TITLE 28COMMERCIAL TRANSACTIONS

CHAPTER 3UNIFORM COMMERCIAL CODE -- NEGOTIABLE INSTRUMENTS

PART 1.GENERAL PROVISIONS AND DEFINITIONS

28-3-101. SHORT TITLE. This chapter may be cited as "Uniform CommercialCode -- Negotiable Instruments."

[28-3-101, added 1993, ch. 288, sec. 2, p. 1021.]

28-3-102. SUBJECT MATTER. (1) This chapter applies to negotiable in-struments. It does not apply to money, to payment orders governed by part 6of chapter 4, or to securities governed by chapter 8.

(2) If there is conflict between this chapter and chapter 4 or 9, chap-ters 4 and 9 govern.

(3) Regulations of the board of governors of the federal reserve systemand operating circulars of the federal reserve banks supersede any inconsis-tent provision of this chapter to the extent of the inconsistency.

[28-3-102, added 1993, ch. 288, sec. 2, p. 1021.]

28-3-103. DEFINITIONS. (1) In this chapter:(a) "Acceptor" means a drawee who has accepted a draft.(b) "Drawee" means a person ordered in a draft to make payment.(c) "Drawer" means a person who signs or is identified in a draft as aperson ordering payment.(d) "Good faith" means honesty in fact in the conduct or transactionconcerned.(e) "Maker" means a person who signs or is identified in a note as a per-son undertaking to pay.(f) "Order" means a written instruction to pay money signed by theperson giving the instruction. The instruction may be addressed to anyperson, including the person giving the instruction, or to one (1) ormore persons jointly or in the alternative but not in succession. Anauthorization to pay is not an order unless the person authorized to payis also instructed to pay.(g) "Ordinary care" in the case of a person engaged in business meansobservance of reasonable commercial standards, prevailing in the areain which the person is located, with respect to the business in whichthe person is engaged. In the case of a bank that takes an instrumentfor processing for collection or payment by automated means, reasonablecommercial standards do not require the bank to examine the instrumentif the failure to examine does not violate the bank's prescribed proce-dures and the bank's procedures do not vary unreasonably from generalbanking usage not disapproved by this chapter or chapter 4.(h) "Party" means a party to an instrument.(i) "Promise" means a written undertaking to pay money signed by theperson undertaking to pay. An acknowledgment of an obligation by theobligor is not a promise unless the obligor also undertakes to pay theobligation.

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(j) "Prove" with respect to a fact means to meet the burden of estab-lishing the fact (section 28-1-201(b)(8)).(k) "Remitter" means a person who purchases an instrument from its is-suer if the instrument is payable to an identified person other than thepurchaser.(2) Other definitions applying to this chapter and the sections in

which they appear are:"Acceptance" Section 28-3-409"Accommodated party" Section 28-3-419"Accommodation party" Section 28-3-419"Alteration" Section 28-3-407"Anomalous indorsement" Section 28-3-205"Blank indorsement" Section 28-3-205"Cashier's check" Section 28-3-104"Certificate of deposit" Section 28-3-104"Certified check" Section 28-3-409"Check" Section 28-3-104"Consideration" Section 28-3-303"Demand draft" Section 28-3-104"Draft" Section 28-3-104"Holder in due course" Section 28-3-302"Incomplete instrument" Section 28-3-115"Indorsement" Section 28-3-204"Indorser" Section 28-3-204"Instrument" Section 28-3-104"Issue" Section 28-3-105"Issuer" Section 28-3-105"Negotiable instrument" Section 28-3-104"Negotiation" Section 28-3-201"Note" Section 28-3-104"Payable at a definite time" Section 28-3-108"Payable on demand" Section 28-3-108"Payable to bearer" Section 28-3-109"Payable to order" Section 28-3-109"Payment" Section 28-3-602"Person entitled to enforce" Section 28-3-301"Presentment" Section 28-3-501"Reacquisition" Section 28-3-207"Special indorsement" Section 28-3-205"Teller's check" Section 28-3-104"Transfer of instrument" Section 28-3-203"Traveler's check" Section 28-3-104"Value" Section 28-3-303(3) The following definitions in other chapters apply to this chapter:"Bank" Section 28-4-105"Banking day" Section 28-4-104"Clearing house" Section 28-4-104"Collecting bank" Section 28-4-105"Depositary bank" Section 28-4-105"Documentary draft" Section 28-4-104"Intermediary bank" Section 28-4-105"Item" Section 28-4-104"Payor bank" Section 28-4-105

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"Suspends payments" Section 28-4-104(4) In addition, chapter 1 contains general definitions and principles

of construction and interpretation applicable throughout this chapter.

[28-3-103, added 1993, ch. 288, sec. 2, p. 1021; am. 2002, ch. 121,sec. 1, p. 339; am. 2004, ch. 43, sec. 31, p. 153.]

28-3-104. NEGOTIABLE INSTRUMENT. (1) Except as provided in subsections(3) and (4) of this section, "negotiable instrument" means an unconditionalpromise or order to pay a fixed amount of money, with or without interest orother charges described in the promise or order, if it:

(a) Is payable to bearer or to order at the time it is issued or firstcomes into possession of a holder;(b) Is payable on demand or at a definite time; and(c) Does not state any other undertaking or instruction by the personpromising or ordering payment to do any act in addition to the payment ofmoney, but the promise or order may contain (i) an undertaking or powerto give, maintain, or protect collateral to secure payment, (ii) an au-thorization or power to the holder to confess judgment or realize on ordispose of collateral, or (iii) a waiver of the benefit of any law in-tended for the advantage or protection of an obligor.(2) "Instrument" means a negotiable instrument.(3) An order that meets all of the requirements of subsection (1) of

this section, except paragraph (a), and otherwise falls within the defini-tion of "check" in subsection (6) of this section is a negotiable instrumentand a check.

(4) A promise or order other than a check is not an instrument if, at thetime it is issued or first comes into possession of a holder, it contains aconspicuous statement, however expressed, to the effect that the promise ororder is not negotiable or is not an instrument governed by this chapter.

(5) An instrument is a "note" if it is a promise and is a "draft" if itis 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.

(6) "Check" means (i) a draft, other than a documentary draft, payableon 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 isdescribed on its face by another term, such as "money order."

(7) "Cashier's check" means a draft with respect to which the drawer anddrawee are the same bank or branches of the same bank.

(8) "Teller's check" means a draft drawn by a bank (i) on another bank,or (ii) payable at or through a bank.

(9) "Traveler's check" means an instrument that (i) is payable on de-mand, (ii) is drawn on or payable at or through a bank, (iii) is designatedby the term "traveler's check" or by a substantially similar term, and (iv)requires, as a condition to payment, a countersignature by a person whosespecimen signature appears on the instrument.

(10) "Certificate of deposit" means an instrument containing an ac-knowledgment by a bank that a sum of money has been received by the bank and apromise by the bank to repay the sum of money. A certificate of deposit is anote of the bank.

(11) "Demand draft" means a writing not signed by the customer that iscreated by a third party under the purported authority of the customer forthe purpose of charging the customer's account with a bank. A demand draft

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shall contain the customer's account number and may contain any or all of thefollowing:

(a) The customer's printed or typewritten name;(b) A notation that the customer authorized the draft; or(c) The statement "no signature required" or words to that effect."Demand draft" does not include a check purportedly drawn by and bearing

the signature of a fiduciary, as defined in section 68-301, Idaho Code.

[28-3-104, added 1993, ch. 288, sec. 2, p. 1023; am. 2002, ch. 121,sec. 2, p. 340.]

28-3-105. ISSUE OF INSTRUMENT. (1) "Issue" means the first delivery ofan instrument by the maker or drawer, whether to a holder or nonholder, forthe purpose of giving rights on the instrument to any person.

(2) An unissued instrument, or an unissued incomplete instrument thatis completed, is binding on the maker or drawer, but nonissuance is a de-fense. An instrument that is conditionally issued or is issued for a specialpurpose is binding on the maker or drawer, but failure of the condition orspecial purpose to be fulfilled is a defense.

(3) "Issuer" applies to issued and unissued instruments and means amaker or drawer of an instrument.

[28-3-105, added 1993, ch. 288, sec. 2, p. 1024.]

28-3-106. UNCONDITIONAL PROMISE OR ORDER. (1) Except as provided inthis section, for the purposes of section 28-3-104(1), a promise or orderis 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 arestated in another writing. A reference to another writing does not of itselfmake the promise or order conditional.

(2) A promise or order is not made conditional (i) by a reference to an-other writing for a statement of rights with respect to collateral, prepay-ment, or acceleration, or (ii) because payment is limited to resort to a par-ticular fund or source.

(3) If a promise or order requires, as a condition to payment, a coun-tersignature by a person whose specimen signature appears on the promise ororder, the condition does not make the promise or order conditional for thepurposes of section 28-3-104(1). If the person whose specimen signature ap-pears on an instrument fails to countersign the instrument, the failure tocountersign is a defense to the obligation of the issuer, but the failuredoes not prevent a transferee of the instrument from becoming a holder of theinstrument.

(4) If a promise or order at the time it is issued or first comesinto possession of a holder contains a statement, required by applicablestatutory or administrative law, to the effect that the rights of a holderor transferee are subject to claims or defenses that the issuer could assertagainst the original payee, the promise or order is not thereby made condi-tional for the purposes of section 28-3-104(1); but if the promise or orderis an instrument, there cannot be a holder in due course of the instrument.

[28-3-106, added 1993, ch. 288, sec. 2, p. 1024.]

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28-3-107. INSTRUMENT PAYABLE IN FOREIGN MONEY. Unless the instrumentotherwise provides, an instrument that states the amount payable in foreignmoney may be paid in the foreign money or in an equivalent amount in dollarscalculated by using the current bank-offered spot rate at the place of pay-ment for the purchase of dollars on the day on which the instrument is paid.

[28-3-107, added 1993, ch. 288, sec. 2, p. 1024.]

28-3-108. PAYABLE ON DEMAND OR AT DEFINITE TIME. (1) A promise or or-der is "payable on demand" if it (i) states that it is payable on demand or atsight, or otherwise indicates that it is payable at the will of the holder, or(ii) does not state any time of payment.

(2) A promise or order is "payable at a definite time" if it is payableon elapse of a definite period of time after sight or acceptance or at a fixeddate or dates or at a time or times readily ascertainable at the time thepromise or order is issued, subject to rights of (i) prepayment, (ii) accel-eration, (iii) extension at the option of the holder, or (iv) extension to afurther definite time at the option of the maker or acceptor or automaticallyupon or after a specified act or event.

