3401-3420
COMMERCIAL CODE
SECTION 3401-3420
3401. (a) A person is not liable on an instrument unless (1) the
person signed the instrument, or (2) the person is represented by an
agent or representative who signed the instrument and the signature
is binding on the represented person under Section 3402.
(b) A signature may be made (1) manually or by means of a device
or machine, and (2) by the use of any name, including a trade or
assumed name, or by a word, mark, or symbol executed or adopted by a
person with present intention to authenticate a writing.
3402. (a) If a person acting, or purporting to act, as a
representative signs an instrument by signing either the name of the
represented person or the name of the signer, the represented person
is bound by the signature to the same extent the represented person
would be bound if the signature were on a simple contract. If the
represented person is bound, the signature of the representative is
the "authorized signature of the represented person" and the
represented person is liable on the instrument, whether or not
identified in the instrument.
(b) If a representative signs the name of the representative to an
instrument and the signature is an authorized signature of the
represented person, the following rules apply:
(1) If the form of the signature shows unambiguously that the
signature is made on behalf of the represented person who is
identified in the instrument, the representative is not liable on the
instrument.
(2) Subject to subdivision (c), if (A) the form of the signature
does not show unambiguously that the signature is made in a
representative capacity or (B) the represented person is not
identified in the instrument, the representative is liable on the
instrument to a holder in due course that took the instrument without
notice that the representative was not intended to be liable on the
instrument. With respect to any other person, the representative is
liable on the instrument unless the representative proves that the
original parties did not intend the representative to be liable on
the instrument.
(c) If a representative signs the name of the representative as
drawer of a check without indication of the representative status and
the check is payable from an account of the represented person who
is identified on the check, the signer is not liable on the check if
the signature is an authorized signature of the represented person.
3403. (a) Unless otherwise provided in this division or Division 4
(commencing with Section 4101), an unauthorized signature is
ineffective except as the signature of the unauthorized signer in
favor of a person who in good faith pays the instrument or takes it
for value. An unauthorized signature may be ratified for all purposes
of this division.
(b) If the signature of more than one person is required to
constitute the authorized signature of an organization, the signature
of the organization is unauthorized if one of the required
signatures is lacking.
(c) The civil or criminal liability of a person who makes an
unauthorized signature is not affected by any provision of this
division which makes the unauthorized signature effective for the
purposes of this division.
3404. (a) If an impostor, by use of the mails or otherwise, induces
the issuer of an instrument to issue the instrument to the impostor,
or to a person acting in concert with the impostor, by impersonating
the payee of the instrument or a person authorized to act for the
payee, an indorsement of the instrument by any person in the name of
the payee is effective as the indorsement of the payee in favor of a
person who, in good faith, pays the instrument or takes it for value
or for collection.
(b) If (i) a person whose intent determines to whom an instrument
is payable (subdivision (a) or (b) of Section 3110) does not intend
the person identified as payee to have any interest in the
instrument, or (ii) the person identified as payee of an instrument
is a fictitious person, the following rules apply until the
instrument is negotiated by special indorsement:
(1) Any person in possession of the instrument is its holder.
(2) An indorsement by any person in the name of the payee stated
in the instrument is effective as the indorsement of the payee in
favor of a person who, in good faith, pays the instrument or takes it
for value or for collection.
(c) Under subdivision (a) or (b), an indorsement is made in the
name of a payee if (1) it is made in a name substantially similar to
that of the payee or (2) the instrument, whether or not indorsed, is
deposited in a depositary bank to an account in a name substantially
similar to that of the payee.
(d) With respect to an instrument to which subdivision (a) or (b)
applies, if a person paying the instrument or taking it for value or
for collection fails to exercise ordinary care in paying or taking
the instrument and that failure contributes to loss resulting from
payment of the instrument, the person bearing the loss may recover
from the person failing to exercise ordinary care to the extent the
failure to exercise ordinary care contributed to the loss.
3405. (a) In this section:
(1) "Employee" includes an independent contractor and employee of
an independent contractor retained by the employer.
(2) "Fraudulent indorsement" means (A) in the case of an
instrument payable to the employer, a forged indorsement purporting
to be that of the employer, or (B) in the case of an instrument with
respect to which the employer is the issuer, a forged indorsement
purporting to be that of the person identified as payee.
