the day on which the
person receives notice of dishonor. With respect to any other
instrument, notice of dishonor must be given within thirty days
following the day on which dishonor occurs.
§46-3-504. Excused presentment and notice of dishonor.
(a) Presentment for payment or acceptance of an instrument
is excused if (i) the person entitled to present the instrument
cannot with reasonable diligence make presentment, (ii) the maker
or acceptor has repudiated an obligation to pay the instrument or
is dead or in insolvency proceedings, (iii) by the terms of the
instrument presentment is not necessary to enforce the obligation
of indorsers or the drawer, (iv) the drawer or indorser whose
obligation is being enforced has waived presentment or otherwise
has no reason to expect or right to require that the instrument
be paid or accepted or (v) the drawer instructed the drawee notto pay or accept the draft or the drawee was not obligated to the
drawer to pay the draft.
(b) Notice of dishonor is excused if (i) by the terms of the
instrument notice of dishonor is not necessary to enforce the
obligation of a party to pay the instrument or (ii) the party
whose obligation is being enforced waived notice of dishonor. A
waiver of presentment is also a waiver of notice of dishonor.
(c) Delay in giving notice of dishonor is excused if the
delay was caused by circumstances beyond the control of the
person giving the notice and the person giving the notice
exercised reasonable diligence after the cause of the delay
ceased to operate.
§46-3-505. Evidence of dishonor.
(a) The following are admissible as evidence and create a
presumption of dishonor and of any notice of dishonor stated:
(1) A document regular in form as provided in subsection (b)
which purports to be a protest;
(2) A purported stamp or writing of the drawee, payor bank
or presenting bank on or accompanying the instrument stating that
acceptance or payment has been refused unless reasons for the
refusal are stated and the reasons are not consistent with
dishonor;
(3) A book or record of the drawee, payor bank or collecting
bank, kept in the usual course of business which shows dishonor,
even if there is no evidence of who made the entry.
(b) A protest is a certificate of dishonor made by a United
States consul or vice consul, or a notary public or other person
authorized to administer oaths by the law of the place wheredishonor occurs. It may be made upon information satisfactory to
that person. The protest must identify the instrument and
certify either that presentment has been made or, if not made,
the reason why it was not made, and that the instrument has been
dishonored by nonacceptance or nonpayment. The protest may also
certify that notice of dishonor has been given to some or all
parties.
PART 6. DISCHARGE AND PAYMENT.
§46-3-601. Discharge and effect of discharge.
(a) The obligation of a party to pay the instrument is
discharged as stated in this article or by an act or agreement
with the party which would discharge an obligation to pay money
under a simple contract.
(b) Discharge of the obligation of a party is not effective
against a person acquiring rights of a holder in due course of
the instrument without notice of the discharge.
§46-3-602. Payment.
(a) Subject to subsection (b), an instrument is paid to the
extent payment is made (i) by or on behalf of a party obliged to
pay the instrument and (ii) to a person entitled to enforce the
instrument. To the extent of the payment, the obligation of the
party obliged to pay the instrument is discharged even though
payment is made with knowledge of a claim to the instrument under
section 3-306 by another person.
(b) The obligation of a party to pay the instrument is not
discharged under subsection (a) if:
(1) A claim to the instrument under section 3-306 is
enforceable against the party receiving payment and (i) paymentis made with knowledge by the payor that payment is prohibited by
injunction or similar process of a court of competent
jurisdiction or (ii) in the case of an instrument other than a
cashier's check, teller's check or certified check, the party
making payment accepted, from the person having a claim to the
instrument, indemnity against loss resulting from refusal to pay
the person entitled to enforce the instrument; or
(2) The person making payment knows that the instrument is
a stolen instrument and pays a person it knows is in wrongful
possession of the instrument.
§46-3-603. Tender of payment.
(a) If tender of payment of an obligation to pay an
instrument is made to a person entitled to enforce the
instrument, the effect of tender is governed by principles of law
applicable to tender of payment under a simple contract.
(b) If tender of payment of an obligation to pay an
instrument is made to a person entitled to enforce the instrument
and the tender is refused, there is discharge, to the extent of
the amount of the tender, of the obligation of an indorser or
accommodation party having a right of recourse with respect to
the obligation to which the tender relates.
(c) If tender of payment of an amount due on an instrument
is made to a person entitled to enforce the instrument, the
obligation of the obligor to pay interest after the due date on
the amount tendered is discharged. If presentment is required
with respect to an instrument and the obligor is able and ready
to pay on the due date at every place of payment stated in the
instrument, the obligor is deemed to have made tender of paymenton the due date to the person entitled to enforce the instrument.
§46-3-604. Discharged by cancellation or renunciation.
(a) A person entitled to enforce an instrument, with or
without consideration, may discharge the obligation of a party to
pay the instrument (i) by an intentional voluntary act, such as
surrender of the instrument to the party, destruction,
mutilation, or cancellation of the instrument, cancellation or
striking out of the party's signature or the addition of words to
the instrument indicating discharge or (ii) by agreeing not to
sue or otherwise renouncing rights against the party by a signed
writing.
(b) Cancellation or striking out of an indorsement pursuant
to subsection (a) does not affect the status and rights of a
party derived from the indorsement.
§46-3-605. Discharge of indorsers and accommodation parties.
(a) In this section, the term "indorser" includes a drawer
having the obligation described in section 3-414(d).
(b) Discharge, under section 3-604, of the obligation of a
party to pay an instrument does not discharge the obligation of
an indorser or accommodation party having a right of recourse
against the discharge party.
(c) If a person entitled to enforce an instrument agrees,
with or without consideration, to an extension of the due date of
the obligation of a party to pay the instrument, the extension
discharges an indorser or accommodation party having a right of
recourse against the party whose obligation is extended to the
extent the indorser or accommodation party proves that the
extension caused loss to the indorser or accommodation party withrespect to the right of recourse.
(d) If a person entitled to enforce an instrument agrees,
with or without consideration, to a material modification of the
obligation of a party other than an extension of the due date,
the modification discharges the obligation of an indorser or
accommodation party having a right of recourse against the person
whose obligation is modified to the extent the modification
causes loss to the indorser or accommodation party with respect
to the right of recourse. The loss suffered by the indorser or
accommodation party as a result of the modification is equal to
the amount of the right of recourse unless the person enforcing
the instrument proves that no loss was caused by the modification
or that the loss caused by the modification was an amount less
than the amount of the right of recourse.
(e) If the obligation of a party to pay an instrument is
secured by an interest in collateral and a person entitled to
enforce the instrument impairs the value of the interest in
collateral, the obligation of an indorser or accommodation party
having a right of recourse against the obligor is discharged to
the extent of the impairment. The value of an interest in
collateral is impaired to the extent (i) the value of the
interest is reduced to an amount less than the amount of the
right of recourse of the party asserting discharge or (ii) the
reduction in value of the interest causes an increase in the
amount by which the amount of the right of recourse exceeds the
value of the interest. The burden of proving impairment is on
the party asserting discharge.
