Commercial Code — Part 2 | COM — United States — California law | Esheria

Commercial Code

Part 2 of 4 · provisions 201–400

This division is known as the Uniform Commercial Code—Leases and may be cited by that name.

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Priority of claims Security entitlements UCC filing acceptance acceptance of goods accessions accord and satisfaction account charging account closure account debtor account debtor defenses account debtor discharge accounting charges accounts receivable acknowledgment adequate assurance admissibility of evidence adverse claims advisers after-acquired collateral agreement agreement modification agreements agricultural lien +830 more

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This division is known as the Uniform Commercial Code—Leases and may be cited by that name. This section says the division applies to transactions that create a lease, including hybrid leases, with special rules depending on whether the lease-of-goods aspects predominate. This section defines key terms used in the personal property leases division. A lease under this division is also subject to applicable title-registration laws and consumer law; if those laws conflict with this division, the other law controls. For certain goods with a certificate of title, the effect of compliance or noncompliance is governed by the issuing jurisdiction’s law until surrender of the certificate or four months after removal, and then until another jurisdiction issues a new certificate.

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Provisions of Commercial Code

Showing 200 of 669

  1. 2313.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    A seller creates an express warranty when statements, descriptions, samples, or models become part of the basis of the bargain and the goods must conform to them.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2313. (1) Express warranties by the seller are created as follows: (a) Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise. (b) Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description. (c) Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as “warrant” or “guarantee” or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty. (Enacted by Stats. 1963, Ch. 819.)
  2. 2314.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    A sale of goods can include an implied warranty that the goods are merchantable, if the seller is a merchant for that kind of goods and the warranty is not excluded or modified.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2314. (1) Unless excluded or modified (Section 2316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. Under this section the serving for value of food or drink to be consumed either on the premises or elsewhere is a sale. (2) Goods to be merchantable must be at least such as (a) Pass without objection in the trade under the contract description; and (b) In the case of fungible goods, are of fair average quality within the description; and (c) Are fit for the ordinary purposes for which such goods are used; and (d) Run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and (e) Are adequately contained, packaged, and labeled as the agreement may require; and (f) Conform to the promises or affirmations of fact made on the container or label if any. (3) Unless excluded or modified (Section 2316) other implied warranties may arise from course of dealing or usage of trade. (Enacted by Stats. 1963, Ch. 819.)
  3. 2315.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    If the seller knows the buyer’s intended purpose and the buyer is relying on the seller’s skill or judgment, the goods carry an implied warranty that they will be fit for that purpose, unless the next section excludes or modifies it.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2315. Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose. (Enacted by Stats. 1963, Ch. 819.)
  4. 2316.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    This section explains when warranty language is consistent, and how implied warranties can be excluded or modified.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2316. (1) Words or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other; but subject to the provisions of this division on parol or extrinsic evidence (Section 2202) negation or limitation is inoperative to the extent that such construction is unreasonable. (2) Subject to subdivision (3), to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that “There are no warranties which extend beyond the description on the face hereof.” (3) Notwithstanding subdivision (2) (a) Unless the circumstances indicate otherwise, all implied warranties are excluded by expressions like “as is,” “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty; and (b) When the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and (c) An implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade. (4) Remedies for breach of warranty can be limited in accordance with the provisions of this division on liquidation or limitation of damages and on contractual modification of remedy (Sections 2718 and 2719). (Enacted by Stats. 1963, Ch. 819.)
  5. 2317.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    Warranties, express or implied, must be read together as consistent and cumulative unless that is unreasonable; then the parties’ intent controls which warranty dominates.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2317. Warranties whether express or implied shall be construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties shall determine which warranty is dominant. In ascertaining that intention the following rules apply: (a) Exact or technical specifications displace an inconsistent sample or model or general language of description. (b) A sample from an existing bulk displaces inconsistent general language of description. (c) Express warranties displaced inconsistent implied warranties other than an implied warranty of fitness for a particular purpose. (Enacted by Stats. 1963, Ch. 819.)
  6. 2319.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    This section defines F.O.B. and F.A.S. delivery terms and assigns shipping, delivery, document, and payment duties between seller and buyer.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2319. (1) Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which (a) When the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this division (Section 2504) and bear the expense and risk of putting them into the possession of the carrier; or (b) When the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this division (Section 2503); (c) When under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this division on the form of bill of lading (Section 2323). (2) Unless otherwise agreed the term F.A.S. vessel (which means “free alongside”) at a named port, even though used only in connection with the stated price, is a delivery term under which the seller must (a) At his own expense and risk deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer; and (b) Obtain and tender a receipt for the goods in exchange for which the carrier is under a duty to issue a bill of lading. (3) Unless otherwise agreed in any case falling within subdivision (1)(a) or (c) or subdivision (2) the buyer must seasonably give any needed instructions for making delivery, including when the term is F.A.S. or F.O.B. the loading berth of the vessel and in an appropriate case its name and sailing date. The seller may treat the failure of needed instructions as a failure of co-operation under this division (Section 2311). He may also at his option move the goods in any reasonable manner preparatory to delivery or shipment. (4) Under the term F.O.B. vessel or F.A.S. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents. (Enacted by Stats. 1963, Ch. 819.)
  7. 2320.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    This section defines C.I.F. and C.& F. pricing terms and sets the seller’s document, insurance, and shipment duties, while requiring the buyer to pay against the tender of documents.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2320. (1) The term C.I.F. means that the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination. The term C. & F. or C.F. means that the price so includes cost and freight to the named destination. (2) Unless otherwise agreed and even though used only in connection with the stated price and destination, the term C.I.F. destination or its equivalent requires the seller at his own expense and risk to (a) Put the goods into the possession of a carrier at the port for shipment and obtain a negotiable bill or bills of lading covering the entire transportation to the named destination; and (b) Load the goods and obtain a receipt from the carrier (which may be contained in the bill of lading) showing that the freight has been paid or provided for; and (c) Obtain a policy or certificate of insurance, including any war risk insurance, of a kind and on terms then current at the port of shipment in the usual amount, in the currency of the contract, shown to cover the same goods covered by the bill of lading and providing for payment of loss to the order of the buyer or for the account of whom it may concern; but the seller may add to the price the amount of the premium for any such war risk insurance; and (d) Prepare an invoice of the goods and procure any other documents required to effect shipment or to comply with the contract; and (e) Forward and tender with commercial promptness all the documents in due form and with any indorsement necessary to perfect the buyer’s rights. (3) Unless otherwise agreed the term C. & F. or its equivalent has the same effect and imposes upon the seller the same obligations and risks as a C.I.F. term except the obligation as to insurance. (4) Under the term C.I.F. or C. & F. unless otherwise agreed the buyer must make payment against tender of the required documents and the seller may not tender nor the buyer demand delivery of the goods in substitution for the documents. (Enacted by Stats. 1963, Ch. 819.)
  8. 2321.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    In certain sales contracts, the seller must reasonably estimate the price, settle any final adjustment promptly, and allow feasible preliminary inspection before payment when the contract calls for payment on or after arrival.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2321. Under a contract containing a term C.I.F. or C. & F. (1) Where the price is based on or is to be adjusted according to “net landed weights,” “delivered weights,” “out turn” quantity or quality or the like, unless otherwise agreed the seller must reasonably estimate the price. The payment due on tender of the documents called for by the contract is the amount so estimated, but after final adjustment of the price a settlement must be made with commercial promptness. (2) An agreement described in subdivision (1) or any warranty of quality or condition of the goods on arrival places upon the seller the risk of ordinary deterioration, shrinkage and the like in transportation but has no effect on the place or time of identification to the contract for sale or delivery or on the passing of the risk of loss. (3) Unless otherwise agreed where the contract provides for payment on or after arrival of the goods the seller must before payment allow such preliminary inspection as is feasible; but if the goods are lost delivery of the documents and payment are due when the goods should have arrived. (Enacted by Stats. 1963, Ch. 819.)
  9. 2322.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    For an ex-ship delivery term, the goods must be delivered from a ship at the named port, the seller must clear carriage liens and give the buyer a delivery direction, and risk of loss stays with the seller until the goods are unloaded.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2322. (1) Unless otherwise agreed a term for delivery of goods “ex-ship” (which means from the carrying vessel) or in equivalent language is not restricted to a particular ship and requires delivery from a ship which has reached a place at the named port of destination where goods of the kind are usually discharged. (2) Under such a term unless otherwise agreed (a) The seller must discharge all liens arising out of the carriage and furnish the buyer with a direction which puts the carrier under a duty to deliver the goods; and (b) The risk of loss does not pass to the buyer until the goods leave the ship’s tackle or are otherwise properly unloaded. (Enacted by Stats. 1963, Ch. 819.)
  10. 2323.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    For certain overseas shipment contracts, the seller must obtain a negotiable bill of lading. The buyer may demand the full set of bills in some cases, and incomplete sets can still support payment if sent from abroad and backed by an adequate indemnity.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2323. (1) Where the contract contemplates overseas shipment and contains a term C.I.F. or C. & F. or F.O.B. vessel, the seller unless otherwise agreed must obtain a negotiable bill of lading stating that the goods have been loaded on board or, in the case of a term C.I.F. or C. & F., received for shipment. (2) Where in a case within subdivision (1) a tangible bill of lading has been issued in a set of parts, unless otherwise agreed if the documents are not to be sent from abroad the buyer may demand tender of the full set; otherwise only one part of the bill of lading need be tendered. Even if the agreement expressly requires a full set (a) Due tender of a single part is acceptable within the provisions of this division on cure of improper delivery (subdivision (1) of Section 2508); and (b) Even though the full set is demanded, if the documents are sent from abroad the person tendering an incomplete set may nevertheless require payment upon furnishing an indemnity which the buyer in good faith deems adequate. (3) A shipment by water or by air or a contract contemplating such shipment is “overseas” insofar as by usage of trade or agreement it is subject to the commercial, financing or shipping practices characteristic of international deepwater commerce. (Amended by Stats. 2006, Ch. 254, Sec. 36. Effective January 1, 2007.)