(3) If an instrument, payable at a fixed date, is also payable upon de-mand made before the fixed date, the instrument is payable on demand untilthe fixed date and, if demand for payment is not made before that date, be-comes payable at a definite time on the fixed date.

[28-3-108, added 1993, ch. 288, sec. 2, p. 1024.]

28-3-109. PAYABLE TO BEARER OR TO ORDER. (1) A promise or order ispayable to bearer if it:

(a) States that it is payable to bearer or to the order of bearer or oth-erwise indicates that the person in possession of the promise or orderis entitled to payment;(b) Does not state a payee; or(c) States that it is payable to or to the order of cash or otherwiseindicates that it is not payable to an identified person.(2) A promise or order that is not payable to bearer is payable to or-

der if it is payable (i) to the order of an identified person, or (ii) to anidentified person or order. A promise or order that is payable to order ispayable to the identified person.

(3) An instrument payable to bearer may become payable to an identifiedperson if it is specially indorsed pursuant to section 28-3-205(1). An in-strument payable to an identified person may become payable to bearer if itis indorsed in blank pursuant to section 28-3-205(2).

[28-3-109, added 1993, ch. 288, sec. 2, p. 1025.]

28-3-110. IDENTIFICATION OF PERSON TO WHOM INSTRUMENT IS PAYABLE. (1)The person to whom an instrument is initially payable is determined by theintent of the person, whether or not authorized, signing as, or in the nameor behalf of, the issuer of the instrument. The instrument is payable to theperson intended by the signer even if that person is identified in the in-strument by a name or other identification that is not that of the intendedperson. If more than one (1) person signs in the name or behalf of the issuerof an instrument and all the signers do not intend the same person as payee,

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the instrument is payable to any person intended by one (1) or more of thesigners.

(2) If the signature of the issuer of an instrument is made by automatedmeans, such as a check-writing machine, the payee of the instrument is deter-mined by the intent of the person who supplied the name or identification ofthe payee, whether or not authorized to do so.

(3) A person to whom an instrument is payable may be identified in anyway, including by name, identifying number, office or account number. Forthe purpose of determining the holder of an instrument, the following rulesapply:

(a) If an instrument is payable to an account and the account is identi-fied only by number, the instrument is payable to the person to whom theaccount is payable. If an instrument is payable to an account identi-fied by number and by the name of a person, the instrument is payable tothe named person, whether or not that person is the owner of the accountidentified by number.(b) If an instrument is payable to:

(i) A trust, an estate or a person described as trustee or rep-resentative of a trust or estate, the instrument is payable to thetrustee, the representative or a successor of either, whether ornot the beneficiary or estate is also named;(ii) A person described as agent or similar representative of anamed or identified person, the instrument is payable to the rep-resented person, the representative, or a successor of the repre-sentative;(iii) A fund or organization that is not a legal entity, the in-strument is payable to a representative of the members of the fundor organization; or(iv) An office or to a person described as holding an office, theinstrument is payable to the named person, the incumbent of the of-fice, or a successor to the incumbent.

(4) If an instrument is payable to two (2) or more persons alterna-tively, 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 aninstrument is payable to two (2) or more persons not alternatively, it ispayable to all of them and may be negotiated, discharged, or enforced only byall of them. If an instrument payable to two (2) or more persons is ambiguousas to whether it is payable to the persons alternatively, the instrument ispayable to the persons alternatively.

[28-3-110, added 1993, ch. 288, sec. 2, p. 1025.]

28-3-111. PLACE OF PAYMENT. Except as otherwise provided for items inchapter 4, an instrument is payable at the place of payment stated in the in-strument. If no place of payment is stated, an instrument is payable at theaddress of the drawee or maker stated in the instrument. If no address isstated, the place of payment is the place of business of the drawee or maker.If a drawee or maker has more than one (1) place of business, the place ofpayment is any place of business of the drawee or maker chosen by the personentitled to enforce the instrument. If the drawee or maker has no place ofbusiness, the place of payment is the residence of the drawee or maker.

[28-3-111, added 1993, ch. 288, sec. 2, p. 1026.]

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28-3-112. INTEREST. (1) Unless otherwise provided in the instrument,(i) an instrument is not payable with interest, and (ii) interest on an in-terest-bearing instrument is payable from the date of the instrument.

(2) Interest may be stated in an instrument as a fixed or variableamount 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 instrumentin any manner and may require reference to information not contained inthe instrument. If an instrument provides for interest, but the amountof interest payable cannot be ascertained from the description, interestis payable at the judgment rate in effect at the place of payment of theinstrument and at the time interest first accrues.

[28-3-112, added 1993, ch. 288, sec. 2, p. 1026.]

28-3-113. DATE OF INSTRUMENT. (1) An instrument may be antedated orpostdated. The date stated determines the time of payment if the instrumentis payable at a fixed period after date. Except as provided in section28-4-401(3), an instrument payable on demand is not payable before the dateof the instrument.

(2) If an instrument is undated, its date is the date of its issue or, inthe case of an unissued instrument, the date it first comes into possessionof a holder.

[28-3-113, added 1993, ch. 288, sec. 2, p. 1027.]

28-3-114. CONTRADICTORY TERMS OF INSTRUMENT. If an instrument containscontradictory terms, typewritten terms prevail over printed terms, hand-written terms prevail over both, and words prevail over numbers.

[28-3-114, added 1993, ch. 288, sec. 2, p. 1027.]

28-3-115. INCOMPLETE INSTRUMENT. (1) "Incomplete instrument" means asigned writing, whether or not issued by the signer, the contents of whichshow at the time of signing that it is incomplete but that the signer intendedit to be completed by the addition of words or numbers.

(2) Subject to subsection (3) of this section, if an incomplete instru-ment is an instrument under section 28-3-104 it may be enforced accordingto its terms if it is not completed, or according to its terms as augmentedby completion. If an incomplete instrument is not an instrument under sec-tion 28-3-104 but, after completion, the requirements of section 28-3-104are met, the instrument may be enforced according to its terms as augmentedby completion.

(3) If words or numbers are added to an incomplete instrument withoutauthority of the signer, there is an alteration of the incomplete instrumentunder section 28-3-407.

(4) The burden of establishing that words or numbers were added to anincomplete instrument without authority of the signer is on the person as-serting the lack of authority.

[28-3-115, added 1993, ch. 288, sec. 2, p. 1027.]

28-3-116. JOINT AND SEVERAL LIABILITY -- CONTRIBUTION. (1) Except asotherwise provided in the instrument, two (2) or more persons who have thesame liability on an instrument as makers, drawers, acceptors, indorsers who

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indorse as joint payees, or anomalous indorsers are jointly and severallyliable in the capacity in which they sign.

(2) Except as provided in section 28-3-419(5) or by agreement of theaffected parties, a party having joint and several liability who pays the in-strument is entitled to receive from any party having the same joint and sev-eral liability contribution in accordance with applicable law.

(3) Discharge of one (1) party having joint and several liability bya person entitled to enforce the instrument does not affect the right undersubsection (2) of this section of a party having the same joint and severalliability to receive contribution from the party discharged.

[28-3-116, added 1993, ch. 288, sec. 2, p. 1027.]

28-3-117. OTHER AGREEMENTS AFFECTING INSTRUMENT. Subject to applica-ble law regarding exclusion of proof of contemporaneous or previous agree-ments, the obligation of a party to an instrument to pay the instrument may bemodified, supplemented or nullified by a separate agreement of the obligorand a person entitled to enforce the instrument, if the instrument is issuedor the obligation is incurred in reliance on the agreement or as part of thesame transaction giving rise to the agreement. To the extent an obligationis modified, supplemented or nullified by an agreement under this section,the agreement is a defense to the obligation.

[28-3-117, added 1993, ch. 288, sec. 2, p. 1028.]

28-3-118. STATUTE OF LIMITATIONS. (1) Except as provided in subsection(5) of this section, an action to enforce the obligation of a party to pay anote payable at a definite time must be commenced within six (6) years af-ter the due date or dates stated in the note or, if a due date is accelerated,within six (6) years after the accelerated due date.

(2) Except as provided in subsection (4) or (5) of this section, if de-mand for payment is made to the maker of a note payable on demand, an action toenforce the obligation of a party to pay the note must be commenced within six(6) years after the demand. If no demand for payment is made to the maker, anaction to enforce the note is barred if neither principal nor interest on thenote has been paid for a continuous period of ten (10) years.

(3) Except as provided in subsection (4) of this section, an action toenforce the obligation of a party to an unaccepted draft to pay the draft mustbe commenced within three (3) years after dishonor of the draft or ten (10)years after the date of the draft, whichever period expires first.

(4) An action to enforce the obligation of the acceptor of a certifiedcheck or the issuer of a teller's check, cashier's check, or traveler's checkmust be commenced within three (3) years after demand for payment is made tothe acceptor or issuer, as the case may be.

(5) An action to enforce the obligation of a party to a certificate ofdeposit to pay the instrument must be commenced within six (6) years afterdemand for payment is made to the maker, but if the instrument states a duedate and the maker is not required to pay before that date, the six (6) yearperiod begins when a demand for payment is in effect and the due date haspassed.

(6) An action to enforce the obligation of a party to pay an accepteddraft, other than a certified check, must be commenced (i) within six (6)years after the due date or dates stated in the draft or acceptance if theobligation of the acceptor is payable at a definite time, or (ii) within six

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(6) years after the date of the acceptance if the obligation of the acceptoris payable on demand.

(7) Unless governed by other law regarding claims for indemnity or con-tribution, an action (i) for conversion of an instrument, for money had andreceived, or like action based on conversion, (ii) for breach of warranty, or(iii) to enforce an obligation, duty or right arising under this chapter andnot governed by this section must be commenced within three (3) years afterthe cause of action accrues.

[28-3-118, added 1993, ch. 288, sec. 2, p. 1028.]

28-3-119. NOTICE OF RIGHT TO DEFEND ACTION. In an action for breach ofan obligation for which a third person is answerable over pursuant to thischapter or chapter 4, the defendant may give the third person written noticeof the litigation, and the person notified may then give similar notice toany other person who is answerable over. If the notice states (i) that theperson notified may come in and defend and (ii) that failure to do so willbind the person notified in an action later brought by the person giving thenotice as to any determination of fact common to the two (2) litigations, theperson notified is so bound unless after seasonable receipt of the notice theperson notified does come in and defend.

[28-3-119, added 1993, ch. 288, sec. 2, p. 1029.]

PART 2.NEGOTIATION, TRANSFER, AND INDORSEMENT

28-3-201. NEGOTIATION. (1) "Negotiation" means a transfer of posses-sion, whether voluntary or involuntary, of an instrument by a person otherthan the issuer to a person who thereby becomes its holder.