(f) If the obligation of a party is secured by an interestin collateral not provided by an accommodation party and a person
entitled to enforce the instrument impairs the value of the
interest in collateral, the obligation of any party who is
jointly and severally liable with respect to the secured
obligation is discharged to the extent the impairment causes the
party asserting discharge to pay more than that party would have
been obliged to pay, taking into account rights of contribution,
if impairment had not occurred. If the party asserting discharge
is an accommodation party not entitled to discharge under
subsection (e), the party is deemed to have a right to
contribution based on joint and several liability rather than a
right to reimbursement. The burden of proving impairment is on
the party asserting discharge.
(g) Under subsection (e) or (f), impairing value of an
interest in collateral includes (i) failure to obtain or maintain
perfection or recordation of the interest in collateral, (ii)
release of collateral without substitution of collateral of equal
value, (iii) failure to perform a duty to preserve the value of
collateral owed, under article nine or other law, to a debtor or
surety or other person secondarily liable or (iv) failure to
comply with applicable law in disposing of collateral.
(h) An accommodation party is not discharged under
subsection (c), (d) or (e) unless the person entitled to enforce
the instrument knows of the accommodation or has notice under
section 3-419 (c) that the instrument was signed for
accommodation.
(i) A party is not discharged under this section if (i) the
party asserting discharge consents to the event or conduct thatis the basis of the discharge or (ii) the instrument or a
separate agreement of the party provides for waiver if discharge
under this section either specifically or by general language
indicating that parties waive defenses based on suretyship or
impairment of collateral.
ARTICLE 4. BANK DEPOSITS AND COLLECTIONS.
§46-4-101. Short title.
PART 1. GENERAL PROVISIONS AND DEFINITIONS.
This article shall be known and may be cited as Uniform
Commercial Code -- Bank Deposits and Collections.
§46-4-102. Applicability.
(1) (a) To the extent that items within this article are
also within the scope of articles three and eight, they are
subject to the provisions of those articles. In the event of If
there is conflict, the provisions of this article govern those of
governs article three but the provisions of article eight govern
those of governs this article.
(2) (b) The liability of a bank for action or nonaction with
respect to any an item handled by it for purposes of presentment,
payment or collection is governed by the law of the place where
the bank is located. In the case of action or nonaction by or at
a branch or separate office of a bank, its liability is governed
by the law of the place where the branch or separate office is
located.
§46-4-103. Variation by agreement; measure of damages; action
constituting ordinary care.
(1) (a) The effect of the provisions of this article may be
varied by agreement except that no agreement can but the partiesto the agreement cannot disclaim a bank's responsibility for its
own lack of good faith or failure to exercise ordinary care or
can limit the measure of damages for such the lack or failure.
but However, the parties may determine by agreement determine the
standards by which such the bank's responsibility is to be
measured if such those standards are not manifestly unreasonable.
(2) (b) Federal reserve regulations and operating letters,
clearinghouse circulars, clearing-house rules, and the like, have
the effect of agreements under subsection (1) (a), whether or not
specifically assented to by all parties interested in items
handled.
(3) (c) Action or nonaction approved by this article or
pursuant to federal reserve regulations or operating letters
constitutes circulars is the exercise of ordinary care and, in
the absence of special instructions, action or nonaction
consistent with clearinghouse clearing-house rules and the like
or with a general banking usage not disapproved by this article,
is prima facie constitutes the exercise of ordinary care.
(4) (d) The specification or approval of certain procedures
by this article does not constitute is not disapproval of other
procedures which that may be reasonable under the circumstances.
(5) (e) The measure of damages for failure to exercise
ordinary care in handling an item is the amount of the item
reduced by an amount which that could not have been realized by
the use exercise of ordinary care. and where If there is also
bad faith it includes any other damages if any, suffered by the
party suffered as a proximate consequence.
§46-4-104. Definitions and index of definitions.
(1) (a) In this article unless the context otherwise
requires:
(a) (1) "Account" means any deposit or credit account with
a bank, and includes a checking, time, interest or savings
account including demand, time, savings, passbook, share draft,
or like account, other than an account evidenced by a certificate
of deposit;
(b) (2) "Afternoon" means the period of a day between noon
and midnight;
(c) (3) "Banking day" means that the part of any a day on
which a bank is open to the public for carrying on substantially
all of its banking functions;
(d) (4) "Clearinghouse" means any an association of banks or
other payors regularly clearing items;
(e) (5) "Customer" means any a person having an account with
a bank or for whom a bank has agreed to collect items, and
includes including a bank carrying that maintains an account with
at another bank;
(f) (6) "Documentary draft" means any negotiable or
nonnegotiable draft with accompanying documents, securities or
other papers to be delivered against honor of the draft a draft
to be presented for acceptance or payment is specified documents,
certificated securities (section 8-102) or instructions for
uncertificated securities (section 8-308), or other certificates,
statements, or the like are to be received by the drawee or other
payor before acceptance or payment of the draft;
(7) "Draft" means a draft as defined in section 3-104 or an
item, other than an instrument, that is an order;
(8) "Drawee" means a person ordered in a draft to make
payment;
(g) (9) "Item" means any instrument for the payment of money
even though it is not negotiable but does not include money an
instrument or a promise or order to pay money handled by a bank
for collection or payment. The term does not include a payment
order governed by article four-a or a credit or debit card slip;
(h) (10) "Midnight deadline" with respect to a bank is
midnight on its next banking day following the banking day on
which it receives the relevant item or notice or from which the
time for taking action commences to run, whichever is later;
(i) "Properly payable" includes the availability of funds
for payment at the time of decision to pay or dishonor;
(j) (11) "Settle" means to pay in cash, by clearinghouse
clearing-house settlement, in a charge or credit or by
remittance, or otherwise as instructed agreed. A settlement may
be either provisional or final;
(k) (12) "Suspends payments" with respect to a bank means
that it has been closed by order of the supervisory authorities,
that a public officer has been appointed to take it over or that
it ceases or refuses to make payments in the ordinary course of
business.
(2) (b) Other definitions applying to this article and the
sections in which they appear are:
"Agreement for electronic
presentment"Section 4-110.
"Bank"Section 4-105.
"Collecting bank" Section 4-105.
"Depositary bank" Section 4-105.
"Intermediary bank" Section 4-105.
"Payor bank" Section 4-105.
"Presenting bank" Section 4-105.
"Presentment notice"Section 4-110.
"Remitting bank"Section 4-105.
(3) (c) The following definitions in other articles of this
chapter apply to this article:
"Acceptance" Section 3-410 3-409.
"Alteration"Section 3-407.
"Cashier's check"Section 3-104.
"Certificate of deposit" Section 3-104.
"Certification"Section 3-411.
"Certified check"Section 3-409.
"Check" Section 3-104.
"Draft"Section 3-104.
"Good faith"Section 3-103.
"Holder in due course" Section 3-302.
"Instrument"Section 3-104.
"Notice of dishonor" Section 3-508 3-503.
