§ 3—101. Short title
This article may be cited as Uniform Commercial Code—Negotiable Instruments. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—102. Subject matter
(a) This article applies to negotiable instruments. It does not apply to money, to payment
orders governed by Article 4A of this title, or to securities governed by Article
8 of this title.
(b) If there is conflict between this article and Article 4 or 9 of this title, Articles
4 and 9 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.
(d) A negotiable instrument, although subject to this article, is also subject to the
consumer protection statutes of this State, or any final consumer protection decision
of a court of this State existing on January 1, 1995. In case of a conflict between
this article and a consumer protection statute or decision of a court of this State,
the statute or decision controls. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) [Reserved.]
(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 4 of this title.
(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 (§ 1—201(b)(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” § 3—409.
“Accommodated party” § 3—419.
“Accommodation party” § 3—419.
“Alteration” § 3—407.
“Anomalous indorsement” § 3—205.
“Blank indorsement” § 3—205.
“Cashier’s check” § 3—104.
“Certificate of deposit” § 3—104.
“Certified check” § 3—409.
“Check” § 3—104.
“Consideration” § 3—303.
“Draft” § 3—104.
“Holder in due course” § 3—302.
“Incomplete instrument” § 3—115.
“Indorsement” § 3—204.
“Indorser” § 3—204.
“Instrument” § 3—104.
“Issue” § 3—105.
“Issuer” § 3—105.
“Negotiable instrument” § 3—104.
“Negotiation” § 3—201.
“Note” § 3—104.
“Payable at a definite time” § 3—108.
“Payable on demand” § 3—108.
“Payable to bearer” § 3—109.
“Payable to order” § 3—109.
“Payment” § 3—602.
“Person entitled to enforce” § 3—301.
“Presentment” § 3—501.
“Reacquisition” § 3—207.
“Special indorsement” § 3—205.
“Teller’s check” § 3—104.
“Transfer of instrument” § 3—203.
“Traveler’s check” § 3—104.
“Value” § 3—303.
(c) The following definitions in other articles apply to this article:
“Bank” § 4—105.
“Banking day” § 4—104.
“Clearing—house” § 4—104.
“Collecting bank” § 4—105.
“Depositary bank” § 4—105.
“Documentary draft” § 4—104.
“Intermediary bank” § 4—105.
“Item” § 4—104.
“Payor bank” § 4—105.
“Suspends payments” § 4—104.
(d) In addition, Article 1 of this title contains general definitions and principles of
construction and interpretation applicable throughout this article. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2007, No. 99 (Adj. Sess.), § 11.)
§ 3—104. Negotiable instrument
(a) Except as provided in subsections (c) and (d) of this section, “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 to the holder to confess judgment or
realize on or dispose of collateral, (iii) a waiver of the benefit of any law intended
for the advantage or protection of an obligor, (iv) a term that specifies the law
that governs the promise or order, or (v) an undertaking to resolve in a specified
forum a dispute concerning the promise or order.
(b) “Instrument” means a negotiable instrument.
(c) An order that meets all of the requirements of subsection (a) of this section, except
paragraph (1), and otherwise falls within the definition of “check” in subsection
(f) of this section 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; (ii) a cashier’s check or teller’s check; or (iii) a demand draft. 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) is payable 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.
(k) “Demand draft” means a writing not signed by a customer that is created by a third
party under the purported authority of the customer for the purpose of charging the
customer’s account with a bank. A demand draft shall contain the customer’s account
number and may contain any or all of the following: (i) the customer’s printed or
typewritten name; (ii) a notation that the customer authorized the draft; and (iii)
the statement “No Signature Required” or words to that effect. A demand draft shall
not include a check purportedly drawn by and bearing the signature of a fiduciary,
as defined in section 3—307(a)(1) of this title. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2003, No. 87 (Adj. Sess.), §§ 1, 2; 2025, No. 17, § 4, eff. July 1, 2025.)
§ 3—105. Issue of instrument
(a) “Issue” means:
(1) 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; or
(2) if agreed by the payee, the first transmission by the drawer to the payee of an image
of an item and information derived from the item that enables the depositary bank
to collect the item by transferring or presenting under federal law an electronic
check.
(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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2025, No. 17, § 4, eff. July 1, 2025.)
§ 3—106. Unconditional promise or order
(a) Except as provided in this section, for the purposes of section 3—104(a) of this title, 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 writing does 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 purposes of section 3—104(a) of this title. If the person whose specimen signature appears on an instrument fails to countersign
the instrument, the failure to countersign is a defense to the obligation of the issuer,
but the failure does not prevent a transferee of the instrument from becoming a holder
of the instrument.