(3) "Responsibility" with respect to instruments means authority
(A) to sign or indorse instruments on behalf of the employer, (B) to
process instruments received by the employer for bookkeeping
purposes, for deposit to an account, or for other disposition, (C) to
prepare or process instruments for issue in the name of the
employer, (D) to supply information determining the names or
addresses of payees of instruments to be issued in the name of the
employer, (E) to control the disposition of instruments to be issued
in the name of the employer, or (F) to act otherwise with respect to
instruments in a responsible capacity. "Responsibility" does not
include authority that merely allows an employee to have access to
instruments or blank or incomplete instrument forms that are being
stored or transported or are part of incoming or outgoing mail, or
similar access.
(b) For the purpose of determining the rights and liabilities of a
person who, in good faith, pays an instrument or takes it for value
or for collection, if an employer entrusted an employee with
responsibility with respect to the instrument and the employee or a
person acting in concert with the employee makes a fraudulent
indorsement of the instrument, the indorsement is effective as the
indorsement of the person to whom the instrument is payable if it is
made in the name of that person. If the person paying the instrument
or taking it for value or for collection fails to exercise ordinary
care in paying or taking the instrument and that failure contributes
to loss resulting from the fraud, the person bearing the loss may
recover from the person failing to exercise ordinary care to the
extent the failure to exercise ordinary care contributed to the loss.
(c) Under subdivision (b), an indorsement is made in the name of
the person to whom an instrument is payable if (1) it is made in a
name substantially similar to the name of that person or (2) the
instrument, whether or not indorsed, is deposited in a depositary
bank to an account in a name substantially similar to the name of
that person.
3406. (a) A person whose failure to exercise ordinary care
contributes to an alteration of an instrument or to the making of a
forged signature on an instrument is precluded from asserting the
alteration or the forgery against a person who, in good faith, pays
the instrument or takes it for value or for collection.
(b) Under subdivision (a), if the person asserting the preclusion
fails to exercise ordinary care in paying or taking the instrument
and that failure contributes to loss, the loss is allocated between
the person precluded and the person asserting the preclusion
according to the extent to which the failure of each to exercise
ordinary care contributed to the loss.
(c) Under subdivision (a), the burden of proving failure to
exercise ordinary care is on the person asserting the preclusion.
Under subdivision (b), the burden of proving failure to exercise
ordinary care is on the person precluded.
3407. (a) "Alteration" means (1) an unauthorized change in an
instrument that purports to modify in any respect the obligation of a
party, or (2) an unauthorized addition of words or numbers or other
change to an incomplete instrument relating to the obligation of a
party.
(b) Except as provided in subdivision (c), an alteration
fraudulently made discharges a party whose obligation is affected by
the alteration unless that party assents or is precluded from
asserting the alteration. No other alteration discharges a party, and
the instrument may be enforced according to its original terms.
(c) A payor bank or drawee paying a fraudulently altered
instrument or a person taking it for value, in good faith and without
notice of the alteration, may enforce rights with respect to the
instrument (1) according to its original terms, or (2) in the case of
an incomplete instrument altered by unauthorized completion,
according to its terms as completed.
3408. A check or other draft does not of itself operate as an
assignment of funds in the hands of the drawee available for its
payment, and the drawee is not liable on the instrument until the
drawee accepts it.
3409. (a) "Acceptance" means the drawee's signed agreement to pay a
draft as presented. It shall be written on the draft and may consist
of the drawee's signature alone. Acceptance may be made at any time
and becomes effective when notification pursuant to instructions is
given or the accepted draft is delivered for the purpose of giving
rights on the acceptance to any person.
(b) A draft may be accepted although it has not been signed by the
drawer, is otherwise incomplete, is overdue, or has been dishonored.
(c) If a draft is payable at a fixed period after sight and the
acceptor fails to date the acceptance, the holder may complete the
acceptance by supplying a date in good faith.
(d) "Certified check" means a check accepted by the bank on which
it is drawn. Acceptance may be made as stated in subdivision (a) or
by a writing on the check which indicates that the check is
certified. The drawee of a check has no obligation to certify the
check, and refusal to certify is not dishonor of the check.
3410. (a) If the terms of a drawee's acceptance vary from the terms
of the draft as presented, the holder may refuse the acceptance and
treat the draft as dishonored. In that case, the drawee may cancel
the acceptance.
(b) The terms of a draft are not varied by an acceptance to pay at
a particular bank or place in the United States, unless the
acceptance states that the draft is to be paid only at that bank or
place.
(c) If the holder assents to an acceptance varying the terms of a
draft, the obligation of each drawer and indorser that does not
expressly assent to the acceptance is discharged.
3411. (a) In this section, "obligated bank" means the acceptor of a
certified check or the issuer of a cashier's check or teller's check
bought from the issuer.