"Order"Section 3-103.
"Ordinary care"Section 3-103.
"Person entitled to enforce"Section 3-301.
"Presentment" Section 3-504 3-501.
"Promise"Section 3-103.
"Protest" Section 3-509.
"Prove"Section 3-103.
"Secondary party" Section 3-102.
"Unauthorized signature"Section 3-403.
(4) (d) In addition article one of this chapter contains
general definitions and principles of construction and
interpretation applicable throughout this article.
§46-4-105. "Bank"; "depositary bank"; "intermediary bank";
"collecting bank"; "payor bank"; "presenting bank."
In this article: unless the context otherwise requires
(1) "Bank" means a person engaged in the business of
banking, including a savings bank, savings and loan association,
credit union or trust company;
(a) (2) "Depositary bank" means the first bank to which take
an item is transferred for collection even though it is also the
payor bank unless the item is presented for immediate payment
over the counter;
(b) (3) "Payor bank" means a bank by which an item is
payable as drawn or accepted that is the drawee of a draft;
(c) (4) "Intermediary bank" means any a bank to which an
item is transferred in course of collection except the depositary
or payor bank;
(d) (5) "Collecting bank" means any a bank handling the an
item for collection except the payor bank;
(e) (6) "Presenting bank" means any a bank presenting an
item except a payor bank.
(f) "Remitting bank" means any payor or intermediary bank
remitting for an item.
§46-4-106. Payable through or payable at bank; collecting bank.
(a) If an item states that it is "payable through" a bankidentified in the item, (i) the item designates the bank as a
collecting bank and does not by itself authorize the bank to pay
the item and (ii) the item may be presented for payment only by
or through the bank.
(b) If an item states that it is "payable at" a bank
identified in the item, (i) the item designates the bank as a
collecting bank and does not by itself authorize the bank to pay
the item and (ii) the item may be presented for payment only by
or through the bank.
(c) If a draft names a nonbank drawee and it is unclear
whether a bank named in the draft is a co-drawee or a collecting
bank, the bank is a collecting bank.
§46-4-107. Separate office of a bank.
A branch or separate office of a bank maintaining its own
deposit ledgers is a separate bank for the purpose of computing
the time within which and determining the place at or to which
action may be taken or notices or orders shall must be given
under this article and under article three.
§46-4-108. Time of receipt of items.
(1) (a) For the purpose of allowing time to process items,
prove balances and make the necessary entries on its books to
determine its position for the day, a bank may fix an afternoon
hour of two p.m. or later as a cut-off cutoff hour for the
handling of money and items and the making of entries on its
books.
(2) (b) Any An item or deposit of money received on any day
after a cut-off cutoff hour so fixed or after the close of the
banking day may be treated as being received at the opening ofthe next banking day.
§46-4-109. Delays.
(1) (a) Unless otherwise instructed, a collecting bank in a
good faith effort to secure payment may, in the case of a
specific items item drawn on a payor other than a bank, and with
or without the approval of any person involved, may waive, modify
or extend time limits imposed or permitted by this chapter for a
period not in excess of an exceeding two additional banking day
days without discharge of secondary parties and without drawers
or indorsers or liability to its transferor or any a prior party.
(2) (b) Delay by a collecting bank or payor bank beyond time
limits prescribed or permitted by this chapter or by instruction
is excused if (i) the delay is caused by interruption of
communication or computer facilities, suspension of payments by
another bank, war, emergency conditions, failure of equipment or
other circumstances beyond the control of the bank provided it
and (ii) the bank exercises such diligence as the circumstances
require.
§46-4-110. Electronic presentment.
(a) "Agreement for electronic presentment" means an
agreement, clearing-house rule or federal reserve regulation or
operating circular, providing that presentment of an item may be
made by transmission of an image of an item or information
describing the item ("presentment notice") rather than delivery
of the item itself. The agreement may provide for procedures
governing retention, presentment, payment, dishonor and other
matters concerning items subject to the agreement.
(b) Presentment of an item pursuant to an agreement forpresentment is made when the presentment notice is received.
(c) If presentment is made by presentment notice, a
reference to "item" or "check" in this article means the
presentment notice unless the context otherwise indicates.
§46-4-111. Statute of limitations.
An action to enforce an obligation, duty or right arising
under this article must be commenced within three years after the
(cause of action) accrues.
PART 2. COLLECTION OF ITEMS: DEPOSITARY AND
COLLECTING BANKS.
§46-4-201. Status of collecting banks as agent and provisional
status of credits; applicability of article; item
indorsed "pay any bank."
(1) (a) Unless a contrary intent clearly appears and prior
to before the time that a settlement given by a collecting bank
for an item is or becomes final, (subsection (3) of section 4-211
and sections 4-212 and 4-213) the bank, with respect to the item,
is an agent or subagent of the owner of the item and any
settlement given for the item is provisional. This provision
applies regardless of the form of indorsement or lack of
indorsement and even though credit given for the item is subject
to immediate withdrawal as of right or is in fact withdrawn; but
the continuance of ownership of an item by its owner and any
rights of the owner to proceeds of the item are subject to rights
of a collecting bank, such as those resulting from outstanding
advances on the item and valid rights of recoupment setoff. When
If an item is handled by banks for purposes of presentment,
payment, and collection or return, the relevant provisions ofthis article apply even though action of the parties clearly
establishes that a particular bank has purchased the item and is
the owner of it.
(2) (b) After an item has been indorsed with the words "pay
any bank" or the like, only a bank may acquire the rights of a
holder until the item has been:
(a) (1) until the item has been Returned to the customer
initiating collection; or
(b) (2) until the item has been Specially indorsed by a bank
to a person who is not a bank.
§46-4-202. Responsibility for collection or return; when action
timely.
(1) (a) A collecting bank must use exercise ordinary care
in:
(a) (1) Presenting an item or sending it for presentment;
and
(b) (2) Sending notice of dishonor or nonpayment or
returning an item other than a documentary draft to the bank's
transferor or directly to the depositary bank under subsection
(2) of section 4-212 after learning that the item has not been
paid or accepted, as the case may be; and
(c) (3) Settling for an item when the bank receives final
settlement; and
(d) making or providing for any necessary protest; and
(e) (4) Notifying its transferor of any loss or delay in
transit within a reasonable time after discovery thereof.
(2) A collecting bank taking proper action before its
midnight deadline following receipt of an item, notice or paymentacts seasonably; taking proper action within a reasonably longer
time may be seasonable but the bank has the burden of so
establishing.
(b) A collecting bank exercises ordinary care under
subsection (a) by taking proper action before its midnight
deadline following receipt of an item, notice or settlement.
Taking proper action within a reasonably longer time may
constitute the exercise of ordinary care, but the bank has the
burden of establishing timeliness.
(3) (c) Subject to subsection (1) (a) (a)(1), a bank is not
liable for the insolvency, neglect, misconduct, mistake or
default of another bank or person or for loss or destruction of
an item in the possession of others or in transit. or in the
possession of others
§46-4-203. Effect of instructions.
