Negotiable Instruments Law
Article 3 Commercial Paper(Continue)
4 Liability of Parties
No person is liable on an instrument unless his signature appears
A signature is made by use of any name, including any trade or
assumed name, upon an instrument. Or by any word or mark used in lieu
of a written signature.
3-402. Signature in
the instrument clearly indicates that a signature is made in some other
capacity, it is an indorsement.
3-403. Signature by
A signature may be made by an agent or other representative, and
his authority to make it may be established as in other cases of representation.
No particular form of appointment is necessary to establish such
An authorized representative who signs his own name to an instrument:
is personally obligated if the instrument
neither names the person represented nor shows that the representative
signed in a representative capacity;
except as otherwise established between
the immediate parties, is personally obligated if the instrument names
the person represented but does not show that the representative signed
in a representative capacity, or if the instrument does not name the person
represented but does show that the representative signed in a representative
Except as otherwise established, the name of an organization preceded
or followed by the name and office of an authorized individual is a signature
made in a representative capacity.
Any unauthorized signature is wholly inoperative as that of the
person whose name is signed unless he ratifies it or is precluded from
denying it; but it operates as the signature of the unauthorized signer
in favor of any person who in good faith pays the instrument or takes
it for value.
Any unauthorized signature may be ratified for all purposes of
this Article. Such ratification
does not of itself affect any rights of the person ratifying against the
3-405. Impostors; Signature
in Name of Payee.
An indorsement by any person in the name of a named payee is effective
an impostor by use of the mails or otherwise
has induced the maker or drawer to issue the instrument to him or his
confederate in the name of the payee; or
a person signing as or on behalf of a
maker or drawer intends the payee to have no interest in the instrument;
an agent or employee of the maker or
drawer has supplied him with the name of the payee intending the latter
to have no such interest.
Nothing in this section shall affect the criminal or civil liability
of the person so indorsing.
3-406. Negligence Contributing
to Alteration or Unauthorized Signature.
person who by his negligence substantially contributes to a material alteration
of the instrument or to the making of an unauthorized signature is precluded
from asserting the alteration or lack of authority against a holder in
due course or against a drawee or other payor who pays the instrument
in good faith and in accordance with the reasonable commercial standards
of the drawee's or payor's business.
Any alteration of an instrument is material which changes the contract
of any party thereto in any respect, including any such change in:
the number or relations of the parties;
an incomplete instrument, by completing
it otherwise than as authorized; or
the writing as signed, by adding to it
or by removing any part of it.
as against any person other than a subsequent holder in due course:
alteration by the holder which is both
fraudulent and material discharges any party whose contract is thereby
changed unless that party assents or is precluded from asserting the defense;
no other alteration discharges any party
and the instrument may be enforced according to its original tenor, or
as to incomplete instruments according to the authority given.
A subsequent holder in due course may in all cases enforce the
instrument according to its original tenor, and when an incomplete instrument
has been completed, he may enforce it as completed.
or failure of consideration is a defense as against any person not having
the rights of a holder in due course (Section 3-305), except that no consideration
is necessary for an instrument or obligation thereon given in payment
of or as security for an antecedent obligation of any kind.
Nothing in this section shall be taken to displace any statute
outside this Act under which a promise is enforceable notwithstanding
lack or failure of consideration.
Partial failure of consideration is a defense pro tanto whether
or not the failure is in an ascertained or liquidated amount.
3-409. Draft Not an
A check or other draft does not of itself operate as an assignment
of any funds in the hands of the drawer available for its payment, and
the drawee is not liable on the instrument until he accepts it.
Nothing in this section shall affect any liability in contract,
tort or otherwise arising from any letter of credit or other obligation
or representation which is not an acceptance.
3-410. Definition and Operation
Acceptance is the drawee's signed engagement to honor the draft
as presented. It must be written
on the draft and may consist of his signature alone.
It becomes operative when completed by delivery or notification.
A draft may be accepted although it has not been signed by the
drawer or is otherwise incomplete or is overdue or has been dishonored.
Where the draft is payable at a fixed period after sight and the
acceptor fails to date his acceptance, the holder may complete it by supplying
a date in good faith.
3-411. Certification of
Certification of a check is acceptance.
Where a holder procures certification the drawer and all prior
indorsers are discharged.
Unless otherwise agreed a bank has no obligation to certify a check.
A bank may certify a check before returning it for lack of proper
indorsement. If it does so,
the drawer is discharged.
3-412. Acceptance Varying
Where the drawee's proffered acceptance in any manner varies the
draft as presented, the holder may refuse the acceptance and treat the
draft as dishonored in which case the drawee is entitled to have his acceptance
The terms of the draft are not varied by an acceptance to pay at
any particular bank or place in the
Where the holder assents to an acceptance varying the terms of
the draft, each drawer and indorser who does not affirmatively assent
3-413. Contract of Maker,
Drawer and Acceptor.
The maker or acceptor engages that he will pay the instrument according
to its tenor at the time of his engagement or as completed pursuant to
Section 3-115 on incomplete instruments.
The drawer engages that upon dishonor of the draft and any necessary
notice of dishonor or protest he will pay the amount of the draft to the
holder or to any indorser who takes it up.
The drawer may disclaim this liability by drawing without recourse.