  11. 2324.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    For a “no arrival, no sale” term, the seller must ship conforming goods and tender them when they arrive; the buyer may treat certain seller-unfaulted loss, deterioration, or late arrival as a casualty to identified goods.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2324. Under a term “no arrival, no sale” or terms of like meaning, unless otherwise agreed, (a) The seller must properly ship conforming goods and if they arrive by any means he must tender them on arrival but he assumes no obligation that the goods will arrive unless he has caused the nonarrival; and (b) Where without fault of the seller the goods are in part lost or have so deteriorated as no longer to conform to the contract or arrive after the contract time, the buyer may proceed as if there had been casualty to identified goods (Section 2613). (Enacted by Stats. 1963, Ch. 819.)
  12. 2325.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    The buyer must seasonably provide any agreed letter of credit. If a proper letter of credit is delivered, the buyer’s duty to pay is suspended; if the credit is dishonored, the seller may require direct payment after seasonable notice.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2325. (1) Failure of the buyer seasonably to furnish an agreed letter of credit is a breach of the contract for sale. (2) The delivery to seller of a proper letter of credit suspends the buyer’s obligation to pay. If the letter of credit is dishonored, the seller may on seasonable notification to the buyer require payment directly from him. (3) Unless otherwise agreed the term “letter of credit” or “banker’s credit” in a contract for sale means an irrevocable credit issued by a financing agency of good repute and, where the shipment is overseas, of good international repute. The term “confirmed credit” means that the credit must also carry the direct obligation of such an agency which does business in the seller’s financial market. (Enacted by Stats. 1963, Ch. 819.)
  13. 2326.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    This section classifies certain sales as sale on approval or sale or return, limits creditor claims in some cases, and preserves title rules for consigned goods.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2326. (1) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is (a) A “sale on approval” if the goods are delivered primarily for use, and (b) A “sale or return” if the goods are delivered primarily for resale. (2) Goods held on approval are not subject to the claims of the buyer’s creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer’s possession. (3) Any “or return” term of a contract for sale is to be treated as a separate contract for sale within the statute of frauds section of this division (Section 2201) and as contradicting the sale aspect of the contract within the provisions of this division on parol or extrinsic evidence (Section 2202). (4) If a person delivers or consigns for sale goods which the person used or bought for use for personal, family, or household purposes, these goods do not become the property of the deliveree or consignee unless the deliveree or consignee purchases and fully pays for the goods. Nothing in this subdivision shall prevent the deliveree or consignee from acting as the deliverer’s agent to transfer title to these goods to a buyer who pays the full purchase price. Any payment received by the deliveree or consignee from a buyer of these goods, less any amount which the deliverer expressly agreed could be deducted from the payment for commissions, fees, or expenses, is the property of the deliverer and shall not be subject to the claims of the deliveree’s or consignee’s creditors. (Amended by Stats. 1999, Ch. 991, Sec. 28.2. Effective January 1, 2000. Operative July 1, 2001, by Sec. 75 of Ch. 991.)
  14. 2327.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    This section sets default rules for sale on approval and sale or return transactions, including when title and risk pass, when use counts as acceptance, and how returns must be handled.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2327. (1) Under sale on approval unless otherwise agreed (a) Although the goods are identified to the contract the risk of loss and the title do not pass to the buyer until acceptance; and (b) Use of the goods consistent with the purpose of trial is not acceptance but failure seasonably to notify the seller of election to return the goods is acceptance, and if the goods conform to the contract acceptance of any part is acceptance of the whole; and (c) After due notification of election to return, the return is at the seller’s risk and expense but a merchant buyer must follow any reasonable instructions. (2) Under a sale or return unless otherwise agreed (a) The option to return extends to the whole or any commercial unit of the goods while in substantially their original condition, but must be exercised seasonably; and (b) The return is at the buyer’s risk and expense. (Enacted by Stats. 1963, Ch. 819.)
  15. 2328.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    This section sets rules for auction sales, including when a sale is complete, when lots are separate sales, when reserve and no-reserve auctions may proceed, and when a buyer can challenge seller bidding.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. General Obligation and Construction of Contract [2301 - 2328] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 2328. (1) In a sale by auction if goods are put up in lots each lot is the subject of a separate sale. (2) A sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner. Where a bid is made while the hammer is falling in acceptance of a prior bid the auctioneer may in his discretion reopen the bidding or declare the goods sold under the bid on which the hammer was falling. (3) Such a sale is with reserve unless the goods are in explicit terms put up without reserve. In an auction with reserve the auctioneer may withdraw the goods at any time until he announces completion of the sale. In an auction without reserve, after the auctioneer calls for bids on an article or lot, that article or lot cannot be withdrawn unless no bid is made within a reasonable time. In either case a bidder may retract his bid until the auctioneer’s announcement of completion of the sale, but a bidder’s retraction does not revive any previous bid. (4) If the auctioneer knowingly receives a bid on the seller’s behalf or the seller makes or procures such a bid, and notice has not been given that liberty for such bidding is reserved, the buyer may at his option avoid the sale or take the goods at the price of the last good faith bid prior to the completion of the sale. This subdivision shall not apply to any bid at a forced sale. (Enacted by Stats. 1963, Ch. 819.)
  16. 2401.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Title, Creditors and Good Faith Purchasers [2401 - 2403] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    This section says when title to goods passes between seller and buyer, including special rules for shipment, delivery, and rejection of goods.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Title, Creditors and Good Faith Purchasers [2401 - 2403] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 2401. Each provision of this division with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title. Insofar as situations are not covered by the other provisions of this division and matters concerning title become material the following rules apply: (1) Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this code. Any retention or reservation by the seller of the title (property) in goods shipped or delivered to the buyer is limited in effect to a reservation of a security interest. Subject to these provisions and to the provisions of the division on secured transactions (Division 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties. (2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading (a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but (b) If the contract requires delivery at destination, title passes on tender there. (3) Unless otherwise explicitly agreed where delivery is to be made without moving the goods, (a) If the seller is to deliver a tangible document of title, title passes at the time when and the place where he delivers such documents and if the seller is to deliver an electronic document of title, title passes when the seller delivers the document; or (b) If the goods are at the time of contracting already identified and no documents of title are to be delivered, title passes at the time and place of contracting. (4) A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a “sale.” (Amended by Stats. 2006, Ch. 254, Sec. 37. Effective January 1, 2007.)
  17. 2402.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Title, Creditors and Good Faith Purchasers [2401 - 2403] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    Unsecured creditors’ rights in identified goods are limited by the buyer’s rights, and a seller’s creditor may sometimes treat a sale or identification as void if the seller’s retention of possession is fraudulent or void.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Title, Creditors and Good Faith Purchasers [2401 - 2403] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 2402. (1) Except as provided in subdivisions (2) and (3), rights of unsecured creditors of the seller with respect to goods which have been identified to a contract for sale are subject to the buyer’s rights to recover the goods under this division (Sections 2502 and 2716). (2) A creditor of the seller may treat a sale or an identification of goods to a contract for sale as void if as against him or her a retention of possession by the seller is fraudulent or void under any rule of law of the state where the goods are situated, except that retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification is not fraudulent or void. (3) Nothing in this division shall be deemed to impair the rights of creditors of the seller: (a) Under the provisions of the division on secured transactions (Division 9); or (b) Where identification to the contract or delivery is made not in current course of trade but in satisfaction of or as security for a pre-existing claim for money, security or the like and is made under circumstances which under any rule of law of the state where the goods are situated would apart from this division constitute the transaction a fraudulent transfer or voidable preference. (Amended by Stats. 1988, Ch. 1368, Sec. 9. Operative January 1, 1990, by Sec. 18 of Ch. 1368.)
  18. 2403.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Title, Creditors and Good Faith Purchasers [2401 - 2403] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    This section says when a buyer gets title to goods, when a person with voidable title can pass good title, and when entrusting goods to a merchant lets that merchant transfer the owner’s rights.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Title, Creditors and Good Faith Purchasers [2401 - 2403] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 2403. (1) A purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased. A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though (a) The transferor was deceived as to the identity of the purchaser, or (b) The delivery was in exchange for a check which is later dishonored, or (c) It was agreed that the transaction was to be a “cash sale,” or (d) The delivery was procured through fraud punishable as larcenous under the criminal law. (2) Any entrusting of possession of goods to a merchant who deals in goods of that kind gives him power to transfer all rights of the entruster to a buyer in ordinary course of business. (3) “Entrusting” includes any delivery and any acquiescence in retention of possession for the purpose of sale, obtaining offers to purchase, locating a buyer, or the like; regardless of any condition expressed between the parties to the delivery or acquiescence and regardless of whether the procurement of the entrusting or the possessor’s disposition of the goods have been such as to be larcenous under the criminal law. (4) The rights of other purchasers of goods and of lien creditors are governed by the divisions on secured transactions (Division 9), bulk transfers (Division 6) and documents of title (Division 7). (Amended by Stats. 1967, Ch. 799.)
  19. 2501.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    This section says when a buyer gets a special property and insurable interest in goods, and when a seller keeps an insurable interest.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2501. (1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are nonconforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs (a) When the contract is made if it is for the sale of goods already existing and identified; (b) If the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers; (c) If the contract is for the sale of unborn young or future crops, when the crops are planted or otherwise become growing crops or the young are conceived. (2) The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified. (3) Nothing in this section impairs any insurable interest recognized under any other statute or rule of law. (Enacted by Stats. 1963, Ch. 819.)
  20. 2502.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    A buyer who has paid part or all of the price may recover the goods from the seller if the buyer tenders any unpaid balance and the stated conditions are met.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2502. (1) Subject to subdivisions (2) and (3), and even though the goods have not been shipped, a buyer who has paid a part or all of the price of goods in which he or she has a special property under the provisions of the immediately preceding section may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if either: (a) In the case of goods bought for personal, family, or household purposes, the seller repudiates or fails to deliver as required by the contract. (b) In all cases, the seller becomes insolvent within 10 days after receipt of the first installment on their price. (2) The buyer’s right to recover the goods under paragraph (a) of subdivision (1) vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver. (3) If the identification creating his or her special property has been made by the buyer, he or she acquires the right to recover the goods only if they conform to the contract for sale. (Amended (as to be amended by Stats. 1999, Ch. 991) by Stats. 2000, Ch. 1003, Sec. 5. Effective January 1, 2001. Operative July 1, 2001, by Sec. 56 of Ch. 1003.)
