citation: COM § 3405

text:
(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.


kind: section

code: COM

citation: COM § 3406

text:
(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.

history: (History: Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)

division: 3. NEGOTIABLE INSTRUMENTS

chapter: 4. Liability of Parties

path: 3. NEGOTIABLE INSTRUMENTS > 4. Liability of Parties


citation: COM § 3407

text:
(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.


citation: COM § 3408

text: 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.


citation: COM § 3409

text:
(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.


citation: COM § 3410

text:
(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.


citation: COM § 3411

text:
(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.


citation: COM § 3412

text: 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.


citation: COM § 3413

text:
(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.


citation: COM § 3414

text:
(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.


citation: COM § 3415

text:
(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.


citation: COM § 3416

text:
(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.

history: (History: Amended by Stats. 1996, Ch. 316, Sec. 3. Effective January 1, 1997.)


citation: COM § 3417

text:
(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.

history: (History: Amended by Stats. 1996, Ch. 316, Sec. 4. Effective January 1, 1997.)


citation: COM § 3418

text:
(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.


citation: COM § 3419

text:
(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.


citation: COM § 3420

text:
(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.

history: (History: Added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)


citation: COM § 3501

text:
(a) “Presentment” means a demand made by or on behalf of a person entitled to enforce an instrument (1) to pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank, or (2) to accept a draft made to the drawee.

(b) The following rules are subject to Division 4 (commencing with Section 4101), agreement of the parties, and clearinghouse rules and the like:

(1) Presentment may be made at the place of payment of the instrument and shall be made at the place of payment if the instrument is payable at a bank in the United States; may be made by any commercially reasonable means, including an oral, written, or electronic communication; is effective when the demand for payment or acceptance is received by the person to whom presentment is made; and is effective if made to any one of two or more makers, acceptors, drawees, or other payors.

(2) Upon demand of the person to whom presentment is made, the person making presentment shall (A) exhibit the instrument, (B) give reasonable identification and, if presentment is made on behalf of another person, reasonable evidence of authority to do so, and (C) sign a receipt on the instrument for any payment made or surrender the instrument if full payment is made.

(3) Without dishonoring the instrument, the party to whom presentment is made may (A) return the instrument for lack of a necessary indorsement, or (B) refuse payment or acceptance for failure of the presentment to comply with the terms of the instrument, an agreement of the parties, or other applicable law or rule.

(4) The party to whom presentment is made may treat presentment as occurring on the next business day after the day of presentment if the party to whom presentment is made has established a cutoff hour not earlier than 2 p.m. for the receipt and processing of instruments presented for payment or acceptance and presentment is made after the cutoff hour.

chapter: 5. Dishonor

path: 3. NEGOTIABLE INSTRUMENTS > 5. Dishonor


citation: COM § 3502

text:
(a) Dishonor of a note is governed by the following rules:

(1) If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on the day of presentment.

(2) If the note is not payable on demand and is payable at or through a bank or the terms of the note require presentment, the note is dishonored if presentment is duly made and the note is not paid on the day it becomes payable or the day of presentment, whichever is later.

(3) If the note is not payable on demand and paragraph (2) does not apply, the note is dishonored if it is not paid on the day it becomes payable.

(b) Dishonor of an unaccepted draft other than a documentary draft is governed by the following rules:

(1) If a check is duly presented for payment to the payor bank otherwise than for immediate payment over the counter, the check is dishonored if the payor bank makes timely return of the check or sends timely notice of dishonor or nonpayment under Section 4301 or 4302, or becomes accountable for the amount of the check under Section 4302.

(2) If a draft is payable on demand and paragraph (1) does not apply, the draft is dishonored if presentment for payment is duly made to the drawee and the draft is not paid on the day of presentment.

(3) If a draft is payable on a date stated in the draft, the draft is dishonored if (A) presentment for payment is duly made to the drawee and payment is not made on the day the draft becomes payable or the day of presentment, whichever is later, or (B) presentment for acceptance is duly made before the day the draft becomes payable and the draft is not accepted on the day of presentment.

(4) If a draft is payable on elapse of a period of time after sight or acceptance, the draft is dishonored if presentment for acceptance is duly made and the draft is not accepted on the day of presentment.

(c) Dishonor of an unaccepted documentary draft occurs according to the rules stated in paragraphs (2), (3), and (4) of subdivision (b), except that payment or acceptance may be delayed without dishonor until no later than the close of the third business day of the drawee following the day on which payment or acceptance is required by those paragraphs.

(d) Dishonor of an accepted draft is governed by the following rules:

(1) If the draft is payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and the draft is not paid on the day of presentment.

(2) If the draft is not payable on demand, the draft is dishonored if presentment for payment is duly made to the acceptor and payment is not made on the day it becomes payable or the day of presentment, whichever is later.

(e) In any case in which presentment is otherwise required for dishonor under this section and presentment is excused under Section 3504, dishonor occurs without presentment if the instrument is not duly accepted or paid.

(f) If a draft is dishonored because timely acceptance of the draft was not made and the person entitled to demand acceptance consents to a late acceptance, from the time of acceptance the draft is treated as never having been dishonored.


citation: COM § 3503

text:
(a) The obligation of an indorser stated in subdivision (a) of Section 3415 and the obligation of a drawer stated in subdivision (d) of Section 3414 may not be enforced unless (1) the indorser or drawer is given notice of dishonor of the instrument complying with this section or (2) notice of dishonor is excused under subdivision (b) of Section 3504.

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

(c) Subject to subdivision (c) of Section 3504, with respect to an instrument taken for collection by a collecting bank, notice of dishonor shall be given (1) by the bank before midnight of the next banking day following the banking day on which the bank receives notice of dishonor of the instrument, or (2) by any other person within 30 days following the day on which the person receives notice of dishonor. With respect to any other instrument, notice of dishonor shall be given within 30 days following the day on which dishonor occurs.


citation: COM § 3504

text:
(a) Presentment for payment or acceptance of an instrument is excused if (1) the person entitled to present the instrument cannot with reasonable diligence make presentment, (2) the maker or acceptor has repudiated an obligation to pay the instrument or is dead or in insolvency proceedings, (3) by the terms of the instrument presentment is not necessary to enforce the obligation of indorsers or the drawer, (4) the drawer or indorser whose obligation is being enforced has waived presentment or otherwise has no reason to expect or right to require that the instrument be paid or accepted, or (5) the drawer instructed the drawee not to pay or accept the draft or the drawee was not obligated to the drawer to pay the draft.