(d) If a promise or order at the time it is issued or first comes into possession of a
holder contains a statement, required by applicable statutory or administrative law,
to the effect that the rights of a holder or transferee are subject to claims or defenses
that the issuer could assert against the original payee, the promise or order is not
thereby made conditional for the purposes of section 3—104(a) of this title; but if the promise or order is an instrument, there cannot be a holder in due course
of the instrument. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 or automatically 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this title. An instrument payable to an identified person may become payable to bearer if it
is indorsed in blank pursuant to section 3—205(b) of this title. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—110. Identification of person to whom instrument is payable
(a) The person to whom an instrument is initially payable is determined 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, the representative, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—111. Place of payment
Except as otherwise provided for items in Article 4 of this title, 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 any place 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this title, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—114. Contradictory terms of instrument
If an instrument contains contradictory terms, typewritten terms prevail over printed
terms, handwritten terms prevail over both, and words prevail over numbers. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section, if an incomplete instrument is an instrument
under section 3—104 of this title, 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 of this title, but, after completion, the requirements of section 3—104 of this title 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 of this title.
(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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 liable in the capacity
in which they sign.
(b) Except as provided in section 3—419(e) of this title 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 an agreement under this section, the agreement is a defense to the obligation. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—118. Statute of limitations
(a) Except as provided in subsection (e) of this section, 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) of this section, 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 10 years.
(c) Except as provided in subsection (d) of this section, 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 10 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 the acceptance 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 4 of this title, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—201. Negotiation
(a) “Negotiation” means a transfer of possession, whether voluntary or involuntary, of
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 transfer of 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 a specifically 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 by the 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 of this title 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this title, 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 instrument
unless the proceeds of the instrument are received by the indorser or applied consistently
with the indorsement.
(4) Except as otherwise provided in paragraph (3) of this subsection, 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) of this section, 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 of this title, 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) of this section
or has notice or knowledge of breach of fiduciary duty as stated in subsection (d)
of this section.
(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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 cancelled
is discharged, and the discharge is effective against any subsequent holder. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this title. 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—302. Holder in due course
(a) Subject to subsection (c) of this section and section 3—106(d) of this title, “holder in due course” means the holder of an instrument if:
(1) the instrument when issued or negotiated to the holder does 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 of this title, and (vi) without notice that any party has a defense or claim in recoupment described
in section 3—305(a) of this title.
(b) Notice of discharge of a party, other than discharge in an insolvency proceeding,
is not notice of a defense under subsection (a) of this section, 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) of this title, the promise of performance 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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)
of this section, the instrument is also issued for consideration. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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, 90 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 overdue upon 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 of 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—305. Defenses and claims in recoupment
(a) Except as stated in subsection (b) of this section, 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 subdivision (a)(1) of this
section, but is not subject to defenses of the obligor stated in subdivision (a)(2)
of this section or claims in recoupment stated in subdivision (a)(3) of this section
against a person other than the holder.
(c) Except as stated in subsection (d) of this section, 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 (§ 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) of this section that the accommodated
party could assert against the person entitled to enforce the instrument, except the
defenses of discharge in insolvency proceedings, infancy, and lack of legal capacity. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this subsection 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 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.
(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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 authentic and 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) of this title.
(b) If the validity of signatures is admitted or proved and there is compliance with subsection
(a) of this section, a plaintiff producing the instrument is entitled to payment if
the plaintiff proves entitlement to enforce the instrument under section 3—301 of this title, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section
must prove the terms of the instrument and the person’s right to enforce the instrument.
If that proof is made, section 3—308 of this title 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section,
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 in paragraph (4) of this subsection, 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) of this section
is taken for an obligation, the effect is (i) that stated in subsection (a) of this
section if the instrument is one on which a bank is liable as maker or acceptor, or
(ii) that stated in subsection (b) of this section in any other case. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section 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) of this section, a claim is not discharged under subsection
(b) of this section 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.
(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 subdivision does not apply
if the claimant is an organization that sent a statement complying with subdivision
(1)(i) of this subsection.
(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.
(e) This section shall not apply to 9 V.S.A. § 4461, relating to security deposits for residential rental units. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2009, No. 129 (Adj. Sess.), § 1.)
§ 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—302(a)(1) of this title, 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 subdivision (b)(4)
of this section 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) of this section
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 of this title. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—401. Signature necessary for liability on instrument
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 of this title. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2025, No. 17, § 4, eff. July 1, 2025.)