Subject to the provisions of article three concerning
conversion of instruments (section 3-419 3-420) and the
provisions of both article 3 and this article concerning
restrictive indorsements (section 3-206), only a collecting
bank's transferor can give instructions which that affect the
bank or constitute notice to it and a collecting bank is not
liable to prior parties for any action taken pursuant to such the
instructions or in accordance with any agreement with its
transferor.
§46-4-204. Methods of sending and presenting; sending directly
to payor bank.
(1) (a) A collecting bank must shall send items by a
reasonably prompt method taking into consideration any relevantinstructions, the nature of the item, the number of such those
items on hand, and the cost of collection involved and the method
generally used by it or others to present such those items.
(2) (b) A collecting bank may send:
(a) (1) Any An item direct directly to the payor bank;
(b) (2) Any An item to any a nonbank payor if authorized by
its transferor; and
(c) (3) Any An item other than documentary drafts to any a
nonbank payor, if authorized by federal reserve regulation or
operating letter circular, clearinghouse clearing-house, rule or
the like.
(3) (c) Presentment may be made by a presenting bank at a
place where the payor bank or other payor has requested that
presentment be made.
§46-4-205. Depositary bank holder of unindorsed item.
(1) A depositary bank which has taken an item for collection
may supply any indorsement of the customer which is necessary to
title unless the item contains the words "payee's indorsement
required" or the like. In the absence of such a requirement a
statement placed on the item by the depositary bank to the effect
that the item was deposited by a customer or credited to his
account is effective as the customer's indorsement.
(2) An intermediary bank, or payor bank which is not a
depositary bank, is neither given notice nor otherwise affected
by a restrictive indorsement of any person except the bank's
immediate transferor.
If a customer delivers an item to a depositary bank for
collection:
(1) The depositary bank becomes a holder of the item at the
time it receives the item for collection if the customer at the
time of delivery was a holder of the item, whether or not the
customer indorses the item, and, if the bank satisfies the other
requirements of section 3-302, it is a holder in due course; and
(2) The depositary bank warrants to collecting banks, the
payor bank or other payor, and the drawer that the amount of the
item was paid to the customer or deposited to the customer's
account.
§46-4-206. Transfer between banks.
Any agreed method which that identifies the transferor bank
is sufficient for the item's further transfer to another bank.
§46-4-207. Transfer warranties.
(a) A customer or collecting bank that transfers an item and
receives a settlement or other consideration warrants to the
transferee and to any subsequent collecting bank that:
(1) The warrantor is a person entitled to enforce the item;
(2) All signatures on the item are authentic and authorized;
(3) The item has not been altered;
(4) The item is not subject to a defense or claim in
recoupment (section 3-305(a)) of any party that can be asserted
against the warrantor; and
(5) The warrantor has no knowledge of any insolvency
proceeding commenced with respect to the maker or acceptor or, in
the case of an unaccepted draft, the drawer.
(b) If an item is dishonored, a customer or collecting bank
transferring the item and receiving settlement or other
consideration is obliged to pay the amount due on the item (i)according to the terms of the item at the time it was transferred
or (ii) if the transfer was of an incomplete item, according to
its terms when completed as stated in sections 3-115 and 3-407.
The obligation of a transferor is owed to the transferee and to
any subsequent collecting bank that takes the item in good faith.
A transferor cannot disclaim its obligation under this subsection
by an indorsement stating that it is made "without recourse" or
otherwise disclaiming liability.
(c) A person to whom the warranties under subsection (a) are
made and who took the item in good faith may recover from the
warrantor as damages for breach of warranty an amount equal to
the loss suffered as a result of the breach, but not more than
the amount of the item plus expenses and loss of interest
incurred as a result of the breach.
(d) The warranties stated in subsection (a) cannot be
disclaimed with respect to checks. Unless notice of a claim for
breach of warranty is given to the warrantor within thirty days
after the claimant has reason to know of the breach and the
identity of the warrantor, the warrantor is discharged to the
extent of any loss caused by the delay in giving notice of the
claim.
(e) A cause of action for breach of warranty under this
section accrues when the claimant has reason to know of the
breach.
§46-4-208. Presentment warranties.
(a) If an unaccepted draft is presented to the drawee for
payment or acceptance and the drawee pays or accepts the draft,
(i) the person obtaining payment or acceptance, at the time ofpresentment and (ii) a previous transferor of the draft, at the
time of transfer, warrant to the drawee that pays or accepts the
draft in good faith that:
(1) The warrantor is, or was, at the time the warrantor
transferred the draft, a person entitled to enforce the draft or
authorized to obtain payment or acceptance of the draft on behalf
of a person entitled to endorse the draft;
(2) The draft has not been altered; and
(3) The warrantor has no knowledge that the signature of the
purported drawer of the draft is unauthorized.
(b) A drawee making payment may recover from a warrantor
damages for breach of warranty equal to the amount paid by the
drawee less the amount the drawee received or is entitled to
receive from the drawer because of the payment. In addition, the
drawee is entitled to compensation for expenses and loss of
interest resulting from the breach. The right of the drawee to
recover damages under this subsection is not affected by any
failure of the drawee to exercise ordinary care in making
payment. If the drawee accepts the draft, (i) breach of warranty
is a defense to the obligation of the acceptor and (ii) if the
acceptor makes payment with respect to the draft, the acceptor is
entitled to recover from a warrantor for breach of warranty the
amounts stated in this subsection.
(c) If a drawee asserts a claim for breach of warranty under
subsection (a) based on an unauthorized indorsement of the draft
or an alteration of the draft, the warrantor may defend by
proving that the indorsement is effective under section 3-404 or
3-405 or the drawer is precluded under section 3-406 or 4-406from asserting against the drawee the unauthorized indorsement or
alteration.
(d) If, (i) a dishonored draft is presented for payment to
the drawer or an indorser or (ii) any other item is presented for
payment to a party obliged to pay the item, and the item is paid,
the person obtaining payment and a prior transferor of the item
warrant to the person making payment in good faith that the
warrantor is, or was, at the time the warrantor transferred the
item, a person entitled to enforce the item or authorized to
obtain payment on behalf of a person entitled to enforce the
item. The person making payment may recover from any warrantor
for breach of warranty an amount equal to the amount paid plus
expenses and loss of interest resulting from the breach.
(e) The warranties stated in subsections (a) and (d) cannot
be disclaimed with respect to checks. Unless notice of a claim
for breach of warranty is given to the warrantor within thirty
days after the claimant has reason to know of the breach and the
identity of the warrantor, the warrantor is discharged to the
extent of any loss caused by the delay in giving notice of the
claim.
(f) A cause of action for breach of warranty under this
section accrues when the claimant has reason to know of the
breach.
§46-4-209. Encoding and retention warranties.
(a) A person who encodes information on or with respect to
an item after issue warrants to any subsequent collecting bank
and to the payor bank or other payor that the information is
correctly encoded. If the customer of a depositary bank encodes,that bank also makes the warranty.