By making, drawing or accepting the party admits as against all
subsequent parties including the drawee the existence of the payee and
his then capacity to indorse.
3-414. Contract of Indorser;
Order of Liability.
Unless the indorsement otherwise specifies (as by such words as
"without recourse") every indorser engages that upon dishonor and any
necessary notice of dishonor and protest he will pay the instrument according
to its tenor at the time of his indorsement to the holder or to any subsequent
indorser who takes it up, even though the indorser who takes it up was
not obligated to do so.
Unless they otherwise agree, indorsers are liable to one another
in the order in which they indorse, which is presumed to be the order
in which their signatures appear on the instrument.
3-415. Contract of Accommodation
An accommodation party is one who signs the instrument in any capacity
for the purpose of lending his name to another party to it.
When the instrument has been taken for value before it is due,
the accommodation party is liable in the capacity in which he has signed
even though the taker knows of the accommodation.
As against a holder in due course and without notice of the accommodation,
oral proof of the accommodation is not admissible to give the accommodation
party the benefit of discharges dependent on his character as such.
In other cases the accommodation character may be shown by oral
An indorsement which shows that it is not in the chain of title
is notice of its accommodation character.
An accommodation party is not liable to the party accommodated,
and if he pays the instrument has a right of recourse on the instrument
against such party.
3-416. Contract of Guarantor.
"Payment guaranteed" or equivalent words added to a signature means
that the signor engages that if the instrument is not paid when due he
will pay it according to its tenor without resort by the holder to any
"Collection guaranteed" or equivalent words added to a signature
mean that the signer engages that if the instrument is not paid when due
he will pay it according to its tenor, but only after the holder has reduced
his claim against the maker or acceptor to judgment and execution has
been returned unsatisfied or after the maker or acceptor has become insolvent
or it is otherwise apparent that it is useless to proceed against him.
Words of guaranty which do not otherwise specify guarantee payment.
No words of guaranty added to the signature of a sole maker or
acceptor affect his liability on the instrument.
Such words added to the signature of one of two or more makers
or acceptors create a presumption that the signature is for the accommodation
of the others.
When words of guaranty are used, presentment, notice of dishonor
and protest are not necessary to charge the user.
Any guaranty written on the instrument is enforcible notwithstanding
any statute of frauds.
3-417. Warranties on
Presentment and Transfer.
Any person who obtains payment or acceptance and any prior transferor
warrants to a person who in good faith pays or accepts that:
he has a good title to the instrument
or is authorized to obtain payment or acceptance on behalf of one who
has a good title; and
he has no knowledge that the signature
of the maker or drawer is unauthorized, except that this warranty is not
given by a holder in due course acting in good faith:
to a maker with respect to the maker's own signature; or
to the drawer of a draft whether or not the drawer is also the
to the acceptor of a draft with respect to an alteration made prior
to the acceptance if the holder in due course took the draft after the
acceptance, even though the acceptance provided "payable as originally
drawn" or equivalent terms; or
to the acceptor of a draft with respect to an alteration made after
Any person who transfers an instrument and receives consideration
warrants to his transferee and, if the transfer is by indorsement, to
any subsequent holder who takes the instrument in good faith that:
he has a good title to the instrument
or is authorized to obtain payment or acceptance on behalf of
who has a good title and the transfer is otherwise rightful; and
all signatures are genuine or authorized;
the instrument has not been materially
no defense of any party is good against
he has no knowledge of any insolvency proceeding instituted with
respect to the maker or acceptor or drawer of an unaccepted instrument.
By transferring "without recourse" the transferor limits the obligation
stated in subsection (2)(d) to a warranty that he has no knowledge of
such a defense.
A selling agent or broker who does not disclose the fact that he
is acting only as such gives the warranties provided in this section,
but if he makes such disclosure warrants only his good faith and authority.
3-418. Finality of Payment
for recovery of bank payments as provided in the Article on Bank Deposits
and Collections (Article 4) and except for liability for breach of warranty
on presentment under the preceding section, payment or acceptance of any
instrument is final in favor of a holder in due course, or a person who
has in good faith changed his position in reliance on the payment.
3-419. Conversion of
Instrument; Innocent Representative.
An instrument is converted when:
a drawee to whom it is delivered for
acceptance refuses to return it on demand; or
any person to whom it is delivered for
payment refuses on demand either to pay or to return it; or
it is paid on a forged indorsement.
In an action against a drawee under subsection (1) the measure
of the drawee's liability is the face amount of the instrument.
In any other action under subsection (1) the measure of liability
is presumed to be the face amount of the instrument.
Subject to the provisions of this Act concerning restrictive indorsements
a representative, including a depositary or collecting bank, who has in
good faith and in accordance with the reasonable commercial standards
applicable to the business of such representative dealt with an instrument
or its proceeds on behalf of one who was not the true owner is not liable
to conversion or otherwise to the true owner beyond the amount of any
proceeds remaining in his hands.
An intermediary bank or payor bank which is not a depositary bank
is not liable to conversion solely by reason of the fact that proceeds
of an item indorsed restrictively (Sections 3-205 and 3-206) are not paid
or applied consistently with the restrictive indorsement of an indorser
other than its immediate transferor.
Continue to Part 5 Presentment, Notice of Dishonour and Protest