(b) Notice of dishonor is excused if (1) by the terms of the instrument notice of dishonor is not necessary to enforce the obligation of a party to pay the instrument, or (2) the party whose obligation is being enforced waived notice of dishonor. A waiver of presentment is also a waiver of notice of dishonor.

(c) Delay in giving notice of dishonor is excused if the delay was caused by circumstances beyond the control of the person giving the notice and the person giving the notice exercised reasonable diligence after the cause of the delay ceased to operate.


citation: COM § 3505

text:
(a) The following are admissible as evidence and create a presumption of dishonor and of any notice of dishonor stated:

(1) A document regular in form as provided in subdivision (b) which purports to be a protest.

(2) A purported stamp or writing of the drawee, payor bank, or presenting bank on or accompanying the instrument stating that acceptance or payment has been refused unless reasons for the refusal are stated and the reasons are not consistent with dishonor.

(3) A book or record of the drawee, payor bank, or collecting bank, kept in the usual course of business that shows dishonor, even if there is no evidence of who made the entry.

(b) A protest is a certificate of dishonor made by a United States consul or vice consul, or a notary public during the course and scope of employment with a financial institution or other person authorized to administer oaths by the laws of any other state, government, or country in the place where dishonor occurs. It may be made upon information satisfactory to that person. The protest shall identify the instrument and certify either that presentment has been made or, if not made, the reason why it was not made, and that the instrument has been dishonored by nonacceptance or nonpayment. The protest may also certify that notice of dishonor has been given to some or all parties.

history: (History: Amended by Stats. 2011, Ch. 269, Sec. 4. (AB 75) Effective January 1, 2012.)


citation: COM § 3601

text:
(a) The obligation of a party to pay the instrument is discharged as stated in this division or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract.

(b) Discharge of the obligation of a party is not effective against a person acquiring rights of a holder in due course of the instrument without notice of the discharge.

chapter: 6. Discharge and Payment

path: 3. NEGOTIABLE INSTRUMENTS > 6. Discharge and Payment


citation: COM § 3602

text:
(a) Subject to subdivision (b), an instrument is paid to the extent payment is made (1) by or on behalf of a party obliged to pay the instrument, and (2) to a person entitled to enforce the instrument. To the extent of the payment, the obligation of the party obliged to pay the instrument is discharged even though payment is made with knowledge of a claim to the instrument under Section 3306 by another person.

(b) The obligation of a party to pay the instrument is not discharged under subdivision (a) if either of the following applies:

(1) A claim to the instrument under Section 3306 is enforceable against the party receiving payment and (A) payment is made with knowledge by the payor that payment is prohibited by injunction or similar process of a court of competent jurisdiction, or (B) in the case of an instrument other than a cashier’s check, teller’s check, or certified check, the party making payment accepted, from the person having a claim to the instrument, indemnity against loss resulting from refusal to pay the person entitled to enforce the instrument.

(2) The person making payment knows that the instrument is a stolen instrument and pays a person it knows is in wrongful possession of the instrument.


citation: COM § 3603

text:
(a) If tender of payment of an obligation to pay an instrument is made to a person entitled to enforce the instrument, the effect of tender is governed by principles of law applicable to tender of payment under a simple contract.

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

(c) If tender of payment of an amount due on an instrument is made to a person entitled to enforce the instrument, the obligation of the obligor to pay interest after the due date on the amount tendered is discharged. If presentment is required with respect to an instrument and the obligor is able and ready to pay on the due date at every place of payment stated in the instrument, the obligor is deemed to have made tender of payment on the due date to the person entitled to enforce the instrument.


citation: COM § 3604

text:
(a) A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument (1) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party’s signature, or the addition of words to the instrument indicating discharge, or (2) by agreeing not to sue or otherwise renouncing rights against the party by a signed record. The obligation of a party to pay a check is not discharged solely by destruction of the check in connection with a process in which information is extracted from the check and an image of the check is made and, subsequently, the information and image are transmitted for payment.

(b) Cancellation or striking out of an indorsement pursuant to subdivision (a) does not affect the status and rights of a party derived from the indorsement.

history: (History: Amended by Stats. 2023, Ch. 210, Sec. 14. (SB 95) Effective January 1, 2024.)


citation: COM § 3605

text:
(a) In this section, the term “indorser” includes a drawer having the obligation described in subdivision (d) of Section 3414.

(b) Discharge, under Section 3604, of the obligation of a party to pay an instrument does not discharge the obligation of an indorser or accommodation party having a right of recourse against the discharged party.

(c) If a person entitled to enforce an instrument agrees, with or without consideration, to an extension of the due date of the obligation of a party to pay the instrument, the extension discharges an indorser or accommodation party having a right of recourse against the party whose obligation is extended to the extent the indorser or accommodation party proves that the extension caused loss to the indorser or accommodation party with respect to the right of recourse.

(d) If a person entitled to enforce an instrument agrees, with or without consideration, to a material modification of the obligation of a party other than an extension of the due date, the modification discharges the obligation of an indorser or accommodation party having a right of recourse against the person whose obligation is modified to the extent the modification causes loss to the indorser or accommodation party with respect to the right of recourse. The loss suffered by the indorser or accommodation party as a result of the modification is equal to the amount of the right of recourse unless the person enforcing the instrument proves that no loss was caused by the modification or that the loss caused by the modification was an amount less than the amount of the right of recourse.

(e) If the obligation of a party to pay an instrument is secured by an interest in collateral and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of an indorser or accommodation party having a right of recourse against the obligor is discharged to the extent of the impairment. The value of an interest in collateral is impaired to the extent (1) the value of the interest is reduced to an amount less than the amount of the right of recourse of the party asserting discharge, or (2) the reduction in value of the interest causes an increase in the amount by which the amount of the right of recourse exceeds the value of the interest. The burden of proving impairment is on the party asserting discharge.