(2) Except for negotiation by a remitter, if an instrument is payableto an identified person, negotiation requires transfer of possession of theinstrument and its indorsement by the holder. If an instrument is payable tobearer, it may be negotiated by transfer of possession alone.

[28-3-201, added 1993, ch. 288, sec. 2, p. 1029.]

28-3-202. NEGOTIATION SUBJECT TO RESCISSION. (1) Negotiation is effec-tive 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) inbreach of duty or as part of an illegal transaction.

(2) To the extent permitted by other law, negotiation may be rescindedor may be subject to other remedies, but those remedies may not be assertedagainst a subsequent holder in due course or a person paying the instrumentin good faith and without knowledge of facts that are a basis for rescissionor other remedy.

[28-3-202, added 1993, ch. 288, sec. 2, p. 1029.]

28-3-203. TRANSFER OF INSTRUMENT -- RIGHTS ACQUIRED BY TRANSFER. (1)An instrument is transferred when it is delivered by a person other than itsissuer for the purpose of giving to the person receiving delivery the rightto enforce the instrument.

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(2) Transfer of an instrument, whether or not the transfer is a nego-tiation, vests in the transferee any right of the transferor to enforce theinstrument, including any right as a holder in due course, but the transfereecannot acquire rights of a holder in due course by a transfer, directly or in-directly, from a holder in due course if the transferee engaged in fraud orillegality affecting the instrument.

(3) Unless otherwise agreed, if an instrument is transferred for valueand the transferee does not become a holder because of lack of indorsement bythe transferor, the transferee has a specifically enforceable right to theunqualified indorsement of the transferor, but negotiation of the instru-ment does not occur until the indorsement is made.

(4) If a transferor purports to transfer less than the entire instru-ment, negotiation of the instrument does not occur. The transferee obtainsno rights under this chapter and has only the rights of a partial assignee.

[28-3-203, added 1993, ch. 288, sec. 2, p. 1029.]

28-3-204. INDORSEMENT. (1) "Indorsement" means a signature, other thanthat of a signer as maker, drawer or acceptor, that alone or accompanied byother words is made on an instrument for the purpose of (i) negotiating theinstrument, (ii) restricting payment of the instrument, or (iii) incurringindorser's liability on the instrument, but regardless of the intent of thesigner, a signature and its accompanying words is an indorsement unless theaccompanying words, terms of the instrument, place of the signature, orother circumstances unambiguously indicate that the signature was made fora purpose other than indorsement. For the purpose of determining whether asignature is made on an instrument, a paper affixed to the instrument is apart of the instrument.

(2) "Indorser" means a person who makes an indorsement.(3) For the purpose of determining whether the transferee of an instru-

ment is a holder, an indorsement that transfers a security interest in theinstrument is effective as an unqualified indorsement of the instrument.

(4) If an instrument is payable to a holder under a name that is not thename of the holder, indorsement may be made by the holder in the name statedin the instrument or in the holder's name or both, but signature in both namesmay be required by a person paying or taking the instrument for value or col-lection.

[28-3-204, added 1993, ch. 288, sec. 2, p. 1030.]

28-3-205. SPECIAL INDORSEMENT -- BLANK INDORSEMENT -- ANOMALOUSINDORSEMENT. (1) If an indorsement is made by the holder of an instrument,whether payable to an identified person or payable to bearer, and theindorsement identifies a person to whom it makes the instrument payable,it is a "special indorsement." When specially indorsed, an instrumentbecomes payable to the identified person and may be negotiated only by theindorsement of that person. The principles stated in section 28-3-110 applyto special indorsements.

(2) If an indorsement is made by the holder of an instrument and itis not a special indorsement, it is a "blank indorsement." When indorsedin blank, an instrument becomes payable to bearer and may be negotiated bytransfer of possession alone until specially indorsed.

(3) The holder may convert a blank indorsement that consists only ofa signature into a special indorsement by writing, above the signature of

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the indorser, words identifying the person to whom the instrument is madepayable.

(4) "Anomalous indorsement" means an indorsement made by a person whois not the holder of the instrument. An anomalous indorsement does not af-fect the manner in which the instrument may be negotiated.

[28-3-205, added 1993, ch. 288, sec. 2, p. 1030.]

28-3-206. RESTRICTIVE INDORSEMENT. (1) An indorsement limiting pay-ment to a particular person or otherwise prohibiting further transfer or ne-gotiation of the instrument is not effective to prevent further transfer ornegotiation of the instrument.

(2) An indorsement stating a condition to the right of the indorsee toreceive payment does not affect the right of the indorsee to enforce the in-strument. A person paying the instrument or taking it for value or collec-tion may disregard the condition, and the rights and liabilities of that per-son are not affected by whether the condition has been fulfilled.

(3) If an instrument bears an indorsement (i) described in section28-4-201(2), or (ii) in blank or to a particular bank using the words "fordeposit," "for collection," or other words indicating a purpose of havingthe instrument collected by a bank for the indorser or for a particularaccount, the following rules apply:

(a) A person, other than a bank, who purchases the instrument when soindorsed converts the instrument unless the amount paid for the instru-ment is received by the indorser or applied consistently with the in-dorsement.(b) A depositary bank that purchases the instrument or takes it for col-lection when so indorsed converts the instrument unless the amount paidby the bank with respect to the instrument is received by the indorser orapplied consistently with the indorsement.(c) A payor bank that is also the depositary bank or that takes the in-strument for immediate payment over the counter from a person other thana collecting bank converts the instrument unless the proceeds of the in-strument are received by the indorser or applied consistently with theindorsement.(d) Except as otherwise provided in paragraph (c) of this subsection,a payor bank or intermediary bank may disregard the indorsement and isnot liable if the proceeds of the instrument are not received by the in-dorser or applied consistently with the indorsement.(4) Except for an indorsement covered in subsection (3) of this sec-

tion, if an instrument bears an indorsement using words to the effect thatpayment is to be made to the indorsee as agent, trustee or other fiduciary forthe benefit of the indorser or another person, the following rules apply:

(a) Unless there is notice of breach of fiduciary duty as providedin section 28-3-307, a person who purchases the instrument from theindorsee or takes the instrument from the indorsee for collection orpayment may pay the proceeds of payment or the value given for theinstrument to the indorsee without regard to whether the indorseeviolates a fiduciary duty to the indorser.(b) A subsequent transferee of the instrument or person who pays the in-strument is neither given notice nor otherwise affected by the restric-tion in the indorsement unless the transferee or payor knows that thefiduciary dealt with the instrument or its proceeds in breach of fidu-ciary duty.

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(5) The presence on an instrument of an indorsement to which this sec-tion applies does not prevent a purchaser of the instrument from becoming aholder in due course of the instrument unless the purchaser is a converterunder subsection (3) of this section or has notice or knowledge of breach offiduciary duty as stated in subsection (4) of this section.

(6) In an action to enforce the obligation of a party to pay the instru-ment, the obligor has a defense if payment would violate an indorsement towhich this section applies and the payment is not permitted by this section.

[28-3-206, added 1993, ch. 288, sec. 2, p. 1030.]

28-3-207. REACQUISITION. Reacquisition of an instrument occurs if itis transferred to a former holder, by negotiation or otherwise. A formerholder who reacquires the instrument may cancel indorsements made after thereacquirer first became a holder of the instrument. If the cancellationcauses the instrument to be payable to the reacquirer or to bearer, thereacquirer may negotiate the instrument. An indorser whose indorsementis canceled is discharged, and the discharge is effective against anysubsequent holder.

[28-3-207, added 1993, ch. 288, sec. 2, p. 1032.]

PART 3.ENFORCEMENT OF INSTRUMENTS

28-3-301. PERSON ENTITLED TO ENFORCE INSTRUMENT. "Person entitled toenforce" an instrument means (i) the holder of the instrument, (ii) a non-holder 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 enforcethe instrument pursuant to section 28-3-309 or 28-3-418(4). A person may bea person entitled to enforce the instrument even though the person is not theowner of the instrument or is in wrongful possession of the instrument.

[28-3-301, added 1993, ch. 288, sec. 2, p. 1032.]

28-3-302. HOLDER IN DUE COURSE. (1) Subject to subsection (3) of thissection and section 28-3-106(4), "holder in due course" means the holder ofan instrument if:

(a) The instrument when issued or negotiated to the holder does not bearsuch apparent evidence of forgery or alteration or is not otherwise soirregular or incomplete as to call into question its authenticity; and(b) The holder took the instrument (i) for value, (ii) in good faith,(iii) without notice that the instrument is overdue or has been dishon-ored or that there is an uncured default with respect to payment of an-other instrument issued as part of the same series, (iv) without noticethat the instrument contains an unauthorized signature or has been al-tered, (v) without notice of any claim to the instrument described insection 28-3-306, and (vi) without notice that any party has a defenseor claim in recoupment described in section 28-3-305(1).(2) Notice of discharge of a party, other than discharge in an insol-

vency proceeding, is not notice of a defense under subsection (1) of thissection, but discharge is effective against a person who became a holder indue course with notice of the discharge. Public filing or recording of a doc-

13

ument does not of itself constitute notice of a defense, claim in recoupment,or claim to the instrument.

(3) Except to the extent a transferor or predecessor in interest hasrights as a holder in due course, a person does not acquire rights of a holderin due course of an instrument taken (i) by legal process or by purchase inan execution, bankruptcy, or creditor's sale or similar proceeding, (ii) bypurchase as part of a bulk transaction not in ordinary course of business ofthe transferor, or (iii) as the successor in interest to an estate or otherorganization.

(4) If, under section 28-3-303(1)(a), the promise of performance thatis the consideration for an instrument has been partially performed, theholder may assert rights as a holder in due course of the instrument only tothe fraction of the amount payable under the instrument equal to the value ofthe partial performance divided by the value of the promised performance.

(5) If (i) the person entitled to enforce an instrument has only a secu-rity interest in the instrument, and (ii) the person obliged to pay the in-strument has a defense, claim in recoupment, or claim to the instrument thatmay be asserted against the person who granted the security interest, theperson entitled to enforce the instrument may assert rights as a holder indue course only to an amount payable under the instrument which, at the timeof enforcement of the instrument, does not exceed the amount of the unpaidobligation secured.

(6) To be effective, notice must be received at a time and in a mannerthat gives a reasonable opportunity to act on it.

(7) This section is subject to any law limiting status as a holder in duecourse in particular classes of transactions.

[28-3-302, added 1993, ch. 288, sec. 2, p. 1032.]