(b) A person who undertakes to retain an item pursuant to an
agreement for electronic presentment warrants to any subsequent
collecting bank and to the payor bank or other payor that
retention and presentment of the item comply with the agreement.
If a customer of a depositary bank undertakes to retain an item,
that bank also makes this warranty.
(c) A person to whom warranties are made under this section
and who took the item in good faith may recover from the
warrantor as damages for breach of warranty an amount equal to
the loss suffered as a result of the breach, plus expenses and
loss of interest incurred as a result of the breach.
§46-4-210. Security interest of collecting bank in items,
accompanying documents and proceeds.
(1) (a) A collecting bank has a security interest in an item
and any accompanying documents or the proceeds of either:
(a) (1) In case of an item deposited in an account, to the
extent to which credit given for the item has been withdrawn or
applied;
(b) (2) In case of an item for which it has given credit
available for withdrawal as of right, to the extent of the credit
given, whether or not the credit is drawn upon and whether or not
there is a right of charge-back; or
(c) (3) If it makes an advance on or against the item.
(2) (b) When If credit which has been given for several
items received at one time or pursuant to a single agreement is
withdrawn or applied in part, the security interest remains upon
all the items, any accompanying documents or the proceeds ofeither. For the purpose of this section, credits first given are
first withdrawn.
(3) (c) Receipt by a collecting bank of a final settlement
for an item is a realization on its security interest in the
item, accompanying documents and proceeds. To the extent and so
So long as the bank does not receive final settlement for the
item or give up possession of the item or accompanying documents
for purposes other than collection, the security interest
continues to that extent and is subject to the provisions of
article nine except that but:
(a) (1) No security agreement is necessary to make the
security interest enforceable (subsection (1) (b) of (section 9-
203 (1)(a)); and
(b) (2) No filing is required to perfect the security
interest; and
(c) (3) The security interest has priority over conflicting
perfected security interests in the item, accompanying documents
or proceeds.
§46-4-211. When bank gives value for purposes of holder in due
course.
For purposes of determining its status as a holder in due
course, the a bank has given value to the extent that it has a
security interest in an item, provided that if the bank otherwise
complies with the requirements of section 3-302 on what
constitutes a holder in due course.
§46-4-212. Presentment by notice of item not payable by,
through or at a bank; liability of drawer or
indorser.
(1) (a) Unless otherwise instructed, a collecting bank may
present an item not payable by, through, or at a bank by sending
to the party to accept or pay a written notice that the bank
holds the item for acceptance or payment. The notice must be
sent in time to be received on or before the day when presentment
is due and the bank must meet any requirement of the party to
accept or pay under section 3-505 3-501 by the close of the
bank's next banking day after it knows of the requirement.
(2) (b) Where If presentment is made by notice and neither
honor nor payment, acceptance, or request for compliance with a
requirement under section 3-505 3-501 is not received by the
close of business on the day after maturity or in the case of
demand items by the close of business on the third banking day
after notice was sent, the presenting bank may treat the item as
dishonored and charge any secondary party drawer or indorser by
sending him it notice of the facts.
§46-4-213. Medium and time of settlement by bank.
(a) With respect to settlement by a bank, the medium and
time of settlement may be prescribed by federal reserve
regulations or circulars, clearing-house rules, and the like, or
agreement. In the absence of such prescription:
(1) The medium of settlement is cash or credit to an account
in a federal reserve bank of or specified by the person to
receive settlement; and
(2) The time of settlement is:
(i) With respect to tender of settlement by cash, a
cashier's check, or teller's check, when the cash or check is
sent or delivered;
(ii) With respect to tender of settlement by credit in an
account in a federal reserve bank, when the credit is made;
(iii) With respect to tender of settlement by a credit or
debit to an account in a bank, when the credit or debit is made
or, in the case of tender of settlement by authority to charge an
account, when the authority is sent or delivered; or
(iv) With respect to tender of settlement by a funds
transfer, when payment is made pursuant to section 4A-406(a) to
the person receiving settlement.
(b) If the tender of settlement is not by a medium
authorized by subsection (a) or the time of settlement is not
fixed by subsection (a), no settlement occurs until the tender of
settlement is accepted by the person receiving settlement.
(c) If settlement for an item is made by cashier's check or
teller's check and the person receiving settlement, before its
midnight deadline:
(1) Presents or forwards the check for collection,
settlement is final when the check is finally paid; or
(2) Fails to present or forward the check for collection,
settlement is final at the midnight deadline of the person
receiving settlement.
(d) If settlement for an item is made by giving authority to
charge the account of the bank giving settlement in the bank
receiving settlement, settlement is final when the charge is made
by the bank receiving settlement if there are funds available in
the account for the amount of the item.
§46-4-214. Right of charge-back or refund; liability of
collecting bank; return of item.
(1) (a) If a collecting bank has made provisional settlement
with its customer for an item and itself fails by reason of
dishonor, suspension of payments by a bank or otherwise to
receive a settlement for the item which is or becomes final, the
bank may revoke the settlement given by it, charge back the
amount of any credit given for the item to its customer's account
or obtain refund from its customer whether or not it is able to
return the items item if by its midnight deadline or within a
longer reasonable time after it learns the facts it returns the
item or sends notification of the facts. If the return or notice
is delayed beyond the bank's midnight deadline or a longer
reasonable time after it learns the facts, the bank may revoke
the settlement, charge back the credit, or obtain refund from its
customer, but it is liable for any loss resulting from the delay.
These rights to revoke, charge-back and obtain refund terminate
if and when a settlement for the item received by the bank is or
becomes final. (subsection (3) of section 4-211 and subsections
(2) and (3) of section 4-213).
(2) Within the time and manner prescribed by this section
and section 4-301, an intermediary or payor bank, as the case may
be, may return an unpaid item directly to the depositary bank and
may send for collection a draft on the depositary bank and obtain
reimbursement. In such case, if the depositary bank has received
provisional settlement for the item, it must reimburse the bank
drawing the draft and any provisional credits for the item
between banks shall become and remain final.
(b) A collecting bank returns an item when it is sent or
delivered to the bank's customer or transferor or pursuant to itsinstructions.
(3) (c) A depositary bank which that is also the payor may
charge-back the amount of an item to its customer's account or
obtain refund in accordance with the section governing return of
an item received by a payor bank for credit on its books (section
4-301).
(4) (d) The right to charge-back is not affected by:
(a) (1) prior Previous use of the a credit given for the
item; or
(b) (2) Failure by any bank to exercise ordinary care with
respect to the item, but any a bank so failing remains liable.
(5) (e) A failure to charge-back or claim refund does not
affect other rights of the bank against the customer or any other
party.
(6) (f) If credit is given in dollars as the equivalent of
the value of an item payable in a foreign currency money, the
dollar amount of any charge-back or refund shall must be
calculated on the basis of the buying sight bank-offered spot
rate for the foreign currency money prevailing on the day when
the person entitled to the charge-back or refund learns that it
will not receive payment in ordinary course.