(f) If the obligation of a party is secured by an interest in collateral not provided by an accommodation party and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of any party who is jointly and severally liable with respect to the secured obligation is discharged to the extent the impairment causes the party asserting discharge to pay more than that party would have been obliged to pay, taking into account rights of contribution, if impairment had not occurred. If the party asserting discharge is an accommodation party not entitled to discharge under subdivision (e), the party is deemed to have a right to contribution based on joint and several liability rather than a right to reimbursement. The burden of proving impairment is on the party asserting discharge.

(g) Under subdivision (e) or (f), impairing value of an interest in collateral includes (1) failure to obtain or maintain perfection or recordation of the interest in collateral, (2) release of collateral without substitution of collateral of equal value, (3) failure to perform a duty to preserve the value of collateral owed, under Division 9 (commencing with Section 9101) or other law, to a debtor or surety or other person secondarily liable, or (4) failure to comply with applicable law in disposing of collateral.

(h) An accommodation party is not discharged under subdivision (c), (d), or (e) unless the person entitled to enforce the instrument knows of the accommodation or has notice under subdivision (c) of Section 3419 that the instrument was signed for accommodation.

(i) A party is not discharged under this section if (1) the party asserting discharge consents to the event or conduct that is the basis of the discharge, or (2) the instrument or a separate agreement of the party provides for waiver of discharge under this section either specifically or by general language indicating that parties waive defenses based on suretyship or impairment of collateral.


citation: COM § 4101

text: This division may be cited as Uniform Commercial Code—Bank Deposits and Collections.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 7. Effective January 1, 1993.)

division: 4. BANK DEPOSITS AND COLLECTIONS

chapter: 1. General Provisions and Definitions

path: 4. BANK DEPOSITS AND COLLECTIONS > 1. General Provisions and Definitions


citation: COM § 4102

text:
(a) To the extent that items within this division are also within Divisions 3 (commencing with Section 3101) and 8 (commencing with Section 8101), they are subject to those divisions. If there is conflict, this division governs Division 3 (commencing with Section 3101), but Division 8 (commencing with Section 8101) governs this division.

(b) The liability of a bank for action or nonaction with respect to an item handled by it for purposes of presentment, payment, or collection is governed by the law of the place where the bank is located. In the case of action or nonaction by or at a branch or separate office of a bank, its liability is governed by the law of the place where the branch or separate office is located.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 8. Effective January 1, 1993.)


citation: COM § 4103

text:
(a) The effect of the provisions of this division may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable.

(b) Federal Reserve regulations and operating circulars, clearing house rules, and the like have the effect of agreements under subdivision (a), whether or not specifically assented to by all parties interested in items handled.

(c) Action or nonaction approved by this division or pursuant to Federal Reserve regulations or operating circulars is the exercise of ordinary care and, in the absence of special instructions, action or nonaction consistent with clearing house rules and the like or with a general banking usage not disapproved by this division, is prima facie the exercise of ordinary care.

(d) The specification or approval of certain procedures by this division is not disapproval of other procedures that may be reasonable under the circumstances.

(e) The measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount that could not have been realized by the exercise of ordinary care. If there is also bad faith it includes any other damages the party suffered as a proximate consequence.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 9. Effective January 1, 1993.)


citation: COM § 4104

text:
(a) In this division unless the context otherwise requires:

(1) “Account” means any deposit or credit account with a bank, including a demand, time, savings, passbook, share draft, or like account, other than an account evidenced by a certificate of deposit.

(2) “Afternoon” means the period of a day between noon and midnight.

(3) “Banking day” means the part of a day on which a bank is open to the public for carrying on substantially all of its banking functions.

(4) “Clearinghouse” means an association of banks or other payors regularly clearing items.

(5) “Customer” means a person having an account with a bank or for whom a bank has agreed to collect items, including a bank that maintains an account at another bank.

(6) “Documentary draft” means a draft to be presented for acceptance or payment if specified documents, certificated securities (Section 8102) or instructions for uncertificated securities (Section 8102), or other certificates, statements, or the like are to be received by the drawee or other payor before acceptance or payment of the draft.

(7) “Draft” means a draft as defined in Section 3104 or an item, other than an instrument, that is an order.

(8) “Drawee” means a person ordered in a draft to make payment.

(9) “Item” means an instrument or a promise or order to pay money handled by a bank for collection or payment. The term does not include a payment order governed by Division 11 (commencing with Section 11101) or a credit or debit card slip.

(10) “Midnight deadline” with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.

(11) “Settle” means to pay in cash, by clearinghouse settlement, in a charge or credit or by remittance, or otherwise as agreed. A settlement may be either provisional or final.

(12) “Suspends payments” with respect to a bank means that it has been closed by order of the supervisory authorities, that a public officer has been appointed to take it over or that it ceases or refuses to make payments in the ordinary course of business.

(b) Other definitions applying to this division and the sections in which they appear are:“Agreement for electronic presentment”Section 4110“Bank”Section 4105“Collecting bank”Section 4105“Depositary bank”Section 4105“Intermediary bank”Section 4105“Payor bank”Section 4105“Presenting bank”Section 4105“Presentment notice”Section 4110(c) The following definitions in other divisions apply to this division:“Acceptance”Section 3409“Alteration”Section 3407“Cashier’s check”Section 3104“Certificate of deposit”Section 3104“Certified check”Section 3409“Check”Section 3104“Control”Section 7106“Holder in due course”Section 3302“Instrument”Section 3104“Notice of dishonor”Section 3503“Order”Section 3103“Ordinary care”Section 3103“Person entitled to enforce”Section 3301“Presentment”Section 3501“Promise”Section 3103“Prove”Section 3103“Teller’s check”Section 3104“Unauthorized signature”Section 3403(d) In addition, Division 1 (commencing with Section 1101) contains general definitions and principles of construction and interpretation applicable throughout this division.

history: (History: Amended by Stats. 2006, Ch. 254, Sec. 45. Effective January 1, 2007.)


citation: COM § 4105

text:
In this division:

(1) “Bank” means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union, or trust company.

(2) “Depositary bank” means the first bank to take an item even though it is also the payor bank, unless the item is presented for immediate payment over the counter.