  21. 2503.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    This section says how a seller must make a tender of delivery, including holding conforming goods for the buyer, giving needed notice, and providing documents when required.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2503. (1) Tender of delivery requires that the seller put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this division, and in particular (a) Tender must be at a reasonable hour, and if it is of goods they must be kept available for the period reasonably necessary to enable the buyer to take possession; but (b) Unless otherwise agreed, the buyer must furnish facilities reasonably suited to the receipt of the goods. (2) Where the case is within the next section respecting shipment tender requires that the seller comply with its provisions. (3) Where the seller is required to deliver at a particular destination tender requires that he comply with subdivision (1) and also in any appropriate case tender documents as described in subdivisions (4) and (5) of this section. (4) Where goods are in the possession of a bailee and are to be delivered without being moved (a) Tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer’s right to possession of the goods; but (b) Tender to the buyer of a nonnegotiable document of title or of a record directing the bailee to deliver is sufficient tender unless the buyer seasonably objects, and except as otherwise provided in Division 9 (commencing with Section 9101), receipt by the bailee of notification of the buyer’s rights fixes those rights as against the bailee and all third persons; but risk of loss of the goods and of any failure by the bailee to honor the nonnegotiable document of title or to obey the direction remains on the seller until the buyer has had a reasonable time to present the document or direction, and a refusal by the bailee to honor the document or to obey the direction defeats the tender. (5) Where the contract requires the seller to deliver documents (a) He must tender all such documents in correct form, except as provided in this division with respect to bills of lading in a set (subdivision (2) of Section 2323); and (b) Tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents constitutes nonacceptance or rejection. (Amended by Stats. 2006, Ch. 254, Sec. 38. Effective January 1, 2007.)
  22. 2504.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    If a seller must or is authorized to ship goods to the buyer and no destination is fixed, the seller must use a reasonable carrier arrangement, provide required documents promptly, and promptly notify the buyer of shipment unless the parties agreed otherwise.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2504. Where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must (a) Put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods and other circumstances of the case; and (b) Obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession of the goods or otherwise required by the agreement or by usage of trade; and (c) Promptly notify the buyer of the shipment. Failure to notify the buyer under paragraph (c) or to make a proper contract under paragraph (a) is a ground for rejection only if material delay or loss ensues. (Enacted by Stats. 1963, Ch. 819.)
  23. 2505.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    If the seller ships identified goods and takes certain bills of lading, the seller may keep a security interest in the goods; some bills reserve possession instead of security, and a violation of the sale contract does not remove the buyer’s rights or the seller’s powers as a holder of a negotiable document of title.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2505. (1) Where the seller has identified goods to the contract by or before shipment: (a) His procurement of a negotiable bill of lading to his own order or otherwise reserves in him a security interest in the goods. His procurement of the bill to the order of a financing agency or of the buyer indicates in addition only the seller’s expectation of transferring that interest to the person named. (b) A nonnegotiable bill of lading to himself or his nominee reserves possession of the goods as security but except in a case of conditional delivery (subdivision (2) of Section 2507) a nonnegotiable bill of lading naming the buyer as consignee reserves no security interest even though the seller retains possession or control of the bill of lading. (2) When shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transportation within the preceding section but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller’s powers as a holder of a negotiable document of title. (Amended by Stats. 2006, Ch. 254, Sec. 39. Effective January 1, 2007.)
  24. 2506.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    A financing agency that pays or buys a draft tied to a shipment of goods gets the shipper’s rights in the goods, including stopping delivery and requiring the buyer to honor the draft.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2506. (1) A financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the goods including the right to stop delivery and the shipper’s right to have the draft honored by the buyer. (2) The right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was apparently regular. (Amended by Stats. 2006, Ch. 254, Sec. 40. Effective January 1, 2007.)
  25. 2507.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    Tender of delivery generally makes the buyer’s duty to accept and pay for the goods come due, and it gives the seller a right to acceptance and payment under the contract.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2507. (1) Tender of delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract. (2) Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due. (Enacted by Stats. 1963, Ch. 819.)
  26. 2508.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A seller may cure a rejected nonconforming tender by notifying the buyer and making a conforming delivery within the contract time, or in some cases get a further reasonable time to substitute a conforming tender.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2508. (1) Where any tender or delivery by the seller is rejected because nonconforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. (2) Where the buyer rejects a nonconforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonally notifies the buyer have a further reasonable time to substitute a conforming tender. (Enacted by Stats. 1963, Ch. 819.)
  27. 2509.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    This section says when the risk of loss passes to the buyer in different sale-and-delivery situations.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2509. (1) Where the contract requires or authorizes the seller to ship the goods by carrier (a) If it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation (Section 2505); but (b) If it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery. (2) Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer (a) On his receipt of possession or control of a negotiable document of title covering the goods; or (b) On acknowledgment by the bailee of the buyer’s right to possession of the goods; or (c) After his receipt of possession or control of a nonnegotiable document of title or other direction to deliver in a record, as provided in subdivision (4)(b) of Section 2503. (3) In any case not within subdivision (1) or (2), the risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise the risk passes to the buyer on tender of delivery. (4) The provisions of this section are subject to contrary agreement of the parties and to the provisions of this division on sale on approval (Section 2327) and on effect of breach on risk of loss (Section 2510). (Amended by Stats. 2006, Ch. 254, Sec. 41. Effective January 1, 2007.)
  28. 2510.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    This section says who bears the risk of loss for goods when delivery does not conform, when the buyer revokes acceptance, and when the buyer breaches before risk passes.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2510. (1) Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance. (2) Where the buyer rightfully revokes acceptance he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning. (3) Where the buyer as to conforming goods already identified to the contract for sale repudiates or is otherwise in breach before risk of their loss has passed to him, the seller may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as resting on the buyer for a commercially reasonable time. (Enacted by Stats. 1963, Ch. 819.)
  29. 2511.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    Payment generally has to be tendered before the seller must deliver goods, and ordinary business forms of payment are sufficient unless the seller asks for legal tender.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2511. (1) Unless otherwise agreed, tender of payment is a condition to the seller’s duty to tender and complete any delivery. (2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it. (3) Subject to the provisions of this code on the effect of an instrument on an obligation (Section 3310), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment. (Amended by Stats. 1992, Ch. 914, Sec. 4. Effective January 1, 1993.)
  30. 2512.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    If a contract requires payment before inspection, the buyer must still pay unless a stated exception applies.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2512. (1) Where the contract requires payment before inspection nonconformity of the goods does not excuse the buyer from so making payment unless (a) the nonconformity appears without inspection or (b) despite tender of the required documents the circumstances would justify injunction against honor under this code (subdivision (b) of Section 5109). (2) Payment pursuant to subdivision (1) does not constitute an acceptance of goods or impair the buyer’s right to inspect or any of his remedies. (Amended by Stats. 1996, Ch. 176, Sec. 5. Effective January 1, 1997.)
  31. 2513.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    The buyer generally may inspect goods before payment or acceptance, but not in certain C.O.D. or document-of-title payment situations.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2513. (1) Unless otherwise agreed and subject to subdivision (3), where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival. (2) Expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected. (3) Unless otherwise agreed and subject to the provisions of this division on C.I.F. contracts (subdivision (3) of Section 2321), the buyer is not entitled to inspect the goods before payment of the price when the contract provides (a) For delivery “C.O.D.” or on other like terms; or (b) For payment against documents of title, except where such payment is due only after the goods are to become available for inspection. (4) A place or method of inspection fixed by the parties is presumed to be exclusive but unless otherwise expressly agreed it does not postpone identification or shift the place for delivery or for passing the risk of loss. If compliance becomes impossible, inspection shall be as provided in this section unless the place or method fixed was clearly intended as an indispensable condition failure of which avoids the contract. (Enacted by Stats. 1963, Ch. 819.)
  32. 2514.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    Unless otherwise agreed, documents against which a draft is drawn must be delivered to the drawee when the draft is accepted if it is payable more than three days after presentment; otherwise, delivery is only on payment.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2514. Unless otherwise agreed documents against which a draft is drawn are to be delivered to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment. (Enacted by Stats. 1963, Ch. 819.)
  33. 2515.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    Either party may inspect, test, and sample the goods on reasonable notice to the other party for fact-finding and preserving evidence. The parties may also agree to a third-party inspection or survey, and may make its findings binding in later disputes.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Performance [2501 - 2515] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 2515. In furtherance of the adjustment of any claim or dispute (a) Either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the right to inspect, test and sample the goods including such of them as may be in the possession or control of the other; and (b) The parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may agree that the findings shall be binding upon them in any subsequent litigation or adjustment. (Enacted by Stats. 1963, Ch. 819.)
  34. 2601.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    If goods or delivery fail to conform to the contract, the buyer may reject the whole, accept the whole, or accept any commercial unit and reject the rest, subject to the stated exceptions.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2601. Subject to the provisions of this division on breach in installment contracts (Section 2612) and unless otherwise agreed under the sections on contractual limitations of remedy (Sections 2718 and 2719), if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may (a) Reject the whole; or (b) Accept the whole; or (c) Accept any commercial unit or units and reject the rest. (Enacted by Stats. 1963, Ch. 819.)