§46-4-215. Final payment of item by payor bank; when
provisional debits and credits become final; when
certain credits become available for withdrawal.
(1) (a) An item is finally paid by a payor bank when the
bank has first done any of the following: whichever happens
first
(a) (1) Paid the item in cash; or
(b) (2) Settled for the item without reserving having a
right to revoke the settlement and without having such right
under statute, clearinghouse clearing-house rule or agreement; or
(c) Completed the process of posting the item to the
indicated account of the drawer, maker or other person to be
charged therewith; or
(d) (3) Made a provisional settlement for the item and
failed to revoke the settlement in the time and manner permitted
by statute, clearinghouse clearing-house rule or agreement.
Upon a final payment under subparagraphs (b), (c) or (d) the
payor bank shall be accountable for the amount of the item.
(b) If provisional settlement for an item does not become
final, the item is not finally paid.
(2) (c) If provisional settlement for an item between the
presenting and payor banks is made through a clearinghouse
clearing-house or by debits or credits in an account between
them, then to the extent that provisional debits or credits for
the item are entered in accounts between the presenting and payor
banks or between the presenting and successive prior collecting
banks seriatim, they become final upon final payment of the item
by the payor bank.
(3) (d) If a collecting bank receives a settlement for an
item which is or becomes final, (subsection (3) of section 4-211,
subsection (2) of section 4-213) the bank is accountable to its
customer for the amount of the item and any provisional credit
given for the item in an account with its customer becomes final.
(4) (e) Subject to, (i) applicable law stating a time for
availability of funds and, (ii) any right of the bank to applythe credit to an obligation of the customer, credit given by a
bank for an item in an account with its customer a customer's
account becomes available for withdrawal as of right:
(a) (1) in any case where If the bank has received a the
provisional settlement for the item, when such the settlement
becomes final and the bank has had a reasonable time to learn
that the settlement is final receive return of the item and the
item has not been received within that time;
(b) (2) in any case where If the bank is both a the
depositary bank and a the payor bank and the item is finally
paid, at the opening of the bank's second banking day following
receipt of the item.
(5) (f) A deposit of money in a bank is final when made but,
subject Subject to applicable law stating a time for availability
of funds and any right of the a bank to apply the a deposit to an
obligation of the customer depositor, the a deposit of money
becomes available for withdrawal as of right at the opening of
the bank's next banking day following after receipt of the
deposit.
§46-4-216. Insolvency and preference.
(1) (a) Any If an item is in or coming comes into the
possession of a payor or collecting bank which that suspends
payment and which the item is has not been finally paid, shall
the item must be returned by the receiver, trustee or agent in
charge of the closed bank to the presenting bank or the closed
bank's customer.
(2) (b) If a payor bank finally pays an item and suspends
payments without making a settlement for the item with itscustomer or the presenting bank which settlement is or becomes
final, the owner of the item has a preferred claim against the
payor bank.
(3) (c) If a payor bank gives or a collecting bank gives or
receives a provisional settlement for an item and thereafter
suspends payments, the suspension does not prevent or interfere
with the settlement settlement's becoming final if such the
finality occurs automatically upon the lapse of certain time or
the happening of certain events. (subsection (3) of section 4-
211, subsections (1) (d), (2) and (3) of section 4-213)
(4) (d) If a collecting bank receives from subsequent
parties settlement for an item, which settlement is or becomes
final and the bank suspends payments without making a settlement
for the item with its customer which settlement is or becomes
final, the owner of the item has a preferred claim against such
the collecting bank.
§46-4-301. Deferred posting; recovery of payment by return of
items; time of dishonor; return of items by payor
bank.
(1) (a) Where an authorized settlement If a payor bank
settles for a demand item (other than a documentary draft)
received by a payor bank presented otherwise than for immediate
payment over the counter has been made before midnight of the
banking day of receipt, the payor bank may revoke the settlement
and recover any payment the settlement if, before it has made
final payment (subsection (1) of section 4-213) and before its
midnight deadline it:
(a) (1) Returns the item; or
(b) (2) Sends written notice of dishonor or nonpayment if
the item is held for protest or is otherwise unavailable for
return.
(2) (b) If a demand item is received by a payor bank for
credit on its books, it may return such the item or send notice
of dishonor and may revoke any credit given or recover the amount
thereof withdrawn by its customer, if it acts within the time
limit and in the manner specified in the preceding subsection
(a).
(3) (c) Unless previous notice of dishonor has been sent an
item is dishonored at the time when for purposes of dishonor it
is returned or notice sent in accordance with this section.
(4) (d) An item is returned:
(a) (1) As to an item received presented through a
clearinghouse clearing-house, when it is delivered to the
presenting or last collecting bank or to the clearinghouse
clearing-house or is sent or delivered in accordance with its
clearing-house rules; or
(b) (2) in all other cases, when it is sent or delivered to
the bank's customer or transferor or pursuant to his
instructions.
§46-4-302. Payor bank's responsibility for late return of item.
In the absence of a valid defense such as breach of a
presentment warranty (subsection (1) of section 4-207),
settlement effected or the like, if
(a) If an item is presented on to and received by a payor
bank, the bank is accountable for the amount of:
(a) (1) A demand item, other than a documentary draft,whether properly payable or not, if the bank, in any case where
in which it is not also the depositary bank, retains the item
beyond midnight of the banking day of receipt without settling
for it or, regardless of whether or not it is also the depositary
bank, does not pay or return the item or send notice of dishonor
until after its midnight deadline; or
(b) (2) Any other properly payable item unless within the
time allowed for acceptance or payment of that item, the bank
either accepts or pays the item or returns it and accompanying
documents.
(b) The liability of a payor bank to pay an item pursuant to
subsection (a) is subject to defenses based on breach of a
presentment warranty (section 4-208) or proof that the person
seeking enforcement of the liability presented or transferred the
item for the purpose of defrauding the payor bank.
§46-4-303. When items subject to notice, stop-payment order,
legal process, or setoff; order in which items may
be charged or certified.
(1) (a) Any knowledge, notice, or stop-order stop-payment
order received by, legal process served upon, or setoff exercised
by a payor bank whether or not effective under other rules of law
comes too late to terminate, suspend, or modify the bank's right
or duty to pay an item or to charge its customer's account for
the item comes too late to so terminate, suspend or modify such
right or duty if the knowledge, notice, stop-order stop-payment
order, or legal process is received or served and a reasonable
time for the bank to act thereon expires or the setoff is
exercised after the bank has done any earliest of the following:
(a) (1) Accepted or certified The bank accepts or certifies
the item;
(b) (2) paid The bank pays the item in cash;
(c) (3) settled The bank settles for the item without
reserving having a right to revoke the settlement and without
having such right under statute, clearinghouse clearing-house
rule or agreement;
(d) Completed the process of posting the item to the
indicated account of the drawer, maker or other person to be
charged therewith or otherwise has evidenced by examination of
such indicated account and by action its decision to pay the
item; or
(e) (4) become The bank becomes accountable for the amount
of the item under subsection (1) (d) of section 4-213 and section
4-302 dealing with the payor bank's responsibility for late
return of items; or
(5) With respect to checks, a cutoff hour no earlier than
one hour after the opening of the next banking day after the
banking day on which the bank received the check and no later
than the close of that next banking day or, if no cutoff hour is
fixed, the close of the next banking day after the banking day on
which the bank received the check.