(3) “Payor bank” means a bank that is the drawee of a draft.

(4) “Intermediary bank” means a bank to which an item is transferred in course of collection except the depositary or payor bank.

(5) “Collecting bank” means a bank handling an item for collection except the payor bank.

(6) “Presenting bank” means a bank presenting an item except a payor bank.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 11. Effective January 1, 1993.)


citation: COM § 4106

text:
(a) If an item states that it is “payable through” a bank identified in the item, (1) the item designates the bank as a collecting bank and does not by itself authorize the bank to pay the item, and (2) the item may be presented for payment only by or through the bank.

(b) If an item states that it is “payable at” a bank identified in the item, (1) the item designates the bank as a collecting bank and does not by itself authorize the bank to pay the item, and (2) the item may be presented for payment only by or through the bank.

(c) If a draft names a nonbank drawee and it is unclear whether a bank named in the draft is a co-drawee or a collecting bank, the bank is a collecting bank.

history: (History: Added by Stats. 1992, Ch. 914, Sec. 12. Effective January 1, 1993.)


citation: COM § 4107

text: A branch or separate office of a bank is a separate bank for the purpose of computing the time within which and determining the place at or to which action may be taken or notice or orders shall be given under this division and under Division 3 (commencing with Section 3101).

history: (History: Added by renumbering Section 4106 by Stats. 1992, Ch. 914, Sec. 13. Effective January 1, 1993.)


citation: COM § 4108

text:
(a) For the purpose of allowing time to process items, prove balances, and make the necessary entries on its books to determine its position for the day, a bank may fix an afternoon hour of 2 p.m. or later as a cutoff hour for the handling of money and items and the making of entries on its books.

(b) An item or deposit of money received on any day after a cutoff hour so fixed or after the close of the banking day may be treated as being received at the opening of the next banking day.

history: (History: Added by renumbering Section 4107 by Stats. 1992, Ch. 914, Sec. 14. Effective January 1, 1993.)


citation: COM § 4109

text:
(a) Unless otherwise instructed, a collecting bank in a good faith effort to secure payment of a specific item drawn on a payor other than a bank, and with or without the approval of any person involved, may waive, modify, or extend time limits imposed or permitted by this code for a period not exceeding two additional banking days without discharge of drawers or indorsers or liability to its transferor or a prior party.

(b) Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this code or by instructions is excused if (1) the delay is caused by interruption of communication or computer facilities, suspension of payments by another bank, war, emergency conditions, failure of equipment, or other circumstances beyond the control of the bank, and (2) the bank exercises such diligence as the circumstances require.

history: (History: Added by renumbering Section 4108 by Stats. 1992, Ch. 914, Sec. 15. Effective January 1, 1993.)


citation: COM § 4110

text:
(a) “Agreement for electronic presentment” means an agreement, clearing house rule, or Federal Reserve regulation or operating circular, providing that presentment of an item may be made by transmission of an image of an item or information describing the item (“presentment notice”) rather than delivery of the item itself. The agreement may provide for procedures governing retention, presentment, payment, dishonor, and other matters concerning items subject to the agreement.

(b) Presentment of an item pursuant to an agreement for presentment is made when the presentment notice is received.

(c) If presentment is made by presentment notice, a reference to “item” or “check” in this division means the presentment notice unless the context otherwise indicates.

history: (History: Added by Stats. 1992, Ch. 914, Sec. 16. Effective January 1, 1993.)


citation: COM § 4111

text: An action to enforce an obligation, duty, or right arising under this division shall be commenced within three years after the cause of action accrues.

history: (History: Added by Stats. 1992, Ch. 914, Sec. 17. Effective January 1, 1993.)


citation: COM § 4201

text:
(a) Unless a contrary intent clearly appears and before the time that a settlement given by a collecting bank for an item is or becomes final, the bank, with respect to the item, is an agent or subagent of the owner of the item and any settlement given for the item is provisional. This provision applies regardless of the form of indorsement or lack of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank, such as those resulting from outstanding advances on the item and rights of recoupment or setoff. If an item is handled by banks for purposes of presentment, payment, collection, or return, the relevant provisions of this division apply even though action of the parties clearly establishes that a particular bank has purchased the item and is the owner of it.

(b) After an item has been indorsed with the words “pay any bank” or the like, only a bank may acquire the rights of a holder until the item has been either of the following:

(1) Returned to the customer initiating collection.

(2) Specially indorsed by a bank to a person who is not a bank.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 18. Effective January 1, 1993.)

path: 4. BANK DEPOSITS AND COLLECTIONS > 2. Collection of Items: Depositary and Collecting Banks


citation: COM § 4202

text:
(a) A collecting bank shall exercise ordinary care in all of the following:

(1) Presenting an item or sending it for presentment.

(2) Sending notice of dishonor or nonpayment or returning an item other than a documentary draft to the bank’s transferor after learning that the item has not been paid or accepted, as the case may be.

(3) Settling for an item when the bank receives final settlement.

(4) Notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.

(b) A collecting bank exercises ordinary care under subdivision (a) by taking proper action before its midnight deadline following receipt of an item, notice, or settlement. Taking proper action within a reasonably longer time may constitute the exercise of ordinary care, but the bank has the burden of establishing timeliness.

(c) Subject to paragraph (1) of subdivision (a), a bank is not liable for the insolvency, neglect, misconduct, mistake, or default of another bank or person or for loss or destruction of an item in the possession of others or in transit.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 19. Effective January 1, 1993.)

chapter: 2. Collection of Items: Depositary and Collecting Banks


citation: COM § 4203

text: Subject to Division 3 (commencing with Section 3101) concerning conversion of instruments (Section 3420) and restrictive indorsements (Section 3206), only a collecting bank’s transferor can give instructions that affect the bank or constitute notice to it, and a collecting bank is not liable to prior parties for any action taken pursuant to the instructions or in accordance with any agreement with its transferor.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 20. Effective January 1, 1993.)


citation: COM § 4204

text:
(a) A collecting bank shall send items by reasonably prompt method, taking into consideration relevant instructions, the nature of the item, the number of those items on hand, the cost of collection involved, and the method generally used by it or others to present those items.

(b) A collecting bank may send:

(1) An item directly to the payor bank.