28-3-303. VALUE AND CONSIDERATION. (1) An instrument is issued ortransferred for value if:

(a) The instrument is issued or transferred for a promise of perfor-mance, to the extent the promise has been performed;(b) The transferee acquires a security interest or other lien in the in-strument other than a lien obtained by judicial proceeding;(c) The instrument is issued or transferred as payment of, or as se-curity for, an antecedent claim against any person, whether or not theclaim is due;(d) The instrument is issued or transferred in exchange for a nego-tiable instrument; or(e) The instrument is issued or transferred in exchange for the incur-ring of an irrevocable obligation to a third party by the person takingthe instrument.(2) "Consideration" means any consideration sufficient to support a

simple contract. The drawer or maker of an instrument has a defense if theinstrument is issued without consideration. If an instrument is issued fora promise of performance, the issuer has a defense to the extent performanceof the promise is due and the promise has not been performed. If an instru-ment is issued for value as stated in subsection (1) of this section, theinstrument is also issued for consideration.

[28-3-303, added 1993, ch. 288, sec. 2, p. 1033.]

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28-3-304. OVERDUE INSTRUMENT. (1) An instrument payable on demand be-comes overdue at the earliest of the following times:

(a) On the day after the day demand for payment is duly made;(b) If the instrument is a check, ninety (90) days after its date; or(c) If the instrument is not a check, when the instrument has been out-standing for a period of time after its date which is unreasonably longunder the circumstances of the particular case in light of the nature ofthe instrument and usage of the trade.(2) With respect to an instrument payable at a definite time the follow-

ing rules apply:(a) If the principal is payable in installments and a due date has notbeen accelerated, the instrument becomes overdue upon default under theinstrument for nonpayment of an installment, and the instrument remainsoverdue until the default is cured.(b) If the principal is not payable in installments and the due date hasnot been accelerated, the instrument becomes overdue on the day afterthe due date.(c) If a due date with respect to principal has been accelerated, theinstrument becomes overdue on the day after the accelerated due date.(3) Unless the due date of principal has been accelerated, an instru-

ment does not become overdue if there is default in payment of interest but nodefault in payment of principal.

[28-3-304, added 1993, ch. 288, sec. 2, p. 1033.]

28-3-305. DEFENSES AND CLAIMS IN RECOUPMENT. (1) Except as stated insubsection (2) of this section, the right to enforce the obligation of aparty to pay an instrument is subject to the following:

(a) A defense of the obligor based on (i) infancy of the obligor tothe extent it is a defense to a simple contract, (ii) duress, lack oflegal capacity or illegality of the transaction which, under other law,nullifies the obligation of the obligor, (iii) fraud that induced theobligor to sign the instrument with neither knowledge nor reasonableopportunity to learn of its character or its essential terms, or (iv)discharge of the obligor in insolvency proceedings;(b) A defense of the obligor stated in another section of this chapteror a defense of the obligor that would be available if the person enti-tled to enforce the instrument were enforcing a right to payment under asimple contract; and(c) A claim in recoupment of the obligor against the original payee ofthe instrument if the claim arose from the transaction that gave rise tothe instrument; but the claim of the obligor may be asserted against atransferee of the instrument only to reduce the amount owing on the in-strument at the time the action is brought.(2) 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 statedin subsection (1)(a) of this section, but is not subject to defenses of theobligor stated in subsection (1)(b) of this section or claims in recoupmentstated in subsection (1)(c) of this section against a person other than theholder.

(3) Except as stated in subsection (4) of this section, in an actionto enforce the obligation of a party to pay the instrument, the obligor maynot assert against the person entitled to enforce the instrument a defense,claim in recoupment, or claim to the instrument (section 28-3-306) of an-

15

other person, but the other person's claim to the instrument may be assertedby the obligor if the other person is joined in the action and personally as-serts the claim against the person entitled to enforce the instrument. Anobligor is not obliged to pay the instrument if the person seeking enforce-ment of the instrument does not have rights of a holder in due course and theobligor proves that the instrument is a lost or stolen instrument.

(4) In an action to enforce the obligation of an accommodation partyto pay an instrument, the accommodation party may assert against the per-son entitled to enforce the instrument any defense or claim in recoupment un-der subsection (1) of this section that the accommodated party could assertagainst the person entitled to enforce the instrument, except the defensesof discharge in insolvency proceedings, infancy and lack of legal capacity.

[28-3-305, added 1993, ch. 288, sec. 2, p. 1034.]

28-3-306. CLAIMS TO AN INSTRUMENT. A person taking an instrument, otherthan a person having rights of a holder in due course, is subject to a claim ofa property or possessory right in the instrument or its proceeds, including aclaim 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 theinstrument.

[28-3-306, added 1993, ch. 288, sec. 2, p. 1035.]

28-3-307. PROOF OF SIGNATURES AND STATUS AS HOLDER IN DUE COURSE. (1)In an action with respect to an instrument, the authenticity of, and author-ity to make, each signature on the instrument is admitted unless specifi-cally denied in the pleadings. If the validity of a signature is denied inthe pleadings, the burden of establishing validity is on the person claimingvalidity, but the signature is presumed to be authentic and authorized un-less the action is to enforce the liability of the purported signer and thesigner is dead or incompetent at the time of trial of the issue of validity ofthe signature. If an action to enforce the instrument is brought against aperson as the undisclosed principal of a person who signed the instrument asa party to the instrument, the plaintiff has the burden of establishing thatthe defendant is liable on the instrument as a represented person under sec-tion 28-3-402(1).

(2) If the validity of signatures is admitted or proved and there iscompliance with subsection (1) of this section, a plaintiff producing theinstrument is entitled to payment if the plaintiff proves entitlement toenforce the instrument under section 28-3-301, unless the defendant provesa defense or claim in recoupment. If a defense or claim in recoupment isproved, the right to payment of the plaintiff is subject to the defense orclaim, except to the extent the plaintiff proves that the plaintiff hasrights of a holder in due course which are not subject to the defense orclaim.

[28-3-307, added 1993, ch. 288, sec. 2, p. 1035.]

28-3-308. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN INSTRUMENT. (1) Aperson not in possession of an instrument is entitled to enforce the instru-ment if (i) the person was in possession of the instrument and entitled toenforce it when loss of possession occurred, (ii) the loss of possession wasnot the result of a transfer by the person or a lawful seizure, and (iii) the

16

person cannot reasonably obtain possession of the instrument because the in-strument was destroyed, its whereabouts cannot be determined, or it is in thewrongful possession of an unknown person or a person that cannot be found oris not amenable to service of process.

(2) A person seeking enforcement of an instrument under subsection (1)of this section must prove the terms of the instrument and the person's rightto enforce the instrument. If that proof is made, the provisions of this sec-tion apply to the case as if the person seeking enforcement had produced theinstrument. The court may not enter judgment in favor of the person seekingenforcement unless it finds that the person required to pay the instrumentis adequately protected against loss that might occur by reason of a claim byanother person to enforce the instrument. Adequate protection may be pro-vided by any reasonable means.

[28-3-308, added 1993, ch. 288, sec. 2, p. 1035.]

28-3-309. EFFECT OF INSTRUMENT ON OBLIGATION FOR WHICH TAKEN. (1)Unless otherwise agreed, if a certified check, cashier's check or teller'scheck is taken for an obligation, the obligation is discharged to the sameextent discharge would result if an amount of money equal to the amount ofthe instrument were taken in payment of the obligation. Discharge of theobligation does not affect any liability that the obligor may have as anindorser of the instrument.

(2) Unless otherwise agreed and except as provided in subsection (1)of this section, if a note or an uncertified check is taken for an obliga-tion, the obligation is suspended to the same extent the obligation would bedischarged if an amount of money equal to the amount of the instrument weretaken, and the following rules apply:

(a) In the case of an uncertified check, suspension of the obligationcontinues until dishonor of the check or until it is paid or certified.Payment or certification of the check results in discharge of the obli-gation to the extent of the amount of the check.(b) In the case of a note, suspension of the obligation continues untildishonor of the note or until it is paid. Payment of the note results indischarge of the obligation to the extent of the payment.(c) Except as provided in subsection (2)(d) of this section, if thecheck or note is dishonored and the obligee of the obligation for whichthe instrument was taken is the person entitled to enforce the instru-ment, the obligee may enforce either the instrument or the obligation.In the case of an instrument of a third person which is negotiated to theobligee by the obligor, discharge of the obligor on the instrument alsodischarges the obligation.(d) If the person entitled to enforce the instrument taken for anobligation is a person other than the obligee, the obligee may notenforce the obligation to the extent the obligation is suspended. Ifthe obligee is the person entitled to enforce the instrument but nolonger has possession of it because it was lost, stolen, or destroyed,the obligation may not be enforced to the extent of the amount payableon the instrument, and to that extent the obligee's rights against theobligor are limited to enforcement of the instrument.(3) If an instrument other than one described in subsection (1) or (2)

of this section is taken for an obligation, the effect is (i) that stated insubsection (1) of this section if the instrument is one on which a bank is

17

liable as maker or acceptor, or (ii) that stated in subsection (2) of thissection in any other case.

[28-3-309, added 1993, ch. 288, sec. 2, p. 1036.]

28-3-310. ACCORD AND SATISFACTION BY USE OF INSTRUMENT. (1) If a personagainst whom a claim is asserted proves that (i) that person in good faithtendered 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 dis-pute, and (iii) the claimant obtained payment of the instrument, the follow-ing subsections apply.

(2) Unless subsection (3) of this section applies, the claim is dis-charged if the person against whom the claim is asserted proves that the in-strument or an accompanying written communication contained a conspicuousstatement to the effect that the instrument was tendered as full satisfac-tion of the claim.

(3) Subject to subsection (4) of this section, a claim is not dischargedunder subsection (2) of this section if either of the following applies:

(a) The claimant, if an organization, proves that (i) within a reason-able time before the tender, the claimant sent a conspicuous statementto the person against whom the claim is asserted that communicationsconcerning disputed debts, including an instrument tendered as fullsatisfaction of a debt, are to be sent to a designated person, office orplace, and (ii) the instrument or accompanying communication was notreceived by that designated person, office, or place.(b) The claimant, whether or not an organization, proves that withinninety (90) days after payment of the instrument, the claimant tenderedrepayment of the amount of the instrument to the person against whom theclaim is asserted. This paragraph does not apply if the claimant is anorganization that sent a statement complying with paragraph (a)(i) ofthis subsection.(4) A claim is discharged if the person against whom the claim is as-

serted proves that within a reasonable time before collection of the instru-ment was initiated, the claimant, or an agent of the claimant having directresponsibility with respect to the disputed obligation, knew that the in-strument was tendered in full satisfaction of the claim.

[28-3-310, added 1993, ch. 288, sec. 2, p. 1036.]