  35. 2602.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    A buyer must reject goods within a reasonable time and notify the seller seasonably; after rejection, the buyer may not exercise ownership over the rejected goods and may have to hold them with reasonable care for the seller to remove them.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2602. (1) Rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. (2) Subject to the provisions of the two following sections on rejected goods (Sections 2603 and 2604), (a) After rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller; and (b) If the buyer has before rejection taken physical possession of goods in which he does not have a security interest under the provisions of this division (subdivision (3) of Section 2711), he is under a duty after rejection to hold them with reasonable care at the seller’s disposition for a time sufficient to permit the seller to remove them; but (c) The buyer has no further obligations with regard to goods rightfully rejected. (3) The seller’s rights with respect to goods wrongfully rejected are governed by the provisions of this division on seller’s remedies in general (Section 2703). (Enacted by Stats. 1963, Ch. 819.)
  36. 2603.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A merchant buyer who rejects goods may have to follow the seller’s reasonable instructions, or if none are given, make reasonable efforts to sell the goods for the seller’s account when the goods are perishable or likely to lose value quickly.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2603. (1) Subject to any security interest in the buyer (subdivision (3) of Section 2711), when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller’s account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming. (2) When the buyer sells goods under subdivision (1), he is entitled to reimbursement from the seller or out of the proceeds for reasonable expenses of caring for and selling them, and if the expenses include no selling commission then to such commission as is usual in the trade or if there is none to a reasonable sum not exceeding 10 percent on the gross proceeds. (3) In complying with this section the buyer is held only to good faith and good faith conduct hereunder is neither acceptance nor conversion nor the basis of an action for damages. (Enacted by Stats. 1963, Ch. 819.)
  37. 2604.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    If the seller gives no instructions within a reasonable time after rejection, the buyer may store, reship, or resell the rejected goods for the seller’s account.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2604. Subject to the provisions of the immediately preceding section on perishables if the seller gives no instructions within a reasonable time after notification of rejection the buyer may store the rejected goods for the seller’s account or reship them to him or resell them for the seller’s account with reimbursement as provided in the preceding section. Such action is not acceptance or conversion. (Enacted by Stats. 1963, Ch. 819.)
  38. 2605.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    A buyer generally cannot rely on an unstated defect to reject goods or prove breach if the defect was discoverable by reasonable inspection, with listed exceptions.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2605. (1) The buyer’s failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach (a) Where the seller could have cured it if stated seasonably; or (b) Between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely. (2) Payment against documents made without reservation of rights precludes recovery of the payment for defects apparent in the documents. (Amended by Stats. 2006, Ch. 254, Sec. 42. Effective January 1, 2007.)
  39. 2606.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    This section says when a buyer accepts goods.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2606. (1) Acceptance of goods occurs when the buyer (a) After a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their nonconformity; or (b) Fails to make an effective rejection (subdivision (1) of Section 2602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or (c) Does any act inconsistent with the seller’s ownership; but if such act is wrongful as against the seller it is an acceptance only if ratified by him. (2) Acceptance of a part of any commercial unit is acceptance of that entire unit. (Enacted by Stats. 1963, Ch. 819.)
  40. 2607.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    A buyer must pay the contract rate for accepted goods and give timely notice of any breach after discovering it. In some infringement claims, the buyer must also notify the seller promptly after receiving notice of litigation. The section also places the burden of proving breach on the buyer and allows notice-and-control procedures for related litigation.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2607. (1) The buyer must pay at the contract rate for any goods accepted. (2) Acceptance of goods by the buyer precludes rejection of the goods accepted and, if made with knowledge of a nonconformity, cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other remedy provided by this division for nonconformity. (3) Where a tender has been accepted: (A) The buyer must, within a reasonable time after he or she discovers or should have discovered any breach, notify the seller of breach or be barred from any remedy; and (B) If the claim is one for infringement or the like (subdivision (3) of Section 2312) and the buyer is sued as a result of such a breach, the buyer must so notify the seller within a reasonable time after he or she receives notice of the litigation or be barred from any remedy over for liability established by the litigation. (4) The burden is on the buyer to establish any breach with respect to the goods accepted. (5) Where the buyer is sued for breach of a warranty or other obligation for which his or her seller is answerable over: (A) He or she may give the seller written notice of the litigation. If the notice states that the seller may defend and that if the seller does not do so he or she will be bound in any action against the seller by the buyer by any determination of fact common to the two litigation actions, then unless the seller after seasonable receipt of the notice does defend he or she is so bound. (B) If the claim is one for infringement or the like (subdivision (3) of Section 2312) the original seller may demand in writing that the buyer turn over to the seller control of the litigation, including settlement, or else be barred from any remedy over and if the seller also agrees to bear all expense and to satisfy any adverse judgment, then unless the buyer after seasonable receipt of the demand does turn over control the buyer is so barred. (6) The provisions of subdivisions (3), (4) and (5) apply to any obligation of a buyer to hold the seller harmless against infringement or the like (subdivision (3) of Section 2312). (Amended by Stats. 1995, Ch. 91, Sec. 20. Effective January 1, 1996.)
  41. 2608.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    A buyer may revoke acceptance of nonconforming goods if the nonconformity substantially impairs their value and the statutory conditions are met.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2608. (1) The buyer may revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it (a) On the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured; or (b) Without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances. (2) Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. (3) A buyer who so revokes has the same rights and duties with regard to the goods involved as if he had rejected them. (Enacted by Stats. 1963, Ch. 819.)
  42. 2609.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    In a sales contract, each party must not impair the other’s expectation of due performance. If reasonable grounds for insecurity arise, a party may demand adequate assurance in writing and may suspend further performance commercially reasonably until assurance is received.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2609. (1) A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return. (2) Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards. (3) Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance. (4) After receipt of a justified demand failure to provide within a reasonable time not exceeding 30 days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract. (Enacted by Stats. 1963, Ch. 819.)
  43. 2610.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    If a party repudiates a contract before performance is due, and the loss would substantially impair the contract’s value, the aggrieved party may wait briefly for performance, use breach remedies, or suspend its own performance.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2610. When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may (a) For a commercially reasonable time await performance by the repudiating party; or (b) Resort to any rememdy for breach (Section 2703 or Section 2711), even though he has notified the repudiating party that he would await the latter’s performance and has urged retraction; and (c) In either case suspend his own performance or proceed in accordance with the provisions of this division on the seller’s right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2704). (Enacted by Stats. 1963, Ch. 819.)
  44. 2611.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    A repudiating party may retract the repudiation before its next performance is due, unless the aggrieved party has already canceled, materially changed position, or treated the repudiation as final.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2611. (1) Until the repudiating party’s next performance is due he can retract his repudiation unless the aggrieved party has since the repudiation canceled or materially changed his position or otherwise indicated that he considers the repudiation final. (2) Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this division (Section 2609). (3) Retraction reinstates the repudiating party’s rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation. (Enacted by Stats. 1963, Ch. 819.)
  45. 2612.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    This section defines an installment contract and sets when a buyer may reject an installment, when the buyer must accept it, and when a breach of the whole contract occurs.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2612. (1) An “installment contract” is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause “each delivery is a separate contract” or its equivalent. (2) The buyer may reject any installment which is nonconforming if the nonconformity substantially impairs the value of that installment and cannot be cured or if the nonconformity is a defect in the required documents; but if the nonconformity does not fall within subdivision (3) and the seller gives adequate assurance of its cure the buyer must accept that installment. (3) Whenever nonconformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. But the aggrieved party reinstates the contract if he accepts a nonconforming installment without seasonably notifying of cancellation or if he brings an action with respect only to past installments or demands performance as to future installments. (Enacted by Stats. 1963, Ch. 819.)
  46. 2613.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    If identified goods are lost without fault before risk passes to the buyer, the contract is avoided if the loss is total. If the loss is partial or the goods are damaged, the buyer may inspect the goods and choose to avoid the contract or accept them with a price allowance.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2613. Where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a “no arrival, no sale” term (Section 2324) then (a) If the loss is total the contract is avoided; and (b) If the loss is partial or the goods have so deteriorated as no longer to conform to the contract the buyer may nevertheless demand inspection and at his option either treat the contract as avoided or accept the goods with due allowance from the contract price for the deterioration or the deficiency in quantity but without further right against the seller. (Enacted by Stats. 1963, Ch. 819.)
  47. 2614.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    If delivery becomes commercially impracticable but a reasonable substitute is available, that substitute must be tendered and accepted. If payment fails because of government regulation, the seller may withhold or stop delivery unless the buyer provides a commercially equivalent payment method; if delivery was already taken, payment under the regulation discharges the buyer unless the regulation is discriminatory, oppressive, or predatory.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2614. (1) Where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, such substitute performance must be tendered and accepted. (2) If the agreed means or manner of payment fails because of domestic or foreign governmental regulation, the seller may withhold or stop delivery unless the buyer provides a means or manner of payment which is commercially a substantial equivalent. If delivery has already been taken, payment by the means or in the manner provided by the regulation discharges the buyer’s obligation unless the regulation is discriminatory, oppressive or predatory. (Enacted by Stats. 1963, Ch. 819.)
  48. 2615.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    A seller may avoid breach for delayed or partial nondelivery if performance became impracticable or the seller complied in good faith with applicable government regulation or order, but the seller must allocate available supply fairly and notify the buyer seasonably.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2615. Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance: (a) Delay in delivery or nondelivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid. (b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable. (c) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer. (Enacted by Stats. 1963, Ch. 819.)
  49. 2616.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. )