(2) An item to a nonbank payor if authorized by its transferor.

(3) An item other than documentary drafts to a nonbank payor, if authorized by Federal Reserve regulation or operating circular, clearing house rule, or the like.

(c) Presentment may be made by a presenting bank at a place where the payor bank or other payor has requested that presentment be made.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 21. Effective January 1, 1993.)


citation: COM § 4205

text:
If a customer delivers an item to a depositary bank for collection both of the following apply:

(a) The depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of Section 3302, it is a holder in due course.

(b) The depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer’s account.

history: (History: Repealed and added by Stats. 1992, Ch. 914, Sec. 23. Effective January 1, 1993.)


citation: COM § 4206

text: Any agreed method that identifies the transferor bank is sufficient for the item’s further transfer to another bank.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 24. Effective January 1, 1993.)


citation: COM § 4207

text:
(a) A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that all of the following are applicable:

(1) The warrantor is a person entitled to enforce the item.

(2) All signatures on the item are authentic and authorized.

(3) The item has not been altered.

(4) The item is not subject to a defense or claim in recoupment (subdivision (a) of Section 3305) of any party that 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 item is a demand draft, creation of the item according to the terms on its face was authorized by the person identified as drawer.

(b) If an item is dishonored, a customer or collecting bank transferring the item and receiving settlement or other consideration is obliged to pay the amount due on the item (1) according to the terms of the item at the time it was transferred, or (2) if the transfer was of an incomplete item, according to its terms when completed as stated in Sections 3115 and 3407. The obligation of a transferor is owed to the transferee and to any subsequent collecting bank that takes the item in good faith. A transferor cannot disclaim its obligation under this subdivision by an indorsement stating that it is made “without recourse” or otherwise disclaiming liability.

(c) A person to whom the warranties under subdivision (a) are made and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the item plus expenses and loss of interest incurred as a result of the breach.

(d) The warranties stated in 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 warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.

(e) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

(f) If the warranty in paragraph (6) of subdivision (a) is not given by a transferor or collecting bank under applicable conflict of law rules, then the warranty is not given to that transferor when that transferor is a transferee nor to any prior collecting bank of that transferee.

history: (History: Amended by Stats. 1996, Ch. 316, Sec. 5. Effective January 1, 1997.)


citation: COM § 4208

text:
(a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee that pays or accepts the draft in good faith that all of the following apply:

(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 purported 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 a warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subdivision is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft (1) breach of warranty is a defense to the obligation of the acceptor, and (2) if the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from a warrantor for breach of warranty the amounts stated in this 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 (1) a dishonored draft is presented for payment to the drawer or an indorser or (2) any other item is presented for payment to a party obliged to pay the item, and the item is paid, the person obtaining payment and a prior transferor of the item warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the item, a person entitled to enforce the item or authorized to obtain payment on behalf of a person entitled to enforce the item. The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.

(e) The warranties stated in 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 warrantor is discharged to the extent of any loss caused by the delay in giving notice of the claim.

(f) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach.

(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.

history: (History: Amended by Stats. 1996, Ch. 316, Sec. 6. Effective January 1, 1997.)


citation: COM § 4209

text:
(a) A person who encodes information on or with respect to an item after issue warrants to any subsequent collecting bank and to the payor bank or other payor that the information is correctly encoded. If the customer of a depositary bank encodes, that bank also makes the warranty.

(b) A person who undertakes to retain an item pursuant to an agreement for electronic presentment warrants to any subsequent collecting bank and to the payor bank or other payor that retention and presentment of the item comply with the agreement. If a customer of a depositary bank undertakes to retain an item, that bank also makes this warranty.

(c) A person to whom warranties are made under this section and who took the item in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, plus expenses and loss of interest incurred as a result of the breach.

history: (History: Added by Stats. 1992, Ch. 914, Sec. 29. Effective January 1, 1993.)


citation: COM § 4210

text:
(a) A collecting bank has a security interest in an item and any accompanying documents or the proceeds of either:

(1) In case of an item deposited in an account to the extent to which credit given for the item has been withdrawn or applied.

(2) In case of an item for which it has given credit available for withdrawal as of right, to the extent of the credit given, whether or not the credit is drawn upon or there is a right of chargeback.

(3) If it makes an advance on or against the item.

(b) If credit given for several items received at one time or pursuant to a single agreement is withdrawn or applied in part, the security interest remains upon all the items, any accompanying documents or the proceeds of either. For the purpose of this section, credits first given are first withdrawn.

(c) Receipt by a collecting bank of a final settlement for an item is a realization on its security interest in the item, accompanying documents, and proceeds. So long as the bank does not receive final settlement for the item or give up possession of the item or possession or control of the accompanying documents for purposes other than collection, the security interest continues to that extent and is subject to Division 9 (commencing with Section 9101), but all of the following are applicable:

(1) No security agreement is necessary to make the security interest enforceable (subparagraph (A) of paragraph (3) of subdivision (b) of Section 9203).

(2) No filing is required to perfect the security interest.

(3) The security interest has priority over conflicting perfected security interests in the item, accompanying documents, or proceeds.

history: (History: Amended by Stats. 2006, Ch. 254, Sec. 46. Effective January 1, 2007.)


citation: COM § 4211

text: For purposes of determining its status as a holder in due course, a bank has given value to the extent it has a security interest in an item, if the bank otherwise complies with the requirements of Section 3302 on what constitutes a holder in due course.

history: (History: Added by renumbering Section 4209 by Stats. 1992, Ch. 914, Sec. 30. Effective January 1, 1993.)


citation: COM § 4212

text:
(a) Unless otherwise instructed, a collecting bank may present an item not payable by, through, or at a bank by sending to the party to accept or pay a written notice that the bank holds the item for acceptance or payment. The notice shall be sent in time to be received on or before the day when presentment is due and the bank shall meet any requirement of the party to accept or pay under Section 3501 by the close of the bank’s next banking day after it knows of the requirement.