28-3-311. LOST, DESTROYED, OR STOLEN CASHIER'S CHECK, TELLER'S CHECKOR CERTIFIED CHECK. (1) In this section:

(a) "Check" means a cashier's check, teller's check or certified check.(b) "Claimant" means a person who claims the right to receive the amountof a cashier's check, teller's check, or certified check that was lost,destroyed or stolen.(c) "Declaration of loss" means a written statement, made under penaltyof perjury, to the effect that (i) the declarer lost possession of acheck, (ii) the declarer is the drawer or payee of the check, in the caseof a certified check, or the remitter or payee of the check, in the caseof a cashier's check or teller's check, (iii) the loss of possessionwas not the result of a transfer by the declarer or a lawful seizure,and (iv) the declarer cannot reasonably obtain possession of the checkbecause the check was destroyed, its whereabouts cannot be determined,

18

or it is in the wrongful possession of an unknown person or a person thatcannot be found or is not amenable to service of process.(d) "Obligated bank" means the issuer of a cashier's check or teller'scheck or the acceptor of a certified check.(2) A claimant may assert a claim to the amount of a check by a communi-

cation to the obligated bank describing the check with reasonable certaintyand requesting payment of the amount of the check, if (i) the claimant is thedrawer or payee of a certified check or the remitter or payee of a cashier'scheck or teller's check, (ii) the communication contains or is accompaniedby 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 banka reasonable time to act on it before the check is paid, and (iv) the claimantprovides reasonable identification if requested by the obligated bank. De-livery of a declaration of loss is a warranty of the truth of the statementsmade in the declaration. If a claim is asserted in compliance with this sub-section, the following rules apply:

(a) The claim becomes enforceable at the later of (i) the time the claimis asserted, or (ii) the 90th day following the date of the check, in thecase of a cashier's check or teller's check, or the 90th day followingthe date of the acceptance, in the case of a certified check.(b) Until the claim becomes enforceable, it has no legal effect and theobligated bank may pay the check or, in the case of a teller's check, maypermit the drawee to pay the check. Payment to a person entitled to en-force the check discharges all liability of the obligated bank with re-spect to the check.(c) If the claim becomes enforceable before the check is presented forpayment, the obligated bank is not obliged to pay the check.(d) When the claim becomes enforceable, the obligated bank becomesobliged to pay the amount of the check to the claimant if payment ofthe check has not been made to a person entitled to enforce the check.Subject to section 28-4-302(1)(a), payment to the claimant dischargesall liability of the obligated bank with respect to the check.(3) If the obligated bank pays the amount of a check to a claimant under

subsection (2)(d) of this section and the check is presented for payment by aperson 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 theamount of the check to the person having rights of a holder in due course ifthe check is dishonored.

(4) If a claimant has the right to assert a claim under subsection (2)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, theclaimant may assert rights with respect to the check either under this sec-tion or section 28-3-309.

[28-3-311, added 1993, ch. 288, sec. 2, p. 1037.]

PART 4.LIABILITY OF PARTIES

28-3-401. SIGNATURE. (1) A person is not liable on an instrument unless(i) the person signed the instrument, or (ii) the person is represented by anagent or representative who signed the instrument and the signature is bind-ing on the represented person under section 28-3-402.

19

(2) A signature may be made (i) manually or by means of a device or ma-chine, and (ii) by the use of any name, including a trade or assumed name, orby a word, mark or symbol executed or adopted by a person with present inten-tion to authenticate a writing.

[28-3-401, added 1993, ch. 288, sec. 2, p. 1038.]

28-3-402. SIGNATURE BY REPRESENTATIVE. (1) If a person acting, or pur-porting to act, as a representative signs an instrument by signing eitherthe name of the represented person or the name of the signer, the representedperson is bound by the signature to the same extent the represented personwould be bound if the signature were on a simple contract. If the representedperson is bound, the signature of the representative is the "authorized sig-nature of the represented person" and the represented person is liable on theinstrument, whether or not identified in the instrument.

(2) If a representative signs the name of the representative to aninstrument and the signature is an authorized signature of the representedperson, the following rules apply:

(a) If the form of the signature shows unambiguously that the signatureis made on behalf of the represented person who is identified in the in-strument, the representative is not liable on the instrument.(b) Subject to subsection (3) of this section, if (i) the form of thesignature does not show unambiguously that the signature is made in arepresentative capacity, or (ii) the represented person is not iden-tified in the instrument, the representative is liable on the instru-ment to a holder in due course that took the instrument without noticethat the representative was not intended to be liable on the instrument.With respect to any other person, the representative is liable on theinstrument unless the representative proves that the original partiesdid not intend the representative to be liable on the instrument.(3) If a representative signs the name of the representative as drawer

of a check without indication of the representative status and the check ispayable from an account of the represented person who is identified on thecheck, the signer is not liable on the check if the signature is an authorizedsignature of the represented person.

[28-3-402, added 1993, ch. 288, sec. 2, p. 1038.]

28-3-403. UNAUTHORIZED SIGNATURE. (1) Unless otherwise provided inthis chapter or chapter 4, an unauthorized signature is ineffective exceptas the signature of the unauthorized signer in favor of a person who in goodfaith pays the instrument or takes it for value. An unauthorized signaturemay be ratified for all purposes of this chapter.

(2) If the signature of more than one (1) person is required to consti-tute the authorized signature of an organization, the signature of the or-ganization is unauthorized if one (1) of the required signatures is lacking.

(3) The civil or criminal liability of a person who makes an unautho-rized signature is not affected by any provision of this chapter which makesthe unauthorized signature effective for the purposes of this chapter.

[28-3-403, added 1993, ch. 288, sec. 2, p. 1039.]

28-3-404. IMPOSTORS -- FICTITIOUS PAYEES. (1) If an impostor, by use ofthe mails or otherwise, induces the issuer of an instrument to issue the in-

20

strument 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 actfor the payee, an indorsement of the instrument by any person in the name ofthe payee is effective as the indorsement of the payee in favor of a personwho, in good faith, pays the instrument or takes it for value or for collec-tion.

(2) If (i) a person whose intent determines to whom an instrument ispayable (section 28-3-110(1) or (2)) does not intend the person identifiedas payee to have any interest in the instrument, or (ii) the person identi-fied as payee of an instrument is a fictitious person, the following rulesapply until the instrument is negotiated by special indorsement:

(a) Any person in possession of the instrument is its holder.(b) An indorsement by any person in the name of the payee stated in theinstrument is effective as the indorsement of the payee in favor of aperson who, in good faith, pays the instrument or takes it for value orfor collection.(3) Under subsection (1) or (2) of this section, an indorsement is made

in the name of a payee if (i) it is made in a name substantially similar tothat of the payee, or (ii) the instrument, whether or not indorsed, is de-posited in a depositary bank to an account in a name substantially similar tothat of the payee.

(4) With respect to an instrument to which subsection (1) or (2) of thissection applies, if a person paying the instrument or taking it for value orfor collection fails to exercise ordinary care in paying or taking the in-strument and that failure substantially contributes to loss resulting frompayment of the instrument, the person bearing the loss may recover from theperson failing to exercise ordinary care to the extent the failure to exer-cise ordinary care contributed to the loss.

[28-3-404, added 1993, ch. 288, sec. 2, p. 1039.]

28-3-405. EMPLOYER'S RESPONSIBILITY FOR FRAUDULENT INDORSEMENT BY EM-PLOYEE. (1) In this section:

(a) "Employee" includes an independent contractor and employee of anindependent contractor retained by the employer.(b) "Fraudulent indorsement" means (i) in the case of an instrumentpayable to the employer, a forged indorsement purporting to be that ofthe employer, or (ii) in the case of an instrument with respect to whichthe employer is the issuer, a forged indorsement purporting to be thatof the person identified as payee.(c) "Responsibility" with respect to instruments means authority(i) to sign or indorse instruments on behalf of the employer, (ii) toprocess instruments received by the employer for bookkeeping purposes,for deposit to an account, or for other disposition, (iii) to prepareor process instruments for issue in the name of the employer, (iv) tosupply information determining the names or addresses of payees ofinstruments to be issued in the name of the employer, (v) to control thedisposition of instruments to be issued in the name of the employer,or (vi) to act otherwise with respect to instruments in a responsiblecapacity. "Responsibility" does not include authority that merelyallows an employee to have access to instruments or blank or incompleteinstrument forms that are being stored or transported or are part ofincoming or outgoing mail, or similar access.

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(2) For the purpose of determining the rights and liabilities of a per-son who, in good faith, pays an instrument or takes it for value or for col-lection, if an employer entrusted an employee with responsibility with re-spect to the instrument and the employee or a person acting in concert withthe employee makes a fraudulent indorsement of the instrument, the indorse-ment is effective as the indorsement of the person to whom the instrument ispayable if it is made in the name of that person. If the person paying theinstrument or taking it for value or for collection fails to exercise ordi-nary care in paying or taking the instrument and that failure substantiallycontributes to loss resulting from the fraud, the person bearing the loss mayrecover from the person failing to exercise ordinary care to the extent thefailure to exercise ordinary care contributed to the loss.

(3) Under subsection (2) of this section, an indorsement is made in thename of the person to whom an instrument is payable if (i) it is made in a namesubstantially 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 aname substantially similar to the name of that person.

[28-3-405, added 1993, ch. 288, sec. 2, p. 1040.]

28-3-406. NEGLIGENCE CONTRIBUTING TO FORGED SIGNATURE OR ALTERATION OFINSTRUMENT. (1) A person whose failure to exercise ordinary care substan-tially contributes to an alteration of an instrument or to the making of aforged signature on an instrument is precluded from asserting the alterationor the forgery against a person who, in good faith, pays the instrument ortakes it for value or for collection.

(2) Under subsection (1) of this section, if the person asserting thepreclusion fails to exercise ordinary care in paying or taking the instru-ment and that failure substantially contributes to loss, the loss is allo-cated between the person precluded and the person asserting the preclusionaccording to the extent to which the failure of each to exercise ordinarycare contributed to the loss.

(3) Under subsection (1) of this section, the burden of proving failureto exercise ordinary care is on the person asserting the preclusion. Undersubsection (2) of this section, the burden of proving failure to exercise or-dinary care is on the person precluded.

[28-3-406, added 1993, ch. 288, sec. 2, p. 1041.]

28-3-407. ALTERATION. (1) "Alteration" means (i) an unauthorizedchange in an instrument that purports to modify in any respect the obligationof a party, or (ii) an unauthorized addition of words or numbers or otherchange to an incomplete instrument relating to the obligation of a party.