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    A buyer who gets notice of a material or indefinite delay, or a justified allocation, may notify the seller in writing, terminate the unexecuted part of the contract, or modify it by taking the available quota; if the buyer does not modify within up to 30 days after seller notice, the affected deliveries lapse.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 6. Breach, Repudiation and Excuse [2601 - 2616] ( Chapter 6 enacted by Stats. 1963, Ch. 819. ) ## 2616. (1) Where the buyer receives notification of a material or indefinite delay or an allocation justified under the preceding section he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this division relating to breach of installment contracts (Section 2612), then also as to the whole, (a) Terminate and thereby discharge any unexecuted portion of the contract; or (b) Modify the contract by agreeing to take his available quota in substitution. (2) If after receipt of such notification from the seller the buyer fails so to modify the contract within a reasonable time not exceeding 30 days the contract lapses with respect to any deliveries affected. (3) The provisions of this section may not be negated by agreement except insofar as the seller has assumed a greater obligation under the preceding section. (Enacted by Stats. 1963, Ch. 819.)
  50. 2701.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    Remedies for breach of collateral or ancillary promises in a sales contract are not limited by this division.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2701. Remedies for breach of any obligation or promise collateral or ancillary to a contract for sale are not impaired by the provisions of this division. (Enacted by Stats. 1963, Ch. 819.)
  51. 2702.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    If the seller discovers the buyer is insolvent, the seller may refuse delivery, stop delivery, and in some cases reclaim goods within 10 days after receipt.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2702. (1) Where the seller discovers the buyer to be insolvent he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this division (Section 2705). (2) Where the seller discovers that the buyer has received goods on credit while insolvent he may reclaim the goods upon demand made within 10 days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the 10-day limitation does not apply. Except as provided in this subdivision the seller may not base a right to reclaim goods on the buyer’s fraudulent or innocent misrepresentation of solvency or of intent to pay. (3) The seller’s right to reclaim under subdivision (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this division (Section 2403). Successful reclamation of goods excludes all other remedies with respect to them. (Enacted by Stats. 1963, Ch. 819.)
  52. 2703.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    If the buyer wrongfully rejects goods, revokes acceptance, misses a payment due before delivery, or repudiates, the aggrieved seller may use several remedies.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2703. Where the buyer wrongfully rejects or revokes acceptance of goods or fails to make a payment due on or before delivery or repudiates with respect to a part or the whole, then with respect to any goods directly affected and, if the breach is of the whole contract (Section 2612), then also with respect to the whole undelivered balance, the aggrieved seller may (a) Withhold delivery of such goods; (b) Stop delivery by any bailee as hereafter provided (Section 2705); (c) Proceed under the next section respecting goods still unidentified to the contract; (d) Resell and recover damages as hereafter provided (Section 2706); (e) Recover damages for nonacceptance (Section 2708) or in a proper case the price (Section 2709); (f) Cancel. (Enacted by Stats. 1963, Ch. 819.)
  53. 2704.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    An aggrieved seller may identify conforming goods to the contract and may handle unfinished goods by completing them, stopping production and reselling for scrap or salvage, or using another reasonable method.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2704. (1) An aggrieved seller under the preceding section may (a) Identify to the contract conforming goods not already identified if at the time he learned of the breach they are in his possession or control; (b) Treat as the subject of resale goods which have demonstrably been intended for the particular contract even though those goods are unfinished. (2) Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner. (Enacted by Stats. 1963, Ch. 819.)
  54. 2705.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A seller may stop delivery of goods in transit in specified situations, and the bailee must then hold and deliver the goods as the seller directs.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2705. (1) The seller may stop delivery of goods in the possession of a carrier or other bailee when he discovers the buyer to be insolvent (Section 2702) and may stop delivery of carload, truckload, planeload or larger shipments of express or freight when the buyer repudiates or fails to make a payment due before delivery or if for any other reason the seller has a right to withhold or reclaim the goods. (2) As against such buyer the seller may stop delivery until (a) Receipt of the goods by the buyer; or (b) Acknowledgment to the buyer by any bailee of the goods except a carrier that the bailee holds the goods for the buyer; or (c) Such acknowledgment to the buyer by a carrier by reshipment or as a warehouse; or (d) Negotiation to the buyer of any negotiable document of title covering the goods. (3) (a) To stop delivery the seller must so notify as to enable the bailee by reasonable diligence to prevent delivery of the goods. (b) After such notification the bailee must hold and deliver the goods according to the directions of the seller but the seller is liable to the bailee for any ensuing charges or damages. (c) If a negotiable document of title has been issued for goods the bailee is not obliged to obey a notification to stop until surrender of possession or control of the document. (d) A carrier who has issued a nonnegotiable bill of lading is not obliged to obey a notification to stop received from a person other than the consignor. (Amended by Stats. 2006, Ch. 254, Sec. 43. Effective January 1, 2007.)
  55. 2706.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    This section lets a seller resell goods after a buyer’s breach, but requires commercially reasonable resale practices and notice in some cases.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2706. (1) Under the conditions stated in Section 2703 on seller’s remedies, the seller may resell the goods concerned or the undelivered balance thereof. Where the resale is made in good faith and in a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions of this division (Section 2710), but less expenses saved in consequence of the buyer’s breach. (2) Except as otherwise provided in subdivision (3) or unless otherwise agreed resale may be at public or private sale including sale by way of one or more contracts to sell or of identification to an existing contract of the seller. Sale may be as a unit or in parcels and at any time and place and on any terms but every aspect of the sale including the method, manner, time, place and terms must be commercially reasonable. The resale must be reasonably identified as referring to the broken contract, but it is not necessary that the goods be in existence or that any or all of them have been identified to the contract before the breach. (3) Where the resale is at private sale the seller must give the buyer reasonable notification of his intention to resell. (4) Where the resale is at public sale (a) Only identified goods can be sold except where there is a recognized market for a public sale of futures in goods of the kind; and (b) It must be made at a usual place or market for public sale if one is reasonably available and except in the case of goods which are perishable or threaten to decline in value speedily the seller must give the buyer reasonable notice of the time and place of the resale; and (c) If the goods are not to be within the view of those attending the sale the notification of sale must state the place where the goods are located and provide for their reasonable inspection by prospective bidders; and (d) The seller may buy. (5) A purchaser who buys in good faith at a resale takes the goods free of any rights of the original buyer even though the seller fails to comply with one or more of the requirements of this section. (6) The seller is not accountable to the buyer for any profit made on any resale. A person in the position of a seller (Section 2707) or a buyer who has rightfully rejected or justifiably revoked acceptance must account for any excess over the amount of his security interest, as hereinafter defined (subdivision (3) of Section 2711). (Enacted by Stats. 1963, Ch. 819.)
  56. 2707.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A person in the position of a seller may withhold or stop delivery, resell goods, and recover incidental damages, subject to this division.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2707. (1) A “person in the position of a seller” includes as against a principal an agent who has paid or become responsible for the price of goods on behalf of his principal or anyone who otherwise holds a security interest or other right in goods similar to that of a seller. (2) A person in the position of a seller may as provided in this division withhold or stop delivery (Section 2705) and resell (Section 2706) and recover incidental damages (Section 2710). (Enacted by Stats. 1963, Ch. 819.)
  57. 2708.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    This section sets the seller’s damages for a buyer’s nonacceptance or repudiation, using market-price and contract-price differences, with incidental damages and certain deductions or alternative profit-based damages when needed.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2708. (1) Subject to subdivision (2) and to the provisions of this division with respect to proof of market price (Section 2723), the measure of damages for nonacceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this division (Section 2710), but less expenses saved in consequence of the buyer’s breach. (2) If the measure of damages provided in subdivision (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this division (Section 2710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. (Enacted by Stats. 1963, Ch. 819.)
  58. 2709.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    If the buyer does not pay when due, the seller may recover the price and incidental damages. If the seller sues for the price, the seller must hold certain identified goods for the buyer, may resell them if resale becomes possible before judgment is collected, and must credit resale proceeds to the buyer.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2709. (1) When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under the next section, the price (a) Of goods accepted or of conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and (b) Of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing. (2) Where the seller sues for the price he must hold for the buyer any goods which have been identified to the contract and are still in his control except that if resale becomes possible he may resell them at any time prior to the collection of the judgment. The net proceeds of any such resale must be credited to the buyer and payment of the judgment entitles him to any goods not resold. (3) After the buyer has wrongfully rejected or revoked acceptance of the goods or has failed to make a payment due or has repudiated (Section 2610), a seller who is held not entitled to the price under this section shall nevertheless be awarded damages for nonacceptance under the preceding section. (Enacted by Stats. 1963, Ch. 819.)
  59. 2710.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    An aggrieved seller may recover commercially reasonable incidental damages tied to stopping delivery, handling the goods, or return/resale after the buyer’s breach.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2710. Incidental damages to an aggrieved seller include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care and custody of goods after the buyers’ breach, in connection with return or resale of the goods or otherwise resulting from the breach. (Enacted by Stats. 1963, Ch. 819.)
  60. 2711.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    If the seller does not deliver or repudiates, the buyer may cancel and pursue other remedies; if the buyer rightfully rejects or justifiably revokes acceptance, the buyer also gets a security interest in goods held or controlled and may resell them.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2711. (1) Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, and with respect to the whole if the breach goes to the whole contract (Section 2612), the buyer may cancel and whether or not he has done so may in addition to recovering so much of the price as has been paid (a) “Cover” and have damages under the next section as to all the goods affected whether or not they have been identified to the contract; or (b) Recover damages for nondelivery as provided in this division (Section 2713). (2) Where the seller fails to deliver or repudiates the buyer may also (a) If the goods have been identified recover them as provided in the division (Section 2502); or (b) In a proper case obtain specific performance or replevy the goods as provided in this division (Section 2716). (3) On rightful rejection or justifiable revocation of acceptance a buyer has a security interest in goods in his possession or control for any payments made on their price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody and may hold such goods and resell them in like manner as an aggrieved seller (Section 2706). (Enacted by Stats. 1963, Ch. 819.)
  61. 2712.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    After a breach, the buyer may cover by making a reasonable substitute purchase in good faith and without unreasonable delay, and may recover certain damages from the seller.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2712. (1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller. (2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2715), but less expenses saved in consequence of the seller’s breach. (3) Failure of the buyer to effect cover within this section does not bar him from any other remedy. (Enacted by Stats. 1963, Ch. 819.)
  62. 2713.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    If a seller does not deliver or repudiates, damages are measured by the difference between market price when the buyer learned of the breach and the contract price, plus certain incidental and consequential damages, minus expenses saved.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2713. (1) Subject to the provisions of this division with respect to proof of market price (Section 2723), the measure of damages for nondelivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this division (Section 2715), but less expenses saved in consequence of the seller’s breach. (2) Market price is to be determined as of the place for tender or, in cases of rejection after arrival or revocation of acceptance, as of the place of arrival. (Enacted by Stats. 1963, Ch. 819.)
  63. 2714.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A buyer who accepted goods and gave the required notice may recover damages for nonconforming tender, with warranty damages measured by the value difference at acceptance, and incidental or consequential damages may also be recovered in a proper case.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2714. (1) Where the buyer has accepted goods and given notification (subdivision (3) of Section 2607) he or she may recover, as damages for any nonconformity of tender, the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner that is reasonable. (2) The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount. (3) In a proper case any incidental and consequential damages under Section 2715 also may be recovered. (Amended by Stats. 1995, Ch. 91, Sec. 21. Effective January 1, 1996.)
  64. 2715.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    This section says what counts as incidental and consequential damages when a seller breaches.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2715. (1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach. (2) Consequential damages resulting from the seller’s breach include (a) Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and (b) Injury to person or property proximately resulting from any breach of warranty. (Enacted by Stats. 1963, Ch. 819.)
  65. 2716.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    A court may decree specific performance for unique goods or other proper circumstances, and the buyer has a right of replevin for identified goods when stated conditions are met.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2716. (1) Specific performance may be decreed where the goods are unique or in other proper circumstances. (2) The decree for specific performance may include such terms and conditions as to payment of the price, damages, or other relief as the court may deem just. (3) The buyer has a right of replevin for goods identified to the contract if after reasonable effort he or she is unable to effect cover for such goods or the circumstances reasonably indicate that such effort will be unavailing or if the goods have been shipped under reservation and satisfaction of the security interest in them has been made or tendered. In the case of goods bought for personal, family, or household purposes, the buyer’s right of replevin vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver. (Amended by Stats. 1999, Ch. 991, Sec. 28.4. Effective January 1, 2000. Operative July 1, 2001, by Sec. 75 of Ch. 991.)
  66. 2717.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A buyer may deduct contract damages from the price still due after notifying the seller.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2717. The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages resulting from any breach of the contract from any part of the price still due under the same contract. (Enacted by Stats. 1963, Ch. 819.)
  67. 2718.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    This section lets parties agree to liquidated damages, gives the buyer a restitution right after the seller withholds delivery for the buyer’s breach, and allows offsets and resale-related limits.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2718. (1) Damages for breach by either party may be liquidated in the agreement subject to and in compliance with Section 1671 of the Civil Code. If the agreement provides for liquidation of damages, and such provision does not comply with Section 1671 of the Civil Code, remedy may be had as provided in this division. (2) Where the seller justifiably withholds delivery of goods because of the buyer’s breach, the buyer is entitled to restitution of any amount by which the sum of his or her payments exceeds: (a) The amount to which the seller is entitled by virtue of terms liquidating the seller’s damages in accordance with subdivision (1), or (b) In the absence of such terms, 20 percent of the value of the total performance for which the buyer is obligated under the contract or five hundred dollars ($500), whichever is smaller. (3) The buyer’s right to restitution under subdivision (2) is subject to offset to the extent that the seller establishes: (a) A right to recover damages under the provisions of this chapter other than subdivision (1), and (b) The amount or value of any benefits received by the buyer directly or indirectly by reason of the contract. (4) Where a seller has received payment in goods their reasonable value or the proceeds of their resale shall be treated as payments for the purposes of subdivision (2); but if the seller has notice of the buyer’s breach before reselling goods received in part performance, his or her resale is subject to the conditions laid down in this division on resale by an aggrieved seller (Section 2706). (Amended by Stats. 1988, Ch. 1368, Sec. 10. Operative January 1, 1990, by Sec. 18 of Ch. 1368.)
  68. 2719.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    A sales agreement may add or replace remedies and may limit damages, but any exclusive or limited remedy can fail if it does not serve its essential purpose. Consequential damages may also be limited or excluded unless that limitation is unconscionable.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2719. (1) Subject to the provisions of subdivisions (2) and (3) of this section and of the preceding section on liquidation and limitation of damages, (a) The agreement may provide for remedies in addition to or in substitution for those provided in this division and may limit or alter the measure of damages recoverable under this division, as by limiting the buyer’s remedies to return of the goods and repayment of the price or to repair and replacement of nonconforming goods or parts; and (b) Resort to a remedy as provided is optional unless the remedy is expressly agreed to be exclusive, in which case it is the sole remedy. (2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this code. (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is invalid unless it is proved that the limitation is not unconscionable. Limitation of consequential damages where the loss is commercial is valid unless it is proved that the limitation is unconscionable. (Amended by Stats. 1967, Ch. 703.)
  69. 2720.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

