Negotiable Instruments Law
Article 3 Commercial Paper(Continue)
3-601. Discharge of
The extent of the discharge of any party from liability on an instrument
is governed by the sections on
payment or satisfaction (Section 3-603); or
tender of payment (Section 3-604); or
cancellation or renunciation (Section 3-605); or
impairment or right of recourse or of collateral (Section
reacquisition of the instrument by a prior party (Section
fraudulent and material alteration (Section 3-407); or
certification of a check (Section 3-411); or
acceptance varying a draft (Section 3-412); or
unexcused delay in presentment or notice of dishonor or
protest (Section 3-502).
Any party is also discharged from his liability on an instrument
to another party by any other act or agreement with such party which would
discharge his simple contract for the payment of money.
The liability of all parties is discharged when any party who has
himself no right of action or recourse on the instrument
reacquires the instrument in his own right; or
is discharged under any provision of this Article, except
as otherwise provided with respect to discharge for impairment of recourse
or of collateral (Section 3-606).
3-602. Effect of Discharge
Against Holder in Due Course.
discharge of any party provided by this Article is effective against a
subsequent holder in due course unless he has notice thereof when he takes
3-603. Payment or Satisfaction.
The liability of any party is discharged to the extent of his payment
or satisfaction to the holder even though it is made with knowledge of
a claim of another person to the instrument unless prior to such payment
or satisfaction the person making the claim either supplies indemnity
deemed adequate by the party seeking the discharge or enjoins payment
or satisfaction by order of a court of competent jurisdiction in an action
in which the adverse claimant and the holder are parties.
This subsection does not, however, result in the discharge of the
of a party who in bad faith pays or satisfies a holder who
acquired the instrument by theft or who (unless having the rights of a
holder in due course) holds through one who so acquired it; or
of a party (other than an intermediary bank or a payor bank
which is not a depositary bank) who pays or satisfies the holder of an
instrument which has been restrictively endorsed in a manner not consistent
with the terms of such restrictive endorsement.
Payment of satisfaction may be made with the consent of the holder
by any person including a stranger to the instrument.
Surrender of the instrument to such a person gives him the rights
of a transferee (Section 3-201).
3-604. Tender of Payment.
Any party making tender of full payment to a holder when or after
it is due is discharged to the extent of all subsequent liability for
interest, costs and attorney's fees.
The holder's refusal of such tender wholly discharges any party
who has a right of recourse against the party making the tender.
Where the maker or acceptor of an instrument payable otherwise
than on demand is able and ready to pay at every place of payment specified
in the instrument when it is due, it is equivalent to tender.
The holder of an instrument may even without consideration discharge
in any manner apparent on the face of the instrument or
the endorsement, as by intentionally canceling the instrument or the party's
signature by destruction or mutilation, or by striking out the party's
by renouncing his rights by a writing signed and delivered
or by surrender of the instrument to the party to be discharged.
Neither cancellation nor renunciation without surrender of the
instrument affects that title thereto.
3-606. Impairment of
Recourse or of Collateral.
The holder discharges any party to the instrument to the extent
that without such party's consent the holder
without express reservation of rights releases or agrees
not to sue any person against whom the party has to the knowledge of the
holder a right of recourse or agrees to suspend the right to enforce against
such person the instrument or collateral or otherwise discharges such
person, except that failure or delay in effecting any required presentment,
protest or notice of dishonor with respect to any such person does not
discharge any party as to whom presentment, protest or notice of dishonor
is effective or unnecessary; or
unjustifiably impairs any collateral for the instrument
given by or on behalf of the party or any person against whom he has a
right of recourse.
By express reservation of rights against a party with a right of
recourse the holder preserves
all his rights against such party as of the time when the
instrument was originally due; and
the right of the party to pay the instrument as of that
all rights of such party to recourse against others.
7 Advice of International Sight Draft
3-701. Letter of Advice
of International Sight Draft.
A "letter of advice" is a drawer's communication to the drawee
that a described draft has been drawn.
Unless otherwise agreed, when a bank receives from another bank
a letter of advice of an international sight draft, the drawee bank may
immediately debit the drawer's account and stop the running of interest
pro tanto. Such a debit and
any resulting credit to the account covering outstanding drafts leaves
in the drawer full power to stop payment or otherwise dispose of the amount
and creates no trust or interest in favor of the holder.
Unless otherwise agreed and except where a draft is drawn under
a credit issued by the drawee, the drawee of an international sight draft
owes the drawer no duty to pay an unadvised draft but if it does so and
the draft is genuine, may appropriately debit the drawer's account.
3-801. Drafts in a Set.
Where a draft is drawn in a set of parts, each of which is numbered
and expressed to be an order only if no other part has been honored, the
whole of the parts constitutes one draft, but a taker of any part may
become a holder in due course of the draft.
Any person who negotiates, indorses or accepts a single part of
a draft drawn in a set thereby becomes liable to any holder in different
holders in due course to whom different parts have been negotiated the
holder whose title first accrues has all rights to the draft and its process.
As against the drawee the first presented part of a draft drawn
in a set is the part entitled to payment, or if a time draft to acceptance
and payment. Acceptance of
any subsequently presented part renders the drawee liable thereon under
subsection (2). With respect
both to a holder and to the drawer payment of a subsequently presented
part of a draft payable at sight has the same effect as payment of a check
notwithstanding an effective stop order (Section 4-407).
Except as otherwise provided in this section, where any part of
a draft in a set is discharged by payment or otherwise the whole draft
3-802. Effect of Instrument
on Obligation for Which It Is Given.
Unless otherwise agreed, where an instrument is taken for an underlying
the obligation is pro tanto discharged if a bank is drawer,
maker or acceptor of the instrument and there is no recourse on the instrument
against the underlying obligor; and
in any other case the obligation is suspended pro tanto
until the instrument is due or if it is payable on demand until its presentment.
If the instrument is dishonored, action may be maintained on either
the instrument or the obligation; discharge of the underlying obligor
on the instrument also discharges him on the obligation.
The taking in good faith of a check which is not postdated does
not of itself so extend the time on the original obligation as to discharge
3-803. Notice to Third
a defendant is sued for breach of an obligation for which a third person
is answerable over under this Article, he may give the third person written
notice of the litigation, and the person notified may then give similar
notice to any other person who is answerable over to him under this Article.
If the notice states that the person notified may come in and defend
and that if the person notified does not do so he will in any action against
him by the person giving the notice be bound by any determination of fact
common to the two litigations, then unless after seasonable receipt of
the notice the person notified does come in and defend he is so bound.
3-804. Lost, Destroyed
or Stolen Instruments.
owner of an instrument which is lost, whether by destruction, theft or
otherwise, may maintain an action in his own name and recover from any
party liable thereon upon due proof of his ownership, the facts which
prevent his production of the instrument and its terms.
The court may require security indemnifying the defendant against
loss by reason of further claims on the instrument.
3-805. Instruments Not
Payable to Order or to Bearer.
Article applies to any instrument whose terms do not preclude transfer
and which is otherwise negotiable within this Article but which is not
payable to order or to bearer, except that there can be no holder in due
course of such an instrument.