(b) If presentment is made by notice and payment, acceptance, or request for compliance with a requirement under Section 3501 is not received by the close of business on the day after maturity or, in the case of demand items, by the close of business on the third banking day after notice was sent, the presenting bank may treat the item as dishonored and charge any drawer or indorser by sending it notice of the facts.

history: (History: Added by renumbering Section 4210 by Stats. 1992, Ch. 914, Sec. 31. Effective January 1, 1993.)


citation: COM § 4213

text:
(a) With respect to settlement by a bank, the medium and time of settlement may be prescribed by Federal Reserve regulations or circulars, clearing house rules, and the like, or agreement. In the absence of that prescription, the following are applicable:

(1) The medium of settlement is cash or credit to an account in a federal reserve bank of or specified by the person to receive settlement.

(2) The time of settlement is any of the following:

(A) With respect to tender of settlement by cash, a cashier’s check, or teller’s check, when the cash or check is sent or delivered.

(B) With respect to tender of settlement by credit in an account in a federal reserve bank, when the credit is made.

(C) With respect to tender of settlement by a credit or debit to an account in a bank, when the credit or debit is made or, in the case of tender of settlement by authority to charge an account, when the authority is sent or delivered.

(D) With respect to tender of settlement by a funds transfer, when payment is made pursuant to subdivision (a) of Section 11406 to the person receiving settlement.

(b) If the tender of settlement is not by a medium authorized by subdivision (a) or the time of settlement is not fixed by subdivision (a), no settlement occurs until the tender of settlement is accepted by the person receiving settlement.

(c) If settlement for an item is made by cashier’s check or teller’s check and the person receiving settlement, before its midnight deadline either:

(1) Presents or forwards the check for collection, settlement is final when the check is finally paid.

(2) Fails to present or forward the check for collection, settlement is final at the midnight deadline of the person receiving settlement.

(d) If settlement for an item is made by giving authority to charge the account of the bank giving settlement in the bank receiving settlement, settlement is final when the charge is made by the bank receiving settlement if there are funds available in the account for the amount of the item.

history: (History: Added by Stats. 1992, Ch. 914, Sec. 33. Effective January 1, 1993.)


citation: COM § 4214

text:
(a) If a collecting bank has made provisional settlement with its customer for an item and fails by reason of dishonor, suspension of payments by a bank, or otherwise to receive settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer’s account, or obtain refund from its customer, whether or not it is able to return the item, if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts. If the return or notice is delayed beyond the bank’s midnight deadline or a longer reasonable time after it learns the facts, the bank may revoke the settlement, charge back the credit, or obtain refund from its customer, but it is liable for any loss resulting from the delay. These rights to revoke, charge back and obtain refund terminate if and when a settlement for the item received by the bank is or becomes final.

(b) A collecting bank returns an item when it is sent or delivered to the bank’s customer or transferor or pursuant to its instructions.

(c) A depositary bank that is also the payor may charge back the amount of an item to its customer’s account or obtain refund in accordance with the section governing return of an item received by a payor bank for credit on its books (Section 4301).

(d) The right to charge back is not affected by either of the following:

(1) Previous use of a credit given for the item.

(2) Failure by any bank to exercise ordinary care with respect to the item, but a bank so failing remains liable.

(e) A failure to charge back or claim refund does not affect other rights of the bank against the customer or any other party.

(f) If credit is given in dollars as the equivalent of the value of an item payable in foreign money, the dollar amount of any charge-back or refund shall be calculated on the basis of the bank-offered spot rate for the foreign money prevailing on the day when the person entitled to the charge-back or refund learns that it will not receive payment in ordinary course.

history: (History: Added by renumbering Section 4212 by Stats. 1992, Ch. 914, Sec. 34. Effective January 1, 1993.)


citation: COM § 4215

text:
(a) An item is finally paid by a payor bank when the bank has first done any of the following:

(1) Paid the item in cash.

(2) Settled for the item without having a right to revoke the settlement under statute, clearing house rule, or agreement.

(3) Made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute, clearing house rule, or agreement.

(b) If provisional settlement for an item does not become final, the item is not finally paid.

(c) If provisional settlement for an item between the presenting and payor banks is made through a clearing house or by debits or credits in an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between the presenting and payor banks or between the presenting and successive prior collecting banks seriatim, they become final upon final payment of the items by the payor bank.

(d) If a collecting bank receives a settlement for an item which is or becomes final, the bank is accountable to its customer for the amount of the item and any provisional credit given for the item in an account with its customer becomes final.

(e) Subject to (i) applicable law stating a time for availability of funds and (ii) any right of the bank to apply the credit to an obligation of the customer, credit given by a bank for an item in a customer’s account becomes available for withdrawal as of right:

(1) If the bank has received a provisional settlement for the item, when the settlement becomes final and the bank has had a reasonable time to receive return of the item and the item has not been received within that time.

(2) If the bank is both the depositary bank and the payor bank, and the item is finally paid, the opening of the bank’s second banking day following receipt of the item.

(f) Subject to applicable law stating a time for availability of funds and any right of a bank to apply a deposit to an obligation of the depositor, a deposit of money becomes available for withdrawal as of right at the opening of the bank’s next banking day after receipt of the deposit.

history: (History: Added by renumbering Section 4213 by Stats. 1992, Ch. 914, Sec. 35. Effective January 1, 1993.)


citation: COM § 4216

text:
(a) If an item is in or comes into the possession of a payor or collecting bank that suspends payment and the item has not been finally paid, the item shall be returned by the receiver, trustee, or agent in charge of the closed bank to the presenting bank or the closed bank’s customer.

(b) If a payor bank finally pays an item and suspends payments without making a settlement for the item with its customer or the presenting bank which settlement is or becomes final, the owner of the item has a preferred claim against the payor bank.

(c) If a payor bank gives or a collecting bank gives or receives a provisional settlement for an item and thereafter suspends payments, the suspension does not prevent or interfere with the settlement’s becoming final if the finality occurs automatically upon the lapse of certain time or the happening of certain events.

(d) If a collecting bank receives from subsequent parties settlement for an item, which settlement is or becomes final and the bank suspends payments without making a settlement for the item with its customer which settlement is or becomes final, the owner of the item has a preferred claim against the collecting bank.

history: (History: Added by renumbering Section 4214 by Stats. 1992, Ch. 914, Sec. 36. Effective January 1, 1993.)


citation: COM § 4301

text:
(a) If a payor bank settles for a demand item other than a documentary draft presented otherwise than for immediate payment over the counter before midnight of the banking day of receipt, the payor bank may revoke the settlement and recover the settlement if, before it has made final payment and before its midnight deadline, it either:

(1) Returns the item.