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    Words like “cancellation” or “rescission” of a contract are not treated as giving up damage claims for an earlier breach, unless a contrary intention clearly appears.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2720. Unless the contrary intention clearly appears, expressions of “cancellation” or “rescission” of the contract or the like shall not be construed as a renunciation or discharge of any claim in damages for an antecedent breach. (Enacted by Stats. 1963, Ch. 819.)
  70. 2721.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    For material misrepresentation or fraud, the available remedies include all remedies available for a nonfraudulent breach.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2721. Remedies for material misrepresentation or fraud include all remedies available under this division for nonfraudulent breach. Neither rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy. (Enacted by Stats. 1963, Ch. 819.)
  71. 2722.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A party to a sales contract may have a right of action against a third party who injures identified goods, and either party may sue with the other’s consent.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2722. Where a third party so deals with goods which have been identified to a contract for sale as to cause actionable injury to a party to that contract (a) A right of action against the third party is in either party to the contract for sale who has title to or a security interest or a special property or an insurable interest in the goods; and if the goods have been destroyed or converted a right of action is also in the party who either bore the risk of loss under the contract for sale or has since the injury assumed that risk as against the o ther; (b) If at the time of the injury the party plaintiff did not bear the risk of loss as against the other party to the contract for sale and there is no arrangement between them for disposition of the recovery, his suit or settlement is, subject to his own interest, as a fiduciary for the other party to the contract; (c) Either party may with the consent of the other sue for the benefit of whom it may concern. (Enacted by Stats. 1963, Ch. 819.)
  72. 2723.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    Market-price damages for anticipatory repudiation are measured by the price when the aggrieved party learned of the repudiation, with limited alternate-price evidence allowed if the usual price is unavailable.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2723. (1) If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price (Section 2708 or Section 2713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation. (2) If evidence of a price prevailing at the times or places described in this division is not readily available the price prevailing within any reasonable time before or after the time described or at any other place which in commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may be used, making any proper allowance for the cost of transporting the goods to or from such other place. (3) Evidence of a relevant price prevailing at a time or place other than the one described in this division offered by one party is not admissible unless and until he has given the other party such notice as the court finds sufficient to prevent unfair surprise. (Enacted by Stats. 1963, Ch. 819.)
  73. 2724.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    Market reports may be admitted into evidence when the prevailing price or value of goods in an established commodity market is at issue.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2724. Whenever the prevailing price or value of any goods regularly bought and sold in any established commodity market is in issue, reports in official publications or trade journals or in newspapers or periodicals of general circulation published as the reports of such market shall be admissible in evidence. The circumstances of the preparation of such a report may be shown to affect its weight but not its admissibility. (Enacted by Stats. 1963, Ch. 819.)
  74. 2725.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A breach of contract for sale must be sued on within 4 years after the claim accrues, subject to limited agreement-based reduction and a 6-month refiling rule after certain terminations.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 7. Remedies [2701 - 2725] ( Chapter 7 enacted by Stats. 1963, Ch. 819. ) ## 2725. (1) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it. (2) A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered. (3) Where an action commenced within the time limited by subdivision (1) is so terminated as to leave available a remedy by another action for the same breach such other action may be commenced after the expiration of the time limited and within six months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute. (4) This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued before this code becomes effective. (Added by Stats. 1967, Ch. 799.)
  75. 2800.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 8. Retail Sales [2800 - 2801] ( Chapter 8 added by Stats. 1970, Ch. 972. )