(b) If the obligated bank wrongfully (1) refuses to pay a cashier'
s check or certified check, (2) stops payment of a teller's check, or
(3) refuses to pay a dishonored teller's check, the person asserting
the right to enforce the check is entitled to compensation for
expenses and loss of interest resulting from the nonpayment and may
recover consequential damages if the obligated bank refuses to pay
after receiving notice of particular circumstances giving rise to the
damages.
(c) Expenses or consequential damages under subdivision (b) are
not recoverable if the refusal of the obligated bank to pay occurs
because (1) the bank suspends payments, (2) the obligated bank
asserts a claim or defense of the bank that it has reasonable grounds
to believe is available against the person entitled to enforce the
instrument, (3) the obligated bank has a reasonable doubt whether the
person demanding payment is the person entitled to enforce the
instrument, or (4) payment is prohibited by law.
3412. The issuer of a note or cashier's check or other draft drawn
on the drawer is obliged to pay the instrument (a) according to its
terms at the time it was issued or, if not issued, at the time it
first came into possession of a holder, or (b) if the issuer signed
an incomplete instrument, according to its terms when completed, to
the extent stated in Sections 3115 and 3407. The obligation is owed
to a person entitled to enforce the instrument or to an indorser who
paid the instrument under Section 3415.
3413. (a) The acceptor of a draft is obliged to pay the draft (1)
according to its terms at the time it was accepted, even though the
acceptance states that the draft is payable "as originally drawn" or
equivalent terms, (2) if the acceptance varies the terms of the
draft, according to the terms of the draft as varied, or (3) if the
acceptance is of a draft that is an incomplete instrument, according
to its terms when completed, to the extent stated in Sections 3115
and 3407. The obligation is owed to a person entitled to enforce the
draft or to the drawer or an indorser who paid the draft under
Section 3414 or 3415.
(b) If the certification of a check or other acceptance of a draft
states the amount certified or accepted, the obligation of the
acceptor is that amount. If (1) the certification or acceptance does
not state an amount, (2) the amount of the instrument is subsequently
raised, and (3) the instrument is then negotiated to a holder in due
course, the obligation of the acceptor is the amount of the
instrument at the time it was taken by the holder in due course.
3414. (a) This section does not apply to cashier's checks or other
drafts drawn on the drawer.
(b) If an unaccepted draft is dishonored, the drawer is obliged to
pay the draft (1) according to its terms at the time it was issued
or, if not issued, at the time it first came into possession of a
holder, or (2) if the drawer signed an incomplete instrument,
according to its terms when completed, to the extent stated in
Sections 3115 and 3407. The obligation is owed to a person entitled
to enforce the draft or to an indorser who paid the draft under
Section 3415.
(c) If a draft is accepted by a bank, the drawer is discharged,
regardless of when or by whom acceptance was obtained.
(d) If a draft is accepted and the acceptor is not a bank, the
obligation of the drawer to pay the draft if the draft is dishonored
by the acceptor is the same as the obligation of an indorser under
subdivisions (a) and (c) of Section 3415.
(e) If a draft states that it is drawn "without recourse" or
otherwise disclaims liability of the drawer to pay the draft, the
drawer is not liable under subdivision (b) to pay the draft if the
draft is not a check. A disclaimer of the liability stated in
subdivision (b) is not effective if the draft is a check.
(f) If (1) a check is not presented for payment or given to a
depositary bank for collection within 30 days after its date, (2) the
drawee suspends payments after expiration of the 30-day period
without paying the check, and (3) because of the suspension of
payments, the drawer is deprived of funds maintained with the drawee
to cover payment of the check, the drawer to the extent deprived of
funds may discharge its obligation to pay the check by assigning to
the person entitled to enforce the check the rights of the drawer
against the drawee with respect to the funds.
3415. (a) Subject to subdivisions (b), (c), and (d) and to
subdivision (d) of Section 3419, if an instrument is dishonored, an
indorser is obliged to pay the amount due on the instrument (1)
according to the terms of the instrument at the time it was indorsed,
or (2) if the indorser indorsed an incomplete instrument, according
to its terms when completed, to the extent stated in Sections 3115
and 3407. The obligation of the indorser is owed to a person entitled
to enforce the instrument or to a subsequent indorser who paid the
instrument under this section.
(b) If an indorsement states that it is made "without recourse" or
otherwise disclaims liability of the indorser, the indorser is not
liable under subdivision (a) to pay the instrument.
(c) If notice of dishonor of an instrument is required by Section
3503 and notice of dishonor complying with that section is not given
to an indorser, the liability of the indorser under subdivision (a)
is discharged.