(2) Except as provided in subsection (3) of this section, an alterationfraudulently made discharges a party whose obligation is affected by the al-teration unless that party assents or is precluded from asserting the alter-ation. No other alteration discharges a party, and the instrument may be en-forced according to its original terms.

(3) A payor bank or drawee paying a fraudulently altered instrument ora person taking it for value, in good faith and without notice of the alter-ation, may enforce rights with respect to the instrument (i) according to itsoriginal terms, or (ii) in the case of an incomplete instrument altered byunauthorized completion, according to its terms as completed.

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[28-3-407, added 1993, ch. 288, sec. 2, p. 1041.]

28-3-408. DRAWEE NOT LIABLE ON UNACCEPTED DRAFT. A check or otherdraft does not of itself operate as an assignment of funds in the hands ofthe drawee available for its payment, and the drawee is not liable on theinstrument until the drawee accepts it.

[28-3-408, added 1993, ch. 288, sec. 2, p. 1041.]

28-3-409. ACCEPTANCE OF DRAFT -- CERTIFIED CHECK. (1) "Acceptance"means the drawee's signed agreement to pay a draft as presented. It mustbe written on the draft and may consist of the drawee's signature alone.Acceptance may be made at any time and becomes effective when notificationpursuant to instructions is given or the accepted draft is delivered for thepurpose of giving rights on the acceptance to any person.

(2) A draft may be accepted although it has not been signed by thedrawer, is otherwise incomplete, is overdue, or has been dishonored.

(3) If a draft is payable at a fixed period after sight and the acceptorfails to date the acceptance, the holder may complete the acceptance by sup-plying a date in good faith.

(4) "Certified check" means a check accepted by the bank on which it isdrawn. Acceptance may be made as stated in subsection (1) of this section orby a writing on the check which indicates that the check is certified. Thedrawee of a check has no obligation to certify the check, and refusal to cer-tify is not dishonor of the check.

[28-3-409, added 1993, ch. 288, sec. 2, p. 1042.]

28-3-410. ACCEPTANCE VARYING DRAFT. (1) If the terms of a drawee's ac-ceptance vary from the terms of the draft as presented, the holder may refusethe acceptance and treat the draft as dishonored. In that case, the draweemay cancel the acceptance.

(2) The terms of a draft are not varied by an acceptance to pay at a par-ticular bank or place in the United States, unless the acceptance states thatthe draft is to be paid only at that bank or place.

(3) 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 tothe acceptance is discharged.

[28-3-410, added 1993, ch. 288, sec. 2, p. 1042.]

28-3-411. REFUSAL TO PAY CASHIER'S CHECKS, TELLER'S CHECKS, AND CERTI-FIED CHECKS. (1) In this section, "obligated bank" means the acceptor of acertified check or the issuer of a cashier's check or teller's check boughtfrom the issuer.

(2) If the obligated bank wrongfully (i) refuses to pay a cashier'scheck 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 rightto enforce the check is entitled to compensation for expenses and loss of in-terest resulting from the nonpayment and may recover consequential damagesif the obligated bank refuses to pay after receiving notice of particularcircumstances giving rise to the damages.

(3) Expenses or consequential damages under subsection (2) of this sec-tion are not recoverable if the refusal of the obligated bank to pay occurs

23

because (i) the bank suspends payments, (ii) the obligated bank asserts aclaim or defense of the bank that it has reasonable grounds to believe isavailable against the person entitled to enforce the instrument, (iii) theobligated bank has a reasonable doubt whether the person demanding paymentis the person entitled to enforce the instrument, or (iv) payment is prohib-ited by law.

[28-3-411, added 1993, ch. 288, sec. 2, p. 1042.]

28-3-412. OBLIGATION OF ISSUER OF NOTE OR CASHIER'S CHECK. The issuerof a note or cashier's check or other draft drawn on the drawer is obliged topay the instrument (i) according to its terms at the time it was issued or, ifnot issued, at the time it first came into possession of a holder, or (ii) ifthe issuer signed an incomplete instrument, according to its terms when com-pleted, to the extent stated in sections 28-3-115 and 28-3-407. The obliga-tion is owed to a person entitled to enforce the instrument or to an indorserwho paid the instrument under section 28-3-415.

[28-3-412, added 1993, ch. 288, sec. 2, p. 1043.]

28-3-413. OBLIGATION OF ACCEPTOR. (1) The acceptor of a draft isobliged to pay the draft (i) according to its terms at the time it wasaccepted, even though the acceptance states that the draft is payable "asoriginally drawn" or equivalent terms, (ii) if the acceptance varies theterms 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, accordingto its terms when completed, to the extent stated in sections 28-3-115 and28-3-407. The obligation is owed to a person entitled to enforce the draftor to the drawer or an indorser who paid the draft under section 28-3-414 or28-3-415.

(2) If the certification of a check or other acceptance of a draftstates the amount certified or accepted, the obligation of the acceptoris that amount. If (i) the certification or acceptance does not state anamount, (ii) the amount of the instrument is subsequently raised, and (iii)the instrument is then negotiated to a holder in due course, the obligationof the acceptor is the amount of the instrument at the time it was taken by theholder in due course.

[28-3-413, added 1993, ch. 288, sec. 2, p. 1043.]

28-3-414. OBLIGATION OF DRAWER. (1) This section does not apply tocashier's checks or other drafts drawn on the drawer.

(2) If an unaccepted draft is dishonored, the drawer is obliged topay the draft (i) according to its terms at the time it was issued or, ifnot 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 whencompleted, to the extent stated in sections 28-3-115 and 28-3-407. Theobligation is owed to a person entitled to enforce the draft or to an indorserwho paid the draft under section 28-3-415.

(3) If a draft is accepted by a bank, the drawer is discharged, regard-less of when or by whom acceptance was obtained.

(4) If a draft is accepted and the acceptor is not a bank, the obligationof the drawer to pay the draft if the draft is dishonored by the acceptor isthe same as the obligation of an indorser under section 28-3-415(1) and (3).

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(5) If a draft states that it is drawn "without recourse" or otherwisedisclaims liability of the drawer to pay the draft, the drawer is not liableunder subsection (2) of this section to pay the draft if the draft is not acheck. A disclaimer of the liability stated in subsection (2) of this sec-tion is not effective if the draft is a check.

(6) If (i) a check is not presented for payment or given to a depositarybank for collection within thirty (30) days after its date, (ii) the draweesuspends payments after expiration of the thirty (30) day period withoutpaying the check, and (iii) because of the suspension of payments, the draweris deprived of funds maintained with the drawee to cover payment of thecheck, the drawer to the extent deprived of funds may discharge its obliga-tion to pay the check by assigning to the person entitled to enforce the checkthe rights of the drawer against the drawee with respect to the funds.

[28-3-414, added 1993, ch. 288, sec. 2, p. 1043.]

28-3-415. OBLIGATION OF INDORSER. (1) Subject to subsections (2), (3)and (4) of this section and to section 28-3-419(4), if an instrument is dis-honored, 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 termswhen completed, to the extent stated in sections 28-3-115 and 28-3-407. Theobligation of the indorser is owed to a person entitled to enforce the in-strument or to a subsequent indorser who paid the instrument under this sec-tion.

(2) If an indorsement states that it is made "without recourse" or oth-erwise disclaims liability of the indorser, the indorser is not liable undersubsection (1) of this section to pay the instrument.

(3) If notice of dishonor of an instrument is required by section 28-3-503 and notice of dishonor complying with that section is not given to an in-dorser, the liability of the indorser under subsection (1) of this section isdischarged.

(4) If a draft is accepted by a bank after an indorsement is made,the liability of the indorser under subsection (1) of this section isdischarged.

(5) If an indorser of a check is liable under subsection (1) of this sec-tion and the check is not presented for payment, or given to a depositary bankfor collection, within thirty (30) days after the day the indorsement wasmade, the liability of the indorser under subsection (1) of this section isdischarged.

[28-3-415, added 1993, ch. 288, sec. 2, p. 1044.]

28-3-416. TRANSFER WARRANTIES. (1) A person who transfers an instru-ment for consideration warrants to the transferee and, if the transfer is byindorsement, to any subsequent transferee that:

(a) The warrantor is a person entitled to enforce the instrument;(b) All signatures on the instrument are authentic and authorized;(c) The instrument has not been altered;(d) The instrument is not subject to a defense or claim in recoupment ofany party which can be asserted against the warrantor;(e) The warrantor has no knowledge of any insolvency proceeding com-menced with respect to the maker or acceptor or, in the case of an unac-cepted draft, the drawer; and

25

(f) If the instrument is a demand draft, creation of the instrument ac-cording to the terms on its face was authorized by the person identifiedas drawer.(2) A person to whom the warranties under subsection (1) of this section

are made and who took the instrument in good faith may recover from the war-rantor as damages for breach of warranty an amount equal to the loss sufferedas a result of the breach, but not more than the amount of the instrument plusexpenses and loss of interest incurred as a result of the breach.

(3) The warranties stated in subsection (1) of this section cannot bedisclaimed with respect to checks. Unless notice of a claim for breach ofwarranty is given to the warrantor within thirty (30) days after the claimanthas reason to know of the breach and the identity of the warrantor, the lia-bility of the warrantor under subsection (2) of this section is discharged tothe extent of any loss caused by the delay in giving notice of the claim.

(4) A cause of action for breach of warranty under this section accrueswhen the claimant has reason to know of the breach.

(5) If the warranty in subsection (1)(f) of this section is not given bya transferor under applicable conflict of law rules, then the warranty is notgiven to that transferor when that transferor is a transferee.

[28-3-416, added 1993, ch. 288, sec. 2, p. 1044; am. 2002, ch. 121,sec. 3, p. 341.]

28-3-417. PRESENTMENT WARRANTIES. (1) If an unaccepted draft is pre-sented to the drawee for payment or acceptance and the drawee pays or ac-cepts the draft, (i) the person obtaining payment or acceptance, at the timeof presentment, and (ii) a previous transferor of the draft, at the time oftransfer, warrant to the drawee making payment or accepting the draft in goodfaith that:

(a) The warrantor is, or was, at the time the warrantor transferred thedraft, a person entitled to enforce the draft or authorized to obtainpayment or acceptance of the draft on behalf of a person entitled to en-force the draft;(b) The draft has not been altered;(c) The warrantor has no knowledge that the signature of the drawer ofthe draft is unauthorized; and(d) If the draft is a demand draft, creation of the demand draft accord-ing to the terms on its face was authorized by the person identified asdrawer.(2) 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 thedrawee received or is entitled to receive from the drawer because of the pay-ment. In addition, the drawee is entitled to compensation for expenses andloss of interest resulting from the breach. The right of the drawee to re-cover damages under this subsection is not affected by any failure of thedrawee to exercise ordinary care in making payment. If the drawee acceptsthe draft, breach of warranty is a defense to the obligation of the accep-tor. If the acceptor makes payment with respect to the draft, the acceptoris entitled to recover from any warrantor for breach of warranty the amountsstated in this subsection.