(2) Sends written notice of dishonor or nonpayment if the item is unavailable for return.

(b) If a demand item is received by a payor bank for credit on its books, it may return the item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified in subdivision (a).

(c) Unless previous notice of dishonor has been sent an item is dishonored at the time when for purposes of dishonor it is returned or notice sent in accordance with this section.

(d) An item is returned either:

(1) As to an item presented through a clearing house, when it is delivered to the presenting or last collecting bank or to the clearing house or is sent or delivered in accordance with clearing house rules.

(2) In all other cases, when it is sent or delivered to the bank’s customer or transferor or pursuant to his instructions.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 37. Effective January 1, 1993.)

chapter: 3. Collection of Items: Payor Banks

path: 4. BANK DEPOSITS AND COLLECTIONS > 3. Collection of Items: Payor Banks


citation: COM § 4302

text:
(a) If an item is presented to and received by a payor bank, the bank is accountable for the amount of either:

(1) A demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline.

(2) Any other properly payable item unless, within the time allowed for acceptance or payment of that item, the bank either accepts or pays the item or returns it and accompanying documents.

(b) The liability of a payor bank to pay an item pursuant to subdivision (a) is subject to defenses based on breach of a presentment warranty (Section 4208) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 38. Effective January 1, 1993.)


citation: COM § 4303

text:
(a) Any knowledge, notice, or stop-payment order received by, legal process served upon, or setoff exercised by a payor bank comes too late to terminate, suspend, or modify the bank’s right or duty to pay an item or to charge its customer’s account for the item if the knowledge, notice, stop-payment order, or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the earliest of the following:

(1) The bank accepts or certifies the item.

(2) The bank pays the item in cash.

(3) The bank settles for the item without having a right to revoke the settlement under statute, clearing house rule, or agreement.

(4) The bank becomes accountable for the amount of the item under Section 4302 dealing with the payor bank’s responsibility for late return of items.

(5) With respect to checks, a cutoff hour no earlier than one hour after the opening of the next banking day after the banking day on which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.

(b) Subject to subdivision (a), items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 39. Effective January 1, 1993.)


citation: COM § 4401

text:
(a) A bank may charge against the account of a customer an item that is properly payable from that account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.

(b) A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefited from the proceeds of the item.

(c) A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check with reasonable certainty. The notice is effective for the period stated in subdivision (b) of Section 4403 for stop-payment orders, and shall be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it before the bank takes any action with respect to the check described in Section 4303. If a bank charges against the account of a customer a check before the date stated in the notice of postdating, the bank is liable for damages for the loss resulting from its act. The loss may include damages for dishonor of subsequent items under Section 4402.

(d) A bank that in good faith makes payment to a holder may charge the indicated account of its customer according to either:

(1) The original terms of the altered item.

(2) The terms of the completed item, even though the bank knows the item has been completed unless the bank has notice that the completion was improper.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 40. Effective January 1, 1993.)

path: 4. BANK DEPOSITS AND COLLECTIONS > 4. Relationship Between Payor Bank and Its Customer


citation: COM § 4402

text:
(a) Except as otherwise provided in this division, a payor bank wrongfully dishonors an item if it dishonors an item that is properly payable, but a bank may dishonor an item that would create an overdraft unless it has agreed to pay the overdraft.

(b) A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. Liability is limited to actual damages proved and may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.

(c) A payor bank’s determination of the customer’s account balance on which a decision to dishonor for insufficiency of available funds is based may be made at any time between the time the item is received by the payor bank and the time that the payor bank returns the item or gives notice in lieu of return, and no more than one determination need be made. If, at the election of the payor bank, a subsequent balance determination is made for the purpose of reevaluating the bank’s decision to dishonor the item, the account balance at that time is determinative of whether a dishonor for insufficiency of available funds is wrongful.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 41. Effective January 1, 1993.)

chapter: 4. Relationship Between Payor Bank and Its Customer


citation: COM § 4403

text:
(a) A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer’s account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the item described in Section 4303. If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.

(b) A stop-payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in writing within that period. A stop-payment order may be renewed for additional six-month periods by a writing given to the bank within a period during which the stop-payment order is effective.

(c) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under Section 4402.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 42. Effective January 1, 1993.)


citation: COM § 4404

text: A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented more than six months after its date, but it may charge its customer’s account for a payment made thereafter in good faith.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 43. Effective January 1, 1993.)


citation: COM § 4405

text:
(a) A payor or collecting bank’s authority to accept, pay, or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes the authority to accept, pay, collect, or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.

(b) Even with knowledge, a bank may, for 10 days after the date of death, pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 44. Effective January 1, 1993.)


citation: COM § 4406

text:
(a) A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer to reasonably identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount, and date of payment. If the bank does not return the items, it shall provide in the statement of account the telephone number that the customer may call to request an item, a substitute check, or a legible copy thereof pursuant to subdivision (b).

(b) If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of seven years after receipt of the items. A customer may request an item from the bank that paid the item, and that bank shall provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item. If the paid item requested by a customer was presented as a substitute check, the bank shall provide, in a reasonable time, either the substitute check or, if the substitute check has been destroyed or is not otherwise obtainable, a legible copy of the substitute check. A bank shall provide, upon request, and without charge to the customer, at least two items, substitute checks, or legible copies thereof, with respect to each statement of account sent to the customer.

(c) If a bank sends or makes available a statement of account or items pursuant to subdivision (a), the customer shall exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer shall promptly notify the bank of the relevant facts.

(d) If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by subdivision (c), the customer is precluded from asserting any of the following against the bank:

(1) The customer’s unauthorized signature or any alteration on the item if the bank also proves that it suffered a loss by reason of the failure.

(2) The customer’s unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.

(e) If subdivision (d) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with subdivision (c) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under subdivision (d) does not apply.

(f) Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subdivision (a)) discover and report the customer’s unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subdivision, the payer bank may not recover for breach of warranty under Section 4208 with respect to the unauthorized signature or alteration to which the preclusion applies.