§ 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) of this section, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—403. Unauthorized signature
(a) Unless otherwise provided in this article or Article 4 of this title, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 (§ 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) of this section, 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) of this section 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section, 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) of this section, the burden of proving failure to exercise ordinary
care is on the person asserting the preclusion. Under subsection (b) of this section,
the burden of proving failure to exercise ordinary care is on the person precluded. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 obligation
of each drawer and indorser that does not expressly assent to the acceptance is discharged. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 of this title. The obligation is owed to a person entitled to enforce the instrument or to an indorser
who paid the instrument under section 3—415 of this title. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 of this title. 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 of this title.
(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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 of this title. The obligation is owed to a person entitled to enforce the draft or to an indorser
who paid the draft under section 3—415 of this title.
(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) of this title.
(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) of this
section to pay the draft if the draft is not a check. A disclaimer of the liability
stated in subsection (b) of this section 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—415. Obligation of indorser
(a) Subject to subsections (b), (c), (d), and (e) of this section and to section 3—419(d) of this title, 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 of this title. 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) of this
section to pay the instrument.
(c) If notice of dishonor of an instrument is required by section 3—503 of this title and notice of dishonor complying with that section is not given to an indorser, the
liability of the indorser under subsection (a) of this section is discharged.
(d) If a draft is accepted by a bank after an indorsement is made, the liability of the
indorser under subsection (a) of this section is discharged.
(e) If an indorser of a check is liable under subsection (a) of this section 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) of this section is discharged. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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;
(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; and
(6) if the instrument is a demand draft, creation of the instrument according to the terms
on its face was authorized by the person identified as drawer.
(b) A person to whom the warranties under subsection (a) of this section 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) of this section 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) of
this section 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.
(e) If the warranty in paragraph (a)(6) of this section is not given by a transferor under
applicable conflict of law rules, the warranty is not given to that transferor when
that transferor is a transferee. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2003, No. 87 (Adj. Sess.), § 3.)
§ 3—417. 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 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;
(3) the warrantor has no knowledge that the signature of the drawer of the draft is unauthorized;
and
(4) if the draft is a demand draft, creation of the draft according to the terms on its
face was authorized by the person identified as drawer.
(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) of this section
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 of this title or the drawer is precluded under section 3—406 or 4—406 of this title 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) of this section 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) of this section 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.
(g) A demand draft is a check as provided in subsection 3—104(k) of this title.
(h) If the warranty in paragraph (a)(4) of this section is not given by a transferor under
applicable conflict of law rules, the warranty is not given to that transferor when
that transferor is a transferee. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2003, No. 87 (Adj. Sess.), § 4.)
§ 3—418. Payment or acceptance by mistake
(a) Except as provided in subsection (c) of this section, 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 of this title 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) of this section, if an instrument has been paid
or accepted by mistake and the case is not covered by subsection (a) of this section,
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) of this section 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 of this title.
(d) Notwithstanding section 4—215 of this title, if an instrument is paid or accepted by mistake and the payor or acceptor recovers
payment or revokes acceptance under subsection (a) or (b) of this section, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section, 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 in section 3—605 of this title, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 co-payee.
(b) In an action under subsection (a) of this section, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 of this title, 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 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 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this subsection 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 of this title, or becomes accountable for the amount of the check under section 4—302 of this title.
(2) If a draft is payable on demand and paragraph (1) of this subsection 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) of this section, 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 of this title, 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—503. Notice of dishonor
(a) The obligation of an indorser stated in section 3—415(a) of this title and the obligation of a drawer stated in section 3—414(d) of this title 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) of this title.
(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) of this title, 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 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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) of this section 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—602. Payment
(a) Subject to subsection (b) of this section, 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 of this title by another person.
(b) The obligation of a party to pay the instrument is not discharged under subsection
(a) of this section if:
(1) a claim to the instrument under section 3—306 of this title 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 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 payment on the due date to the person entitled to enforce the instrument. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)
§ 3—604. 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 record. The obligation of
a party to pay a check is not discharged solely by destruction of the check in connection
with a process in which information is extracted from the check and an image of the
check is made and, subsequently, the information and image are transmitted for payment.
(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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995; amended 2025, No. 17, § 4, eff. July 1, 2025.)
§ 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) of this title.
(b) Discharge, under section 3—604 of this title, 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 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) of this section, 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) of this section, 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 of this title 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) of this
section unless the person entitled to enforce the instrument knows of the accommodation
or has notice under section 3—419(c) of this section 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. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)