(d) If a draft is accepted by a bank after an indorsement is made,
the liability of the indorser under subdivision (a) is discharged.
(e) If an indorser of a check is liable under subdivision (a) and
the check is not presented for payment, or given to a depositary bank
for collection, within 30 days after the day the indorsement was
made, the liability of the indorser under subdivision (a) is
discharged.
3416. (a) A person who transfers an instrument for consideration
warrants all of the following to the transferee and, if the transfer
is by indorsement, to any subsequent transferee:
(1) The warrantor is a person entitled to enforce the instrument.
(2) All signatures on the instrument are authentic and authorized.
(3) The instrument has not been altered.
(4) The instrument is not subject to a defense or claim in
recoupment of any party which can be asserted against the warrantor.
(5) The warrantor has no knowledge of any insolvency proceeding
commenced with respect to the maker or acceptor or, in the case of an
unaccepted draft, the drawer.
(6) If the instrument is a demand draft, creation of the
instrument according to the terms on its face was authorized by the
person identified as drawer.
(b) A person to whom the warranties under subdivision (a) are made
and who took the instrument in good faith may recover from the
warrantor as damages for breach of warranty an amount equal to the
loss suffered as a result of the breach, but not more than the amount
of the instrument plus expenses and loss of interest incurred as a
result of the breach.
(c) The warranties stated in subdivision (a) cannot be disclaimed
with respect to checks. Unless notice of a claim for breach of
warranty is given to the warrantor within 30 days after the claimant
has reason to know of the breach and the identity of the warrantor,
the liability of the warrantor under subdivision (b) is discharged to
the extent of any loss caused by the delay in giving notice of the
claim.
(d) A cause of action for breach of warranty under this section
accrues when the claimant has reason to know of the breach.
(e) If the warranty in paragraph (6) of subdivision (a) is not
given by a transferor under applicable conflict of law rules, then
the warranty is not given to that transferor when that transferor is
a transferee.
3417. (a) If an unaccepted draft is presented to the drawee for
payment or acceptance and the drawee pays or accepts the draft, (i)
the person obtaining payment or acceptance, at the time of
presentment, and (ii) a previous transferor of the draft, at the time
of transfer, warrant all of the following to the drawee making
payment or accepting the draft in good faith:
(1) The warrantor is, or was, at the time the warrantor
transferred the draft, a person entitled to enforce the draft or
authorized to obtain payment or acceptance of the draft on behalf of
a person entitled to enforce the draft.
(2) The draft has not been altered.
(3) The warrantor has no knowledge that the signature of the
drawer of the draft is unauthorized.
(4) If the draft is a demand draft, creation of the demand draft
according to the terms on its face was authorized by the person
identified as drawer.
(b) A drawee making payment may recover from any warrantor damages
for breach of warranty equal to the amount paid by the drawee less
the amount the drawee received or is entitled to receive from the
drawer because of the payment. In addition, the drawee is entitled to
compensation for expenses and loss of interest resulting from the
breach. The right of the drawee to recover damages under this
subdivision is not affected by any failure of the drawee to exercise
ordinary care in making payment. If the drawee accepts the draft,
breach of warranty is a defense to the obligation of the acceptor. If
the acceptor makes payment with respect to the draft, the acceptor
is entitled to recover from any warrantor for breach of warranty the
amounts stated in this subdivision.
(c) If a drawee asserts a claim for breach of warranty under
subdivision (a) based on an unauthorized indorsement of the draft or
an alteration of the draft, the warrantor may defend by proving that
the indorsement is effective under Section 3404 or 3405 or the drawer
is precluded under Section 3406 or 4406 from asserting against the
drawee the unauthorized indorsement or alteration.
(d) If (i) a dishonored draft is presented for payment to the
drawer or an indorser or (ii) any other instrument is presented for
payment to a party obliged to pay the instrument, and (iii) payment
is received, the following rules apply:
(1) The person obtaining payment and a prior transferor of the
instrument warrant to the person making payment in good faith that
the warrantor is, or was, at the time the warrantor transferred the
instrument, a person entitled to enforce the instrument or authorized
to obtain payment on behalf of a person entitled to enforce the
instrument.
(2) The person making payment may recover from any warrantor for
breach of warranty an amount equal to the amount paid plus expenses
and loss of interest resulting from the breach.
(e) The warranties stated in subdivisions (a) and (d) cannot be
disclaimed with respect to checks. Unless notice of a claim for
breach of warranty is given to the warrantor within 30 days after the
claimant has reason to know of the breach and the identity of the
warrantor, the liability of the warrantor under subdivision (b) or
(d) is discharged to the extent of any loss caused by the delay in
giving notice of the claim.