    Verify source ↗

    In this chapter, “goods” means goods used or bought mainly for personal, family, or household purposes.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 8. Retail Sales [2800 - 2801] ( Chapter 8 added by Stats. 1970, Ch. 972. ) ## 2800. As used in this chapter “goods” means goods used or bought for use primarily for personal, family or household purposes. (Added by Stats. 1970, Ch. 972.)
  76. 2801.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 8. Retail Sales [2800 - 2801] ( Chapter 8 added by Stats. 1970, Ch. 972. )

    Verify source ↗

    In retail sales, a written warranty or guarantee is not unenforceable just because the buyer did not return a required form, and any buyer waiver of this section must be in writing.

    ## Commercial Code - COM ## DIVISION 2. SALES [2101 - 2801] ( Division 2 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 8. Retail Sales [2800 - 2801] ( Chapter 8 added by Stats. 1970, Ch. 972. ) ## 2801. In any retail sale of goods, if the manufacturer or seller of the goods issues a written warranty or guarantee as to the condition or quality of all or part of the goods which requires the buyer to complete and return any form to the manufacturer or seller as proof of the purchase of the goods, such warranty or guarantee shall not be unenforceable solely because the buyer fails to complete or return the form. This section does not relieve the buyer from proving the fact of purchase and the date thereof in any case in which such a fact is in issue. The buyer must agree in writing to any waiver of this section for the waiver to be valid. Any waiver by the buyer of the provisions of this section which is not in writing is contrary to public policy and shall be unenforceable and void. (Added by Stats. 1970, Ch. 972.)
  77. 3101.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

    Verify source ↗

    This division may be cited as Uniform Commercial Code—Negotiable Instruments.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3101. This division may be cited as Uniform Commercial Code—Negotiable Instruments. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  78. 3102.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