(g) As used in this section, “substitute check” shall have the same meaning as used in Section 229.2 of Title 12 of the Code of Federal Regulations.

history: (History: Amended by Stats. 2016, Ch. 277, Sec. 3. (AB 2907) Effective January 1, 2017.)


citation: COM § 4407

text:
If a payor bank has paid an item over the order of the drawer or maker to stop payment, or after an account has been closed, or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank is subrogated to the rights of all of the following:

(a) Of any holder in due course on the item against the drawer or maker.

(b) Of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose.

(c) Of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 46. Effective January 1, 1993.)


citation: COM § 4501

text: A bank that takes a documentary draft for collection shall present or send the draft and accompanying documents for presentment and, upon learning that the draft has not been paid or accepted in due course, shall seasonably notify its customer of the fact even though it may have discounted or bought the draft or extended credit available for withdrawal as of right.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 47. Effective January 1, 1993.)

chapter: 5. Collection of Documentary Drafts

path: 4. BANK DEPOSITS AND COLLECTIONS > 5. Collection of Documentary Drafts


citation: COM § 4502

text: If a draft or the relevant instructions require presentment “on arrival,” “when goods arrive” or the like, the collecting bank need not present until in its judgment a reasonable time for arrival of the goods has expired. Refusal to pay or accept because the goods have not arrived is not dishonor; the bank shall notify its transferor of the refusal but need not present the draft again until it is instructed to do so or learns of the arrival of the goods.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 48. Effective January 1, 1993.)


citation: COM § 4503

text: Unless otherwise instructed and except as provided in Division 5 (commencing with Section 5101), a bank presenting a documentary draft:(a) Shall deliver the documents to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment.(b) Upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions from any referee in case of need designated in the draft or, if the presenting bank does not choose to utilize the referee’s services, it shall use diligence and good faith to ascertain the reason for dishonor, shall notify its transferor of the dishonor and of the results of its effort to ascertain the reasons therefor, and shall request instructions.However, the presenting bank is under no obligation with respect to goods represented by the documents except to follow any reasonable instructions seasonably received; it has a right to reimbursement for any expense incurred in following instructions and to prepayment of or indemnity for those expenses.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 49. Effective January 1, 1993.)


citation: COM § 4504

text:
(a) A presenting bank that, following the dishonor of a documentary draft, has seasonably requested instructions but does not receive them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner.

(b) For its reasonable expenses incurred by action under subdivision (a), the presenting bank has a lien upon the goods or their proceeds, which may be foreclosed in the same manner as an unpaid seller’s lien.

history: (History: Amended by Stats. 1992, Ch. 914, Sec. 50. Effective January 1, 1993.)


citation: COM § 5101

text: This division may be cited as Uniform Commercial Code—Letters of Credit.

history: (History: Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)

division: 5. LETTERS OF CREDIT

path: 5. LETTERS OF CREDIT


citation: COM § 5102

text:
(a) In this division:

(1) “Adviser” means a person who, at the request of the issuer, a confirmer, or another adviser, notifies or requests another adviser to notify the beneficiary that a letter of credit has been issued, confirmed, or amended.

(2) “Applicant” means a person at whose request or for whose account a letter of credit is issued. The term includes a person who requests an issuer to issue a letter of credit on behalf of another if the person making the request undertakes an obligation to reimburse the issuer.

(3) “Beneficiary” means a person who under the terms of a letter of credit is entitled to have its complying presentation honored. The term includes a person to whom drawing rights have been transferred under a transferable letter of credit.

(4) “Confirmer” means a nominated person who undertakes, at the request or with the consent of the issuer, to honor a presentation under a letter of credit issued by another.

(5) “Dishonor” of a letter of credit means failure timely to honor or to take an interim action, such as acceptance of a draft, that may be required by the letter of credit.

(6) “Document” means a draft or other demand, document of title, investment security, certificate, invoice, or other record, statement, or representation of fact, law, right, or opinion (i) which is presented in a written or other medium permitted by the letter of credit or, unless prohibited by the letter of credit, by the standard practice referred to in subdivision (e) of Section 5108 and (ii) which is capable of being examined for compliance with the terms and conditions of the letter of credit. A document may not be oral.

(7) “Good faith” means honesty in fact in the conduct or transaction concerned.

(8) “Honor” of a letter of credit means performance of the issuer’s undertaking in the letter of credit to pay or deliver an item of value. Unless the letter of credit otherwise provides, “honor” occurs

(i) upon payment,

(ii) if the letter of credit provides for acceptance, upon acceptance of a draft and, at maturity, its payment, or

(iii) if the letter of credit provides for incurring a deferred obligation, upon incurring the obligation and, at maturity, its performance.

(9) “Issuer” means a bank or other person that issues a letter of credit, but does not include an individual who makes an engagement for personal, family, or household purposes.

(10) “Letter of credit” means a definite undertaking that satisfies the requirements of Section 5104 by an issuer to a beneficiary at the request or for the account of an applicant or, in the case of a financial institution, to itself or for its own account, to honor a documentary presentation by payment or delivery of an item of value.

(11) “Nominated person” means a person whom the issuer (i) designates or authorizes to pay, accept, negotiate, or otherwise give value under a letter of credit and (ii) undertakes by agreement or custom and practice to reimburse.

(12) “Presentation” means delivery of a document to an issuer or nominated person for honor or giving of value under a letter of credit.

(13) “Presenter” means a person making a presentation as or on behalf of a beneficiary or nominated person.

(14) “Record” means information that is inscribed on a tangible medium, or that is stored in an electronic or other medium and is retrievable in perceivable form.

(15) “Successor of a beneficiary” means a person who succeeds to substantially all of the rights of a beneficiary by operation of law, including a corporation with or into which the beneficiary has been merged or consolidated, an administrator, executor, personal representative, trustee in bankruptcy, debtor in possession, liquidator, and receiver.

(b) Definitions in other divisions applying to this division and the sections in which they appear are:

“Accept” or “Acceptance”Section 3409

“Value”Sections 3303, 4211

(c) Division 1 contains certain additional general definitions and principles of construction and interpretation applicable throughout this division.