(f) A cause of action for breach of warranty under this section
accrues when the claimant has reason to know of the breach.
(g) A demand draft is a check, as provided in subdivision (f) of
Section 3104.
(h) If the warranty in paragraph (4) of subdivision (a) is not
given by a transferor under applicable conflict of law rules, then
the warranty is not given to that transferor when that transferor is
a transferee.
3418. (a) Except as provided in subdivision (c), if the drawee of a
draft pays or accepts the draft and the drawee acted on the mistaken
belief that (1) payment of the draft had not been stopped pursuant
to Section 4403 or (2) the signature of the drawer of the draft was
authorized, the drawee may recover the amount of the draft from the
person to whom or for whose benefit payment was made or, in the case
of acceptance, may revoke the acceptance. Rights of the drawee under
this subdivision are not affected by failure of the drawee to
exercise ordinary care in paying or accepting the draft.
(b) Except as provided in subdivision (c), if an instrument has
been paid or accepted by mistake and the case is not covered by
subdivision (a), the person paying or accepting may, to the extent
permitted by the law governing mistake and restitution, (1) recover
the payment from the person to whom or for whose benefit payment was
made or (2) in the case of acceptance, may revoke the acceptance.
(c) The remedies provided by subdivision (a) or (b) may not be
asserted against a person who took the instrument in good faith and
for value or who in good faith changed position in reliance on the
payment or acceptance. This subdivision does not limit remedies
provided by Section 3417 or 4407.
(d) Notwithstanding Section 4215, if an instrument is paid or
accepted by mistake and the payor or acceptor recovers payment or
revokes acceptance under subdivision (a) or (b), the instrument is
deemed not to have been paid or accepted and is treated as
dishonored, and the person from whom payment is recovered has rights
as a person entitled to enforce the dishonored instrument.
3419. (a) If an instrument is issued for value given for the
benefit of a party to the instrument ("accommodated party") and
another party to the instrument ("accommodation party") signs the
instrument for the purpose of incurring liability on the instrument
without being a direct beneficiary of the value given for the
instrument, the instrument is signed by the accommodation party "for
accommodation."
(b) An accommodation party may sign the instrument as maker,
drawer, acceptor, or indorser and, subject to subdivision (d), is
obliged to pay the instrument in the capacity in which the
accommodation party signs. The obligation of an accommodation party
may be enforced notwithstanding any statute of frauds and whether or
not the accommodation party receives consideration for the
accommodation.
(c) A person signing an instrument is presumed to be an
accommodation party and there is notice that the instrument is signed
for accommodation if the signature is an anomalous indorsement or is
accompanied by words indicating that the signer is acting as surety
or guarantor with respect to the obligation of another party to the
instrument. Except as provided in Section 3605, the obligation of an
accommodation party to pay the instrument is not affected by the fact
that the person enforcing the obligation had notice when the
instrument was taken by that person that the accommodation party
signed the instrument for accommodation.
(d) If the signature of a party to an instrument is accompanied by
words indicating unambiguously that the party is guaranteeing
collection rather than payment of the obligation of another party to
the instrument, the signer is obliged to pay the amount due on the
instrument to a person entitled to enforce the instrument only if (1)
execution of judgment against the other party has been returned
unsatisfied, (2) the other party is insolvent or in an insolvency
proceeding, (3) the other party cannot be served with process, or (4)
it is otherwise apparent that payment cannot be obtained from the
other party.
(e) An accommodation party who pays the instrument is entitled to
reimbursement from the accommodated party and is entitled to enforce
the instrument against the accommodated party. An accommodated party
who pays the instrument has no right of recourse against, and is not
entitled to contribution from, an accommodation party.
3420. (a) The law applicable to conversion of personal property
applies to instruments. An instrument is also converted if it is
taken by transfer, other than a negotiation, from a person not
entitled to enforce the instrument or a bank makes or obtains payment
with respect to the instrument for a person not entitled to enforce
the instrument or receive payment. An action for conversion of an
instrument may not be brought by (1) the issuer or acceptor of the
instrument or (2) a payee or indorsee who did not receive delivery of
the instrument either directly or through delivery to an agent or a
copayee.
(b) In an action under subdivision (a), the measure of liability
is presumed to be the amount payable on the instrument, but recovery
may not exceed the amount of the plaintiff's interest in the
instrument.
(c) A representative, other than a depositary bank, who has in
good faith dealt with an instrument or its proceeds on behalf of one
who was not the person entitled to enforce the instrument is not
liable in conversion to that person beyond the amount of any proceeds
that it has not paid out.