    Verify source ↗

    This section says Division 3 applies to negotiable instruments, but not to money, certain payment orders, or securities.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3102. (a) This division applies to negotiable instruments. It does not apply to money, to payment orders governed by Division 11 (commencing with Section 11101), or to securities governed by Division 8 (commencing with Section 8101). (b) If there is conflict between this division and Division 4 (commencing with Section 4101) or Division 9 (commencing with Section 9101), Divisions 4 and 9 govern. (c) Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this division to the extent of the inconsistency. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  79. 3103.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines key terms used in this division on negotiable instruments.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3103. (a) In this division: (1) “Acceptor” means a drawee who has accepted a draft. (2) “Drawee” means a person ordered in a draft to make payment. (3) “Drawer” means a person who signs or is identified in a draft as a person ordering payment. (4) [Reserved] (5) “Maker” means a person who signs or is identified in a note as a person undertaking to pay. (6) “Order” means a written instruction to pay money signed by the person giving the instruction. The instruction may be addressed to any person, including the person giving the instruction, or to one or more persons jointly or in the alternative but not in succession. An authorization to pay is not an order unless the person authorized to pay is also instructed to pay. (7) “Ordinary care” in the case of a person engaged in business means observance of reasonable commercial standards, prevailing in the area in which the person is located, with respect to the business in which the person is engaged. In the case of a bank that takes an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank’s prescribed procedures and the bank’s procedures do not vary unreasonably from general banking usage not disapproved by this division or Division 4 (commencing with Section 4101). (8) “Party” means a party to an instrument. (9) “Promise” means a written undertaking to pay money signed by the person undertaking to pay. An acknowledgment of an obligation by the obligor is not a promise unless the obligor also undertakes to pay the obligation. (10) “Prove” with respect to a fact means to meet the burden of establishing the fact (paragraph (8) of subdivision (b) of Section 1201). (11) “Remitter” means a person who purchases an instrument from its issuer if the instrument is payable to an identified person other than the purchaser. (b) Other definitions applying to this division and the sections in which they appear are: “Acceptance” Section 3409 “Accommodated party” Section 3419 “Accommodation party” Section 3419 “Alteration” Section 3407 “Anomalous endorsement” Section 3205 “Blank endorsement” Section 3205 “Cashier’s check” Section 3104 “Certificate of deposit” Section 3104 “Certified check” Section 3409 “Check” Section 3104 “Consideration” Section 3303 “Demand Draft” Section 3104 “Draft” Section 3104 “Holder in due course” Section 3302 “Incomplete instrument” Section 3115 “Indorsement” Section 3204 “Indorser” Section 3204 “Instrument” Section 3104 “Issue” Section 3105 “Issuer” Section 3105 “Negotiable instrument” Section 3104 “Negotiation” Section 3201 “Note” Section 3104 “Payable at a definite time” Section 3108 “Payable on demand” Section 3108 “Payable to bearer” Section 3109 “Payable to order” Section 3109 “Payment” Section 3602 “Person entitled to enforce” Section 3301 “Presentment” Section 3501 “Reacquisition” Section 3207 “Special indorsement” Section 3205 “Teller’s check” Section 3104 “Transfer of instrument” Section 3203 “Traveler’s check” Section 3104 “Value” Section 3303 (c) The following definitions in other divisions apply to this division: “Bank” Section 4105 “Banking day” Section 4104 “Clearinghouse” Section 4104 “Collecting bank” Section 4105 “Depositary bank” Section 4105 “Documentary draft” Section 4104 “Intermediary bank” Section 4105 “Item” Section 4104 “Payor bank” Section 4105 “Suspends payments” Section 4104 (d) In addition, Division 1 (commencing with Section 1101) contains general definitions and principles of construction and interpretation applicable throughout this division. (Amended by Stats. 2006, Ch. 254, Sec. 44. Effective January 1, 2007.)
  80. 3104.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines key negotiable-instrument terms, including when a writing is a negotiable instrument, note, draft, check, cashier’s check, teller’s check, traveler’s check, certificate of deposit, or demand draft.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3104. (a) Except as provided in subdivisions (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it is all of the following: (1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder. (2) Is payable on demand or at a definite time. (3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor, (iv) a term that specifies the law that governs the promise or order, or (v) an undertaking to resolve in a specified forum a dispute concerning the promise or order. (b) “Instrument” means a negotiable instrument. (c) An order that meets all of the requirements of subdivision (a), except paragraph (1), and otherwise falls within the definition of “check” in subdivision (f) is a negotiable instrument and a check. (d) A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this division. (e) An instrument is a “note” if it is a promise and is a “draft” if it is an order. If an instrument falls within the definition of both “note” and “draft,” a person entitled to enforce the instrument may treat it as either. (f) “Check” means (1) a draft, other than a documentary draft, payable on demand and drawn on a bank, (2) a cashier’s check or teller’s check, or (3) a demand draft. An instrument may be a check even though it is described on its face by another term, such as “money order.” (g) “Cashier’s check” means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank. (h) “Teller’s check” means a draft drawn by a bank (1) on another bank, or (2) payable at or through a bank. (i) “Traveler’s check” means an instrument that (1) is payable on demand, (2) is drawn on or payable at or through a bank, (3) is designated by the term “traveler’s check” or by a substantially similar term, and (4) requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument. (j) “Certificate of deposit” means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank. (k) “Demand draft” means a writing not signed by a customer that is created by a third party under the purported authority of the customer for the purpose of charging the customer’s account with a bank. A demand draft shall contain the customer’s account number and may contain any or all of the following: (1) The customer’s printed or typewritten name. (2) A notation that the customer authorized the draft. (3) The statement “No Signature Required” or words to that effect. A demand draft shall not include a check purportedly drawn by and bearing the signature of a fiduciary, as defined in paragraph (1) of subdivision (a) of Section 3307. (Amended by Stats. 2023, Ch. 210, Sec. 11. (SB 95) Effective January 1, 2024.)
  81. 3105.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines “issue” and “issuer” for negotiable instruments.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3105. (a) “Issue” means: (1) the first delivery of an instrument by the maker or drawer, whether to a holder or nonholder, for the purpose of giving rights on the instrument to any person; or (2) if agreed by the payee, the first transmission by the drawer to the payee of an image of an item and information derived from the item that enables the depositary bank to collect the item by transferring or presenting under federal law an electronic check. (b) An unissued instrument, or an unissued incomplete instrument that is completed, is binding on the maker or drawer, but nonissuance is a defense. An instrument that is conditionally issued or is issued for a special purpose is binding on the maker or drawer, but failure of the condition or special purpose to be fulfilled is a defense. (c) “Issuer” applies to issued and unissued instruments and means a maker or drawer of an instrument. (Amended by Stats. 2023, Ch. 210, Sec. 12. (SB 95) Effective January 1, 2024.)
  82. 3106.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section says when a promise or order is treated as unconditional, and lists several situations that do not make it conditional.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3106. (a) Except as provided in this section, for the purposes of subdivision (a) of Section 3104, a promise or order is unconditional unless it states (1) an express condition to payment, (2) that the promise or order is subject to or governed by another writing, or (3) that rights or obligations with respect to the promise or order are stated in another writing. A reference to another writing does not of itself make the promise or order conditional. (b) A promise or order is not made conditional (1) by a reference to another writing for a statement of rights with respect to collateral, prepayment, or acceleration, or (2) because payment is limited to resort to a particular fund or source. (c) If a promise or order requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the promise or order, the condition does not make the promise or order conditional for the purposes of subdivision (a) of Section 3104. If the person whose specimen signature appears on an instrument fails to countersign the instrument, the failure to countersign is a defense to the obligation of the issuer, but the failure does not prevent a transferee of the instrument from becoming a holder of the instrument. (d) If a promise or order at the time it is issued or first comes into possession of a holder contains a statement, required by applicable statutory or administrative law, to the effect that the rights of a holder or transferee are subject to claims or defenses that the issuer could assert against the original payee, the promise or order is not thereby made conditional for the purposes of subdivision (a) of Section 3104; but if the promise or order is an instrument, there cannot be a holder in due course of the instrument. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  83. 3107.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    If an instrument states an amount payable in foreign money, it may be paid in that foreign money or in an equivalent dollar amount calculated at the current bank-offered spot rate at the place of payment on the payment day, unless the instrument says otherwise.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3107. Unless the instrument otherwise provides, an instrument that states the amount payable in foreign money may be paid in the foreign money or in an equivalent amount in dollars calculated by using the current bank-offered spot rate at the place of payment for the purchase of dollars on the day on which the instrument is paid. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  84. 3108.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines when a promise or order is payable on demand or at a definite time.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3108. (a) A promise or order is “payable on demand” if it (1) states that it is payable on demand or at sight, or otherwise indicates that it is payable at the will of the holder, or (2) does not state any time of payment. (b) A promise or order is “payable at a definite time” if it is payable on elapse of a definite period of time after sight or acceptance or at a fixed date or dates or at a time or times readily ascertainable at the time the promise or order is issued, subject to rights of (1) prepayment, (2) acceleration, (3) extension at the option of the holder, or (4) extension to a further definite time at the option of the maker or acceptor or automatically upon or after a specified act or event. (c) If an instrument, payable at a fixed date, is also payable upon demand made before the fixed date, the instrument is payable on demand until the fixed date and, if demand for payment is not made before that date, becomes payable at a definite time on the fixed date. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  85. 3109.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section explains when a promise or order is payable to bearer or to order, and how its status can change by indorsement.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3109. (a) A promise or order is payable to bearer if it is any of the following: (1) States that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment. (2) Does not state a payee. (3) States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identified person. (b) A promise or order that is not payable to bearer is payable to order if it is payable (1) to the order of an identified person or (2) to an identified person or order. A promise or order that is payable to order is payable to the identified person. (c) An instrument payable to bearer may become payable to an identified person if it is specially indorsed pursuant to subdivision (a) of Section 3205. An instrument payable to an identified person may become payable to bearer if it is indorsed in blank pursuant to subdivision (b) of Section 3205. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  86. 3110.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section explains how to identify the payee of a negotiable instrument and who may negotiate, discharge, or enforce it when multiple payees are named.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3110. (a) The person to whom an instrument is initially payable is determined by the intent of the person, whether or not authorized, signing as, or in the name or behalf of, the issuer of the instrument. The instrument is payable to the person intended by the signer even if that person is identified in the instrument by a name or other identification that is not that of the intended person. If more than one person signs in the name or behalf of the issuer of an instrument and all the signers do not intend the same person as payee, the instrument is payable to any person intended by one or more of the signers. (b) If the signature of the issuer of an instrument is made by automated means, such as a check-writing machine, the payee of the instrument is determined by the intent of the person who supplied the name or identification of the payee, whether or not authorized to do so. (c) A person to whom an instrument is payable may be identified in any way, including by name, identifying number, office, or account number. For the purpose of determining the holder of an instrument, the following rules apply: (1) If an instrument is payable to an account and the account is identified only by number, the instrument is payable to the person to whom the account is payable. If an instrument is payable to an account identified by number and by the name of a person, the instrument is payable to the named person, whether or not that person is the owner of the account identified by number. (2) If an instrument is payable to: (A) A trust, an estate, or a person described as trustee or representative of a trust or estate, the instrument is payable to the trustee, the representative, or a successor of either, whether or not the beneficiary or estate is also named. (B) A person described as agent or similar representative of a named or identified person, the instrument is payable to the represented person, the representative, or a successor of the representative. (C) A fund or organization that is not a legal entity, the instrument is payable to a representative of the members of the fund or organization. (D) An office or to a person described as holding an office, the instrument is payable to the named person, the incumbent of the office, or a successor to the incumbent. (d) If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  87. 3111.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section sets the default place where a negotiable instrument is payable, depending on what payment information is stated in the instrument.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3111. Except as otherwise provided for items in Division 4 (commencing with Section 4101), an instrument is payable at the place of payment stated in the instrument. If no place of payment is stated, an instrument is payable at the address of the drawee or maker stated in the instrument. If no address is stated, the place of payment is the place of business of the drawee or maker. If a drawee or maker has more than one place of business, the place of payment is any place of business of the drawee or maker chosen by the person entitled to enforce the instrument. If the drawee or maker has no place of business, the place of payment is the residence of the drawee or maker. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  88. 3112.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    An instrument is generally not payable with interest unless the instrument says otherwise, and any interest-bearing instrument pays interest from the date of the instrument.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3112. (a) Unless otherwise provided in the instrument, (1) an instrument is not payable with interest, and (2) interest on an interest-bearing instrument is payable from the date of the instrument. (b) Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or variable rate or rates. The amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information not contained in the instrument. If an instrument provides for interest, but the amount of interest payable cannot be ascertained from the description, interest is payable at the judgment rate in effect at the place of payment of the instrument and at the time interest first accrues. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  89. 3113.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    An instrument may be dated before or after its actual date, and if it is undated, its date is set by issue or first possession.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3113. (a) An instrument may be antedated or postdated. The date stated determines the time of payment if the instrument is payable at a fixed period after date. Except as provided in subdivision (c) of Section 4401, an instrument payable on demand is not payable before the date of the instrument. (b) If an instrument is undated, its date is the date of its issue or, in the case of an unissued instrument, the date it first comes into possession of a holder. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  90. 3114.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    If an instrument has conflicting terms, the order of priority is typewritten, then handwritten, then printed, and words control over numbers.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3114. If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  91. 3115.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines an incomplete instrument and says when it may be enforced, and who must prove lack of authority for added words or numbers.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3115. (a) ‛Incomplete instrument‛ means a signed writing, whether or not issued by the signer, the contents of which show at the time of signing that it is incomplete but that the signer intended it to be completed by the addition of words or numbers. (b) Subject to subdivision (c), if an incomplete instrument is an instrument under Section 3104, it may be enforced according to its terms if it is not completed, or according to its terms as augmented by completion. If an incomplete instrument is not an instrument under Section 3104, but, after completion, the requirements of Section 3104 are met, the instrument may be enforced according to its terms as augmented by completion. (c) If words or numbers are added to an incomplete instrument without authority of the signer, there is an alteration of the incomplete instrument under Section 3407. (d) The burden of establishing that words or numbers were added to an incomplete instrument without authority of the signer is on the person asserting the lack of authority. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  92. 3116.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    People with the same liability on a negotiable instrument are jointly and severally liable unless the instrument says otherwise.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3116. (a) Except as otherwise provided in the instrument, two or more persons who have the same liability on an instrument as makers, drawers, acceptors, indorsers who indorse as joint payees, or anomalous indorsers are jointly and severally liable in the capacity in which they sign. (b) Except as provided in subdivision (e) of Section 3419 or by agreement of the affected parties, a party having joint and several liability who pays the instrument is entitled to receive from any party having the same joint and several liability contribution in accordance with applicable law. (c) Discharge of one party having joint and several liability by a person entitled to enforce the instrument does not affect the right under subdivision (b) of a party having the same joint and several liability to receive contribution from the party discharged. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  93. 3117.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A party’s payment obligation on an instrument may be changed, added to, or canceled by a separate agreement between the obligor and a person entitled to enforce the instrument, if the agreement was relied on or arose from the same transaction.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3117. Subject to applicable law regarding exclusion of proof of contemporaneous or previous agreements, the obligation of a party to an instrument to pay the instrument may be modified, supplemented, or nullified by a separate agreement of the obligor and a person entitled to enforce the instrument, if the instrument is issued or the obligation is incurred in reliance on the agreement or as part of the same transaction giving rise to the agreement. To the extent an obligation is modified, supplemented, or nullified by an agreement under this section, the agreement is a defense to the obligation. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  94. 3118.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section sets time limits for lawsuits to enforce payment obligations on notes, drafts, checks, certificates of deposit, and related claims.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3118. (a) Except as provided in subdivision (e), an action to enforce the obligation of a party to pay a note payable at a definite time shall be commenced within six years after the due date or dates stated in the note or, if a due date is accelerated, within six years after the accelerated due date. (b) Except as provided in subdivision (d) or (e), if demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note shall be commenced within six years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of 10 years. (c) Except as provided in subdivision (d), an action to enforce the obligation of a party to an unaccepted draft to pay the draft shall be commenced within three years after dishonor of the draft or 10 years after the date of the draft, whichever period expires first. (d) An action to enforce the obligation of the acceptor of a certified check or the issuer of a teller’s check, cashier’s check, or traveler’s check shall be commenced within three years after demand for payment is made to the acceptor or issuer, as the case may be. (e) An action to enforce the obligation of a party to a certificate of deposit to pay the instrument shall be commenced within six years after demand for payment is made to the maker, but if the instrument states a due date and the maker is not required to pay before that date, the six-year period begins when a demand for payment is in effect and the due date has passed. (f) An action to enforce the obligation of a party to pay an accepted draft, other than a certified check, shall be commenced (1) within six years after the due date or dates stated in the draft or acceptance if the obligation of the acceptor is payable at a definite time, or (2) within six years after the date of the acceptance if the obligation of the acceptor is payable on demand. (g) Unless governed by other law regarding claims for indemnity or contribution, an action (1) for conversion of an instrument, for money had and received, or like action based on conversion, (2) for breach of warranty, or (3) to enforce an obligation, duty, or right arising under this division and not governed by this section shall be commenced within three years after the cause of action accrues. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  95. 3119.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A defendant may notify a third person about litigation, and the notified person may pass