(3) If a drawee asserts a claim for breach of warranty under subsec-tion (1) of this section, based on an unauthorized indorsement of the draftor an alteration of the draft, the warrantor may defend by proving that theindorsement is effective under section 28-3-404 or 28-3-405 or the drawer

26

is precluded under section 28-3-406 or 28-4-406 from asserting against thedrawee the unauthorized indorsement or alteration.

(4) If (i) a dishonored draft is presented for payment to the drawer oran indorser or (ii) any other instrument is presented for payment to a partyobliged to pay the instrument, and (iii) payment is received, the followingrules apply:

(a) The person obtaining payment and a prior transferor of the instru-ment warrant to the person making payment in good faith that the warran-tor is, or was, at the time the warrantor transferred the instrument, aperson entitled to enforce the instrument or authorized to obtain pay-ment on behalf of a person entitled to enforce the instrument.(b) The person making payment may recover from any warrantor for breachof warranty an amount equal to the amount paid plus expenses and loss ofinterest resulting from the breach.(5) The warranties stated in subsections (1) and (4) of this section

cannot be disclaimed with respect to checks. Unless notice of a claim forbreach of warranty is given to the warrantor within thirty (30) days afterthe claimant has reason to know of the breach and the identity of the war-rantor, the liability of the warrantor under subsection (2) or (4) of thissection is discharged to the extent of any loss caused by the delay in givingnotice of the claim.

(6) A cause of action for breach of warranty under this section accrueswhen the claimant has reason to know of the breach.

(7) A demand draft is a check, as provided in section 28-3-104.(8) If the warranty in subsection (1)(d) of this section is not given

by a transferor under applicable conflict of law rules, the warranty is notgiven to that transferor when the transferor is a transferee.

[28-3-417, added 1993, ch. 288, sec. 2, p. 1045; am. 2002, ch. 121,sec. 4, p. 342.]

28-3-418. PAYMENT OR ACCEPTANCE BY MISTAKE. (1) Except as provided insubsection (3) of this section, if the drawee of a draft pays or accepts thedraft and the drawee acted on the mistaken belief that (i) payment of thedraft had not been stopped pursuant to section 28-4-403, or (ii) the signa-ture of the drawer of the draft was authorized, the drawee may recover theamount of the draft from the person to whom or for whose benefit payment wasmade or, in the case of acceptance, may revoke the acceptance. Rights of thedrawee under this subsection are not affected by failure of the drawee to ex-ercise ordinary care in paying or accepting the draft.

(2) Except as provided in subsection (3) of this section, if an instru-ment has been paid or accepted by mistake and the case is not covered by sub-section (1) of this section, the person paying or accepting may, to the ex-tent permitted by the law governing mistake and restitution, (i) recover thepayment from the person to whom or for whose benefit payment was made or (ii)in the case of acceptance, may revoke the acceptance.

(3) The remedies provided in subsection (1) or (2) of this section maynot be asserted against a person who took the instrument in good faith andfor value or who in good faith changed position in reliance on the paymentor acceptance. This subsection does not limit remedies provided in section28-3-417 or 28-4-407.

(4) Notwithstanding section 28-4-215 if an instrument is paid oraccepted by mistake and the payor or acceptor recovers payment or revokesacceptance under subsection (1) or (2) of this section, the instrument is

27

deemed not to have been paid or accepted and is treated as dishonored, andthe person from whom payment is recovered has rights as a person entitled toenforce the dishonored instrument.

[28-3-418, added 1993, ch. 288, sec. 2, p. 1046.]

28-3-419. INSTRUMENTS SIGNED FOR ACCOMMODATION. (1) If an instrumentis issued for value given for the benefit of a party to the instrument("accommodated party") and another party to the instrument ("accommodationparty") signs the instrument for the purpose of incurring liability onthe instrument without being a direct beneficiary of the value given forthe instrument, the instrument is signed by the accommodation party "foraccommodation."

(2) An accommodation party may sign the instrument as maker, drawer,acceptor, or indorser and, subject to subsection (4) of this section, isobliged to pay the instrument in the capacity in which the accommodationparty signs. The obligation of an accommodation party may be enforcednotwithstanding any statute of frauds and whether or not the accommodationparty receives consideration for the accommodation.

(3) A person signing an instrument is presumed to be an accommodationparty and there is notice that the instrument is signed for accommodation ifthe signature is an anomalous indorsement or is accompanied by words indi-cating that the signer is acting as surety or guarantor with respect to theobligation of another party to the instrument. Except as provided in sec-tion 28-3-605, the obligation of an accommodation party to pay the instru-ment is not affected by the fact that the person enforcing the obligation hadnotice when the instrument was taken by that person that the accommodationparty signed the instrument for accommodation.

(4) If the signature of a party to an instrument is accompanied by wordsindicating unambiguously that the party is guaranteeing collection ratherthan payment of the obligation of another party to the instrument, the signeris obliged to pay the amount due on the instrument to a person entitled toenforce the instrument only if (i) execution of judgment against the otherparty has been returned unsatisfied, (ii) the other party is insolvent orin an insolvency proceeding, (iii) the other party cannot be served withprocess, or (iv) it is otherwise apparent that payment cannot be obtainedfrom the other party.

(5) An accommodation party who pays the instrument is entitled to re-imbursement from the accommodated party and is entitled to enforce the in-strument against the accommodated party. An accommodated party who pays theinstrument has no right of recourse against, and is not entitled to contribu-tion from, an accommodation party.

[28-3-419, added 1993, ch. 288, sec. 2, p. 1046.]

28-3-420. CONVERSION OF INSTRUMENT. (1) The law applicable to conver-sion of personal property applies to instruments. An instrument is also con-verted if it is taken by transfer, other than a negotiation, from a person notentitled to enforce the instrument or a bank makes or obtains payment withrespect to the instrument for a person not entitled to enforce the instru-ment or receive payment. An action for conversion of an instrument may notbe brought by (i) the issuer or acceptor of the instrument or (ii) a payee orindorsee who did not receive delivery of the instrument either directly orthrough delivery to an agent or a copayee.

28

(2) In an action under subsection (1) of this section, the measure ofliability is presumed to be the amount payable on the instrument, but recov-ery may not exceed the amount of the plaintiff's interest in the instrument.

(3) A representative, other than a depositary bank, who has in goodfaith dealt with an instrument or its proceeds on behalf of one who was notthe person entitled to enforce the instrument is not liable in conversion tothat person beyond the amount of any proceeds that it has not paid out.

[28-3-420, added 1993, ch. 288, sec. 2, p. 1047.]

PART 5.PRESENTMENT, NOTICE OF DISHONOR AND PROTEST

28-3-501. PRESENTMENT. (1) "Presentment" means a demand made by or onbehalf of a person entitled to enforce an instrument (i) to pay the instru-ment made to the drawee or a party obliged to pay the instrument or, in thecase of a note or accepted draft payable at a bank, to the bank, or (ii) to ac-cept a draft made to the drawee.

(2) The following rules are subject to chapter 4, agreement of the par-ties, and clearing-house rules and the like:

(a) Presentment may be made at the place of payment of the instrumentand must be made at the place of payment if the instrument is payableat a bank in the United States; may be made by any commercially reason-able means, including an oral, written or electronic communication; iseffective when the demand for payment or acceptance is received by theperson to whom presentment is made; and is effective if made to any one(1) of two (2) or more makers, acceptors, drawees or other payors.(b) Upon demand of the person to whom presentment is made, the personmaking presentment must (i) exhibit the instrument, (ii) give reason-able identification and, if presentment is made on behalf of anotherperson, reasonable evidence of authority to do so, and (iii) sign a re-ceipt on the instrument for any payment made or surrender the instrumentif full payment is made.(c) Without dishonoring the instrument, the party to whom presentmentis made may (i) return the instrument for lack of a necessary indorse-ment, or (ii) refuse payment or acceptance for failure of the present-ment to comply with the terms of the instrument, an agreement of the par-ties, or other applicable law or rule.(d) The party to whom presentment is made may treat presentment asoccurring on the next business day after the day of presentment ifthe party to whom presentment is made has established a cut-off hournot earlier than 2 p.m. for the receipt and processing of instrumentspresented for payment or acceptance and presentment is made after thecut-off hour.

[28-3-501, added 1993, ch. 288, sec. 2, p. 1047.]

28-3-502. DISHONOR. (1) Dishonor of a note is governed by the followingrules:

(a) If the note is payable on demand, the note is dishonored if present-ment is duly made to the maker and the note is not paid on the day of pre-sentment.(b) If the note is not payable on demand and is payable at or through abank or the terms of the note require presentment, the note is dishon-

29

ored if presentment is duly made and the note is not paid on the day itbecomes payable or the day of presentment, whichever is later.(c) If the note is not payable on demand and paragraph (b) of this sub-section does not apply, the note is dishonored if it is not paid on theday it becomes payable.(2) Dishonor of an unaccepted draft other than a documentary draft is

governed by the following rules:(a) If a check is duly presented for payment to the payor bank otherwisethan for immediate payment over the counter, the check is dishonored ifthe payor bank makes timely return of the check or sends timely noticeof dishonor or nonpayment under section 28-4-301 or 28-4-302 or becomesaccountable for the amount of the check under section 28-4-302.(b) If a draft is payable on demand and paragraph (a) of this subsectiondoes not apply, the draft is dishonored if presentment for payment isduly made to the drawee and the draft is not paid on the day of present-ment.(c) If a draft is payable on a date stated in the draft, the draft isdishonored if (i) presentment for payment is duly made to the drawee andpayment is not made on the day the draft becomes payable or the day ofpresentment, whichever is later, or (ii) presentment for acceptance isduly made before the day the draft becomes payable and the draft is notaccepted on the day of presentment.(d) If a draft is payable on elapse of a period of time after sight or ac-ceptance, the draft is dishonored if presentment for acceptance is dulymade and the draft is not accepted on the day of presentment.(3) Dishonor of an unaccepted documentary draft occurs according to the

rules stated in subsection (2)(b), (c) and (d) of this section, except thatpayment or acceptance may be delayed without dishonor until no later than theclose of the third business day of the drawee following the day on which pay-ment or acceptance is required by those paragraphs.