(2) (b) Subject to the provisions of subsection (1) (a)
items may be accepted, paid, certified or charged to the
indicated account of its customer in any order. convenient to
the bank
PART 4. RELATIONSHIP BETWEEN PAY OR BANK AND ITS CUSTOMER.
§46-4-401. When bank may charge customer's account.
(1) (a) As against its customer, a A bank may charge
against his the account any of a customer an item which that is
otherwise properly payable from that account even though the
charge creates an overdraft. An item is properly payable if it
is authorized by the customer and is in accordance with any
agreement between the customer and bank.
(b) A customer is not liable for the amount of an overdraft
if the customer neither signed the item nor benefited from the
proceeds of the item.
(c) A bank may charge against the account of a customer a
check that is otherwise properly payable from the account, even
though payment was made before the date of the check, unless the
customer has given notice to the bank of the postdating
describing the check with reasonable certainty. The notice is
effective for the period stated in section 4-403(b) for stop-
payment orders, and must be received at such time and in such
manner as to afford the bank a reasonable opportunity to act on
it before the bank takes any action with respect to the check
described in section 4-303. A bank shall accept nine (9) such
notices each year for each account without charge for acceptance
of the notice or monitoring for the postdated check. If a bank
charges against the account of a customer a check before the date
stated in the notice of postdating, the bank is liable for
damages for the loss resulting from its act. The loss may
include damages for dishonor of subsequent items under section
4-402.
(2) (d) A bank which that in good faith makes payment to a
holder may charge the indicated account of its customer accordingto:
(a) (1) The original tenor terms of his the altered item; or
(b) (2) The tenor terms of his the completed item, even
though the bank knows the item has been completed unless the bank
has notice that the completion was improper.
§46-4-402. Bank's liability to customer for wrongful dishonor;
time of determining insufficiency of account.
(a) Except as otherwise provided in this article, a payor
bank wrongfully dishonors an item if it dishonors an item that is
properly payable, but a bank may dishonor an item that would
create an overdraft unless it has agreed to pay the overdraft.
(b) A payor bank is liable to its customer for damages
proximately caused by the wrongful dishonor of an item. When the
dishonor occurs through mistake liability Liability is limited
to actual damages proved If so proximately caused and proved
damages and may include damages for an arrest or prosecution of
the customer or other consequential damages. Whether any
consequential damages are proximately caused by the wrongful
dishonor is a question of fact to be determined in each case.
(c) A payor bank's determination of the customer's account
balance on which a decision to dishonor for insufficiency of
available funds is based may be made at any time between the time
the item is received by the payor bank and the time that the
payor bank returns the item or gives notice in lieu of return,
and no more than one determination need be made. If, at the
election of the payor bank, a subsequent balance determination is
made for the purpose of reevaluating the bank's decision to
dishonor the item, the account balance at that time isdeterminative of whether a dishonor for insufficiency of
available funds is wrongful.
§46-4-403. Customer's right to stop payment; burden of proof of
loss.
(1) (a) A customer may by order to his bank stop payment of
any item payable for his account but the order must be or any
person authorized to draw on the account if there is more than
one person may stop payment of any item drawn on the customer's
account or close the account by an order to the bank describing
the item or account with reasonable certainty received at such a
time and in such a manner as to afford that affords the bank a
reasonable opportunity to act on it prior to before any action by
the bank with respect to the item described in section 4-303. If
the signature of more than one person is required to draw on an
account, any of these persons may stop payment or close the
account.
(2) An oral order is binding upon the bank only for fourteen
calendar days unless confirmed in writing within that period. A
written order is effective for only six months unless renewed in
writing.
(b) A stop-payment order is effective for six months, but it
lapses after fourteen calendar days if the original order was
oral and was not confirmed in writing within that period. A
stop-payment order may be renewed for additional six-month
periods by a writing given to the bank within a period during
which the stop-payment order is effective.
(3) (c) The burden of establishing the fact and amount of
loss resulting from the payment of an item contrary to a bindingstop payment stop-payment order or order to close an account is
on the customer. The loss from payment of an item contrary to a
stop-payment order may include damages for dishonor of subsequent
items under section 4-402.
§46-4-404. Bank not obligated to pay check more than six months
old.
A bank is under no obligation to a customer having a
checking account to pay a check, other than a certified check,
which is presented more than six months after its date, but it
may charge its customer's account for a payment made thereafter
in good faith.
§46-4-405. Death or incompetence of customer.
(1) (a) A payor or collecting bank's authority to accept,
pay or collect an item or to account for proceeds of its
collection, if otherwise effective, is not rendered ineffective
by incompetence of a customer of either bank existing at the time
the item is issued or its collection is undertaken if the bank
does not know of an adjudication of incompetence. Neither death
nor incompetence of a customer revokes such the authority to
accept, pay, collect or account until the bank knows of the fact
of death or of an adjudication of incompetence and has reasonable
opportunity to act on it.
(2) (b) Even with knowledge a bank may for ten days after
the date of death pay or certify checks drawn on or prior to
before that date unless ordered to stop payment by a person
claiming an interest in the account.
§46-4-406. Customer's duty to discover and report unauthorized
signature or alteration.
(1) When a bank sends to its customer a statement of account
accompanied by items paid in good faith in support of the debit
entries or holds the statement and items pursuant to a request or
instructions of its customer or otherwise in a reasonable manner
makes the statement and items available to the customer, the
customer must exercise reasonable care and promptness to examine
the statement and items to discover his unauthorized signature or
any alteration on an item and must notify the bank promptly after
discovery thereof.
(a) A bank that sends or makes available to a customer a
statement of account showing payment of items for the account
shall either return or make available to the customer the items
paid or provide information in the statement of account
sufficient to allow the customer reasonably to identify the items
paid. The statement of account provides sufficient information
if the item is described by item number, amount, and date of
payment.
(b) If the items are not returned to the customer, the
person retaining the items shall either retain the items or, if
the items are destroyed, maintain the capacity to furnish legible
copies of the items until the expiration of seven years after
receipt of the items. A customer may request an item from the
bank that paid the item, and that bank must provide in a
reasonable time either the item or, if the item has been
destroyed or is not otherwise obtainable, a legible copy of the
item.
(c) If a bank sends or makes available a statement of
account or items pursuant to subsection (a), the customer mustexercise reasonable promptness in examining the statement or the
items to determine whether any payment was not authorized because
of an alteration of an item or because a purported signature by
or on behalf of the customer was not authorized. If, based on
the statement or items provided, the customer should reasonably
have discovered the unauthorized payment, the customer must
promptly notify the bank of the relevant facts.
