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 of process.

(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.

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 results in 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 m 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.

3-311. Accord and Satisfaction by Use of Instrument.

(a) If a person against whom a claim is asserted proves 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 not received by that designated person, office, or place.

/* This section relates to the practice of persons who have notes which are due to large organizations who send "paid in full" checks to the organization's lock box. Of course, being good cash managers, the lock box operators cash all checks at once. This resulted in several persons getting out of significant debts. If you will look on your installment loan documentation, and hte loan is with a large institution, odds are good that you will find that there is a special office for disputes. */

(2) The claimant, whether or not an organization, proves that within 90 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 the claim 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.

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 check by 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 90th day following the date of the check, in the case of a cashier's check or teller's check, or the 90th 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 if payment of the check has not been made to a person entitled to enforce the check. Subject to Section 4-3O2(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.

ARTICLE 3

PART 4

LIABILITY OF PARTIES

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.

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 representative as 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.

3-403. Unauthorized Signature.

(a) Unless otherwise provided in this Article or Article 4, 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.

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 or 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.

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 or 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 employee

makes 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.

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 which

the 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.

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.

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 the

drawee accepts it.

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 acceptance 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.

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 a particular bank or place in the United States, unless

the acceptance states that the draft is to be paid only at that

bank or place.

(c) If the holder assents to an acceptance varying the

terms of a draft, the obliga. tion of each drawer and indorser

that does not expressly assent to the acceptance is discharged.

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 obligated 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.

3-412. Obligation of Issuer of Note or Cashier's Check

The issuer of a note or cashier's check or other draft

drawn on 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.

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.

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 Section 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 30 days after its

date, (ii) the drawee suspends payments after expiration of the

30-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, the

drawer 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.

3-415. Obligation of Indorser.

(a) Subject to subsections (b), (c), and (d) and to

Section 3-419(d), 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 30 days after the day the

indorsement was made, the liability of the indorser under

subsection (a) is discharged.

3-416. Transfer Warranties.

(a) A person who transfers an instrument for consideration

warrants to the transferee and, if is by to any subsequent

transferee that:

(1) the transfer indorsement is valid;

(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 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 30 days after

the claimant has reason to know of the breach and the identity of

the warrantor, the liability of the warrantor under subsection

(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.

3-417. Presentment Warranties.

(a) If an unaccepted draft is presented to the drawee for

payment or acceptance or accepts the draft, (i) the person

obtaining payment or acceptance, at the time of transfer, warrant to the drawee making payment or accepting the draft in presentment, and (ii) a previous transferor of the draft, at the 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 is a

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 4A06 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 a 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.

(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

30 days after the claimant has reason to know of the breach and

the identity 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.

(f) A cause of action for breach of warranty under this

section accrues when the claimant has reason to know of the

breach.

3-418. Payment or 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, 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 not

limit 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.

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."

/* An accomodation maker might be referred to as a "co-signer. */

(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 or is

accompanied by words indicating that the signer is acting as

surety or with respect to the obligation of another to the

instrument. Except as provided in Section 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.

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 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 for

conversion of an 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

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 4,

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 whom

presentment is made; and is effective if made to any one of two

or more makers, acceptors, drawees, 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 endorsement, 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 cut-off hour not earlier than 2 p.m. for the

receipt and processing of instruments presented for payment or

acceptance and presentment is made after the cut-off hour.

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 note

is 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 date of presentment whichever is later.

(e) In any case in which presentment is otherwise required for

dishonor under this 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, the draft is treated as never having been dishonored.

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 di may be given by any person. may be given in any commercially reasonable means of communication and is sufficient if the communication 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 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 30 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 30 days following the day on

which dishonor occurs.

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

instrumentment 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 not to 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.

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

where dishonor 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

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.

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 3-30 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) payment

is 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.

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 tion 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 payment

on the due date to the person entitled to enforce the instrument.

3604. Discharge 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.

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 discharged 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 with

respect 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 tion

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 interest

in 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 9 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 unless the person entitled to enforce the

instrument knows of the accommodation or has notice under Section

3-4l9(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 that

is the basis of the discharge, or (ii) the instrument or a

separate agreement of the party provides for waiver of discharge

under this section either specifically or by general language

indicating that parties waive defenses based on suretyship or

impairment of collateral.