(4) Dishonor of an accepted draft is governed by the following rules:(a) If the draft is payable on demand, the draft is dishonored if pre-sentment for payment is duly made to the acceptor and the draft is notpaid on the day of presentment.(b) If the draft is not payable on demand, the draft is dishonored ifpresentment for payment is duly made to the acceptor and payment is notmade on the day it becomes payable or the day of presentment, whicheveris later.(5) In any case in which presentment is otherwise required for dishonor

under this section and presentment is excused under section 28-3-504 dis-honor occurs without presentment if the instrument is not duly accepted orpaid.

(6) If a draft is dishonored because timely acceptance of the draft wasnot made and the person entitled to demand acceptance consents to a late ac-ceptance, from the time of acceptance the draft is treated as never havingbeen dishonored.

[28-3-502, added 1993, ch. 288, sec. 2, p. 1048.]

28-3-503. NOTICE OF DISHONOR. (1) The obligation of an indorser statedin section 28-3-415(1) and the obligation of a drawer stated in section 28-3-414(4) may not be enforced unless, (i) the indorser or drawer is given noticeof dishonor of the instrument complying with this section, or (ii) notice ofdishonor is excused under section 28-3-504(2).

30

(2) Notice of dishonor may be given by any person; may be given by anycommercially reasonable means, including an oral, written or electroniccommunication; and is sufficient if it reasonably identifies the instrumentand indicates that the instrument has been dishonored or has not been paidor accepted. Return of an instrument given to a bank for collection issufficient notice of dishonor.

(3) Subject to section 28-3-504(3) with respect to an instrument takenfor collection by a collecting bank, notice of dishonor must be given (i) bythe bank before midnight of the next banking day following the banking day onwhich the bank receives notice of dishonor of the instrument, or (ii) by anyother person within thirty (30) days following the day on which the personreceives notice of dishonor. With respect to any other instrument, noticeof dishonor must be given within thirty (30) days following the day on whichdishonor occurs.

[28-3-503, added 1993, ch. 288, sec. 2, p. 1049.]

28-3-504. EXCUSED PRESENTMENT AND NOTICE OF DISHONOR. (1) Presentmentfor payment or acceptance of an instrument is excused if (i) the person en-titled to present the instrument cannot with reasonable diligence make pre-sentment, (ii) the maker or acceptor has repudiated an obligation to pay theinstrument or is dead or in insolvency proceedings, (iii) by the terms ofthe instrument presentment is not necessary to enforce the obligation of in-dorsers or the drawer, (iv) the drawer or indorser whose obligation is be-ing enforced has waived presentment or otherwise has no reason to expect orright to require that the instrument be paid or accepted, or (v) the drawerinstructed the drawee not to pay or accept the draft or the drawee was not ob-ligated to the drawer to pay the draft.

(2) Notice of dishonor is excused if (i) by the terms of the instru-ment notice of dishonor is not necessary to enforce the obligation of a partyto pay the instrument, or (ii) the party whose obligation is being enforcedwaived notice of dishonor. A waiver of presentment is also a waiver of noticeof dishonor.

(3) Delay in giving notice of dishonor is excused if the delay wascaused by circumstances beyond the control of the person giving the noticeand the person giving the notice exercised reasonable diligence after thecause of the delay ceased to operate.

[28-3-504, added 1993, ch. 288, sec. 2, p. 1050.]

28-3-505. EVIDENCE OF DISHONOR. (1) The following are admissible as ev-idence and create a presumption of dishonor and of any notice of dishonorstated:

(a) A document regular in form as provided in subsection (2) of thissection which purports to be a protest;(b) A purported stamp or writing of the drawee, payor bank or presentingbank on or accompanying the instrument stating that acceptance or pay-ment has been refused unless reasons for the refusal are stated and thereasons are not consistent with dishonor;(c) A book or record of the drawee, payor bank or collecting bank, keptin the usual course of business which shows dishonor, even if there is noevidence of who made the entry.(2) A protest is a certificate of dishonor made by a United States con-

sul or vice consul, or a notary public or other person authorized to adminis-

31

ter oaths by the law of the place where dishonor occurs. It may be made uponinformation satisfactory to that person. The protest must identify the in-strument 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 dishonoredby nonacceptance or nonpayment. The protest may also certify that notice ofdishonor has been given to some or all parties.

[28-3-505, added 1993, ch. 288, sec. 2, p. 1050.]

PART 6.DISCHARGE AND PAYMENT

28-3-601. DISCHARGE AND EFFECT OF DISCHARGE. (1) The obligation of aparty to pay the instrument is discharged as stated in this chapter or by anact or agreement with the party which would discharge an obligation to paymoney under a simple contract.

(2) Discharge of the obligation of a party is not effective against aperson acquiring rights of a holder in due course of the instrument withoutnotice of the discharge.

[28-3-601, added 1993, ch. 288, sec. 2, p. 1050.]

28-3-602. PAYMENT. (1) Subject to subsection (2) of this section, aninstrument is paid to the extent payment is made (i) by or on behalf of aparty obliged to pay the instrument, and (ii) to a person entitled to enforcethe instrument. To the extent of the payment, the obligation of the partyobliged to pay the instrument is discharged even though payment is made withknowledge of a claim to the instrument under section 28-3-306 by anotherperson.

(2) The obligation of a party to pay the instrument is not dischargedunder subsection (1) of this section if:

(a) A claim to the instrument under section 28-3-306 is enforceableagainst the party receiving payment and (i) payment is made with knowl-edge by the payor that payment is prohibited by injunction or similarprocess of a court of competent jurisdiction, or (ii) in the case of aninstrument other than a cashier's check, teller's check or certifiedcheck, the party making payment accepted, from the person having a claimto the instrument, indemnity against loss resulting from refusal to paythe person entitled to enforce the instrument; or(b) The person making payment knows that the instrument is a stolen in-strument and pays a person it knows is in wrongful possession of the in-strument.

[28-3-602, added 1993, ch. 288, sec. 2, p. 1051.]

28-3-603. TENDER OF PAYMENT. (1) If tender of payment of an obligationto 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 ofpayment under a simple contract.

(2) If tender of payment of an obligation to pay an instrument is made toa person entitled to enforce the instrument and the tender is refused, thereis discharge, to the extent of the amount of the tender, of the obligation ofan indorser or accommodation party having a right of recourse with respect tothe obligation to which the tender relates.

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(3) If tender of payment of an amount due on an instrument is made to aperson entitled to enforce the instrument, the obligation of the obligor topay interest after the due date on the amount tendered is discharged. If pre-sentment is required with respect to an instrument and the obligor is ableand ready to pay on the due date at every place of payment stated in the in-strument, the obligor is deemed to have made tender of payment on the due dateto the person entitled to enforce the instrument.

[28-3-603, added 1993, ch. 288, sec. 2, p. 1051.]

28-3-604. DISCHARGE BY CANCELLATION OR RENUNCIATION. (1) A personentitled to enforce an instrument, with or without consideration, maydischarge the obligation of a party to pay the instrument (i) by an inten-tional voluntary act, such as surrender of the instrument to the party,destruction, mutilation or cancellation of the instrument, cancellationor striking out of the party's signature, or the addition of words to theinstrument indicating discharge, or (ii) by agreeing not to sue or otherwiserenouncing rights against the party by a signed writing.

(2) Cancellation or striking out of an indorsement pursuant to subsec-tion (1) of this section does not affect the status and rights of a party de-rived from the indorsement.

[28-3-604, added 1993, ch. 288, sec. 2, p. 1051.]

28-3-605. DISCHARGE OF INDORSERS AND ACCOMMODATION PARTIES. (1) Inthis section, the term "indorser" includes a drawer having the obligationdescribed in section 28-3-414(4).

(2) Discharge, under section 28-3-604 of the obligation of a party topay an instrument does not discharge the obligation of an indorser or accom-modation party having a right of recourse against the discharged party.

(3) If a person entitled to enforce an instrument agrees, with or with-out consideration, to an extension of the due date of the obligation of aparty to pay the instrument, the extension discharges an indorser or accom-modation party having a right of recourse against the party whose obligationis extended to the extent the indorser or accommodation party proves that theextension caused loss to the indorser or accommodation party with respect tothe right of recourse.

(4) If a person entitled to enforce an instrument agrees, with orwithout consideration, to a material modification of the obligation of aparty other than an extension of the due date, the modification dischargesthe obligation of an indorser or accommodation party having a right ofrecourse against the person whose obligation is modified to the extent themodification causes loss to the indorser or accommodation party with respectto the right of recourse. The loss suffered by the indorser or accommodationparty as a result of the modification is equal to the amount of the right ofrecourse unless the person enforcing the instrument proves that no loss wascaused by the modification or that the loss caused by the modification was anamount less than the amount of the right of recourse.

(5) If the obligation of a party to pay an instrument is secured by aninterest in collateral and a person entitled to enforce the instrument im-pairs the value of the interest in collateral, the obligation of an indorseror accommodation party having a right of recourse against the obligor is dis-charged to the extent of the impairment. The value of an interest in collat-eral is impaired to the extent (i) the value of the interest is reduced to an

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amount less than the amount of the right of recourse of the party assertingdischarge, or (ii) the reduction in value of the interest causes an increasein the amount by which the amount of the right of recourse exceeds the valueof the interest. The burden of proving impairment is on the party assertingdischarge.

(6) If the obligation of a party is secured by an interest in collateralnot provided by an accommodation party and a person entitled to enforce theinstrument impairs the value of the interest in collateral, the obligationof any party who is jointly and severally liable with respect to the securedobligation is discharged to the extent the impairment causes the party as-serting 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 todischarge under subsection (5) of this section, the party is deemed to havea right to contribution based on joint and several liability rather than aright to reimbursement. The burden of proving impairment is on the party as-serting discharge.

(7) Under subsection (5) or (6) of this section, impairing value of aninterest in collateral includes (i) failure to obtain or maintain perfectionor recordation of the interest in collateral, (ii) release of collateralwithout substitution of collateral of equal value, (iii) failure to performa duty to preserve the value of collateral owed, under chapter 9 or other law,to a debtor or surety or other person secondarily liable, or (iv) failure tocomply with applicable law in disposing of collateral.

(8) An accommodation party is not discharged under subsection (3), (4)or (5) of this section unless the person entitled to enforce the instrumentknows of the accommodation or has notice under section 28-3-419(3) that theinstrument was signed for accommodation.

(9) A party is not discharged under this section if (i) the party as-serting discharge consents to the event or conduct that is the basis of thedischarge, or (ii) the instrument or a separate agreement of the party pro-vides for waiver of discharge under this section either specifically or bygeneral language indicating that parties waive defenses based on suretyshipor impairment of collateral.

[28-3-605, added 1993, ch. 288, sec. 2, p. 1052.]