(2) (d) If the bank establishes proves that the customer
failed with respect to an item to comply with the duties imposed
on the customer by subsection (1) (c), the customer is precluded
from asserting against the bank:
(a) (1) his The customer's unauthorized signature or any
alteration on the item, if the bank also establishes proves that
it suffered a loss by reason of such the failure; and
(b) (2) an The customer's unauthorized signature or
alteration by the same wrongdoer on any other item paid in good
faith by the bank after the first item and statement was
available to the customer for a reasonable period not exceeding
fourteen calendar days and before the bank receives notification
from the customer of any such unauthorized signature or
alteration if the payment was made before the bank received
notice from the customer of the unauthorized signature or
alteration and after the customer had been afforded a reasonable
period of time, not exceeding thirty days, in which to examine
the item or statement of account and notify the bank.
(3) The preclusion under subsection (2) does not apply if
the customer establishes lack of ordinary care on the part of the
bank in paying the item(s).
(4) (f) Without regard to care or lack of care of either the
customer or the bank, a customer who does not within one year
from the time after the statement and or items are made available
to the customer (subsection (1) (a)) discover and report his the
customer's unauthorized signature on or any alteration on the
face or back of the item or does not within three years from that
time discover and report any unauthorized indorsement on the item
is precluded from asserting against the bank such the
unauthorized signature or indorsement or such alteration. If
there is a preclusion under this subsection, the payor bank may
not recover for breach of warranty under section 4-208 with
respect to the unauthorized signature or alteration to which the
preclusion applies.
(5) If under this section a payor bank has a valid defense
against a claim of a customer upon or resulting from payment of
an item and waives or fails upon request to assert the defense
the bank may not assert against any collecting bank or other
prior party presenting or transferring the item a claim based
upon the unauthorized signature or alteration giving rise to thecustomer's claim.
(g) A bank shall offer at least one account, at a
reasonable charge, that provides for the return to the customer
of all items or legible copies of all items. With respect to
accounts which do not provide for the return of all items or
legible copies of all items, a bank must provide eighteen (18)
items, or legible copies of eighteen (18) items, in accord with
subsection (b) of this section, per year, per account, without
charge to the customer. Where a bank returns a copy to the
customer, in the event of any dispute regarding the item, the
copy shall have the same effect as the original.
§46-4-407. Payor bank's right to subrogation on improper
payment.
If a payor bank has paid an item over the stop payment order
of the drawer or maker to stop payment, or after an account has
been closed, or otherwise under circumstances giving a basis for
objection by the drawer or maker, to prevent unjust enrichment
and only to the extent necessary to prevent loss to the bank by
reason of its payment of the item, the payor bank shall be is
subrogated to the rights:
(a) (1) Of any holder in due course on the item against the
drawer or maker; and
(b) (2) Of the payee or any other holder of the item against
the drawer or maker either on the item or under the transaction
out of which the item arose; and
(c) (3) Of the drawer or maker against the payee or any
other holder of the item with respect to the transaction out of
which the item arose.
PART 5. COLLECTION OF DOCUMENTARY DRAFTS.
§46-4-501. Handling of documentary drafts; duty to send for
presentment and to notify customer of dishonor.
A bank which that takes a documentary draft for collection
must shall present or send the draft and accompanying documents
for presentment and, upon learning that the draft has not been
paid or accepted in due course, must shall seasonably notify its
customer of such the fact even though it may have discounted or
bought the draft or extended credit available for withdrawal as
of right.
§46-4-502. Presentment of "on arrival" drafts.
When If a draft or the relevant instructions require
presentment "on arrival," "when goods arrive" or the like, the
collecting bank need not present until in its judgment a
reasonable time for arrival of the goods has expired. Refusal to
pay or accept because the goods have not arrived is not dishonor;
the bank must notify its transferor of such the refusal but need
not present the draft again until it is instructed to do so or
learns of the arrival of the goods.
§46-4-503. Responsibility of presenting bank for documents and
goods; report of reasons for dishonor; referee in
case of need.
Unless otherwise instructed and except as provided in
article five a bank presenting a documentary draft:
(a) (1) Must deliver the documents to the drawee on
acceptance of the draft if it is payable more than three days
after presentment; otherwise, only on payment; and
(b) (2) Upon dishonor, either in the case of presentment foracceptance or presentment for payment, may seek and follow
instructions from any referee in case of need designated in the
draft or, if the presenting bank does not choose to utilize his
the referee's services, it must use diligence and good faith to
ascertain the reason for dishonor, must notify its transferor of
the dishonor and of the results of its effort to ascertain the
reasons therefor and must request instructions.
But However the presenting bank is under no obligation with
respect to goods represented by the documents except to follow
any reasonable instructions seasonably received; it has a right
to reimbursement for any expense incurred in following
instructions and to prepayment of or indemnity for such those
expenses.
§46-4-504. Privilege of presenting bank to deal with goods;
security interest for expenses.
(1) (a) A presenting bank which that, following the dishonor
of a documentary draft, has seasonably requested instructions but
does not receive them within a reasonable time may store, sell,
or otherwise deal with the goods in any reasonable manner.
(2) (b) For its reasonable expenses incurred by action under
subsection (1) (a), the presenting bank has a lien upon the goods
or their proceeds, which may be foreclosed in the same manner as
an unpaid seller's lien.
NOTE: The purpose of this bill is to revise article three
of the Uniform Commercial Code relating to negotiable
instruments. Conforming and miscellaneous amendments to articles
one and four are also provided. This is the first major revision
of negotiable instrument law since the Uniform Commercial Code
was first promulgated in 1951. The bill attempts to resolve
problems that have arisen in case law since the original article
three was adopted in various jurisdictions.
The original article three applies to certain instruments
that are not negotiable. The revised article three applies only
to fully negotiable instruments, except for bank checks, which
are subject to the article whether or not they are negotiable.
Adjustable rate instruments are fully negotiable under these
revisions. Contribution rules for liable multiple parties to a
negotiable instrument and a statute of limitations are provided.
Included in the conforming amendments contained in article
four are provisions for truncation agreements between banks, a
statute of limitations provision, and warranties pertaining to
correct encoding of information and retention of items in the
event they are subject to a truncation agreement. The bill
further provides that financial institutions may offer accounts
with statements that do not include canceled checks. However,
banks must keep these checks for seven years and make them
available to customers on demand.
Strike-throughs indicate language that would be stricken
from the present law, and underscoring indicates new language
that would be added.
All of article 3, chapter 46 is substantially rewritten;
therefore, strike-throughs and underscoring have been omitted.
§§106, 110, 111, 208, 209 and 213, article 4, chapter 46 are
new and section 404 is reenacted without amendment. Section 207
is substantially rewritten; therefore, strike-throughs and
underscoring have been omitted with respect to these sections.
The following chapter 46, article 4 sections are amended and
renumbered:
Proposed Bill Present Code
4-1074-106
4-1084-107
4-1094-108
4-2104-208
4-2114-209
4-2124-210
4-2144-212
4-2154-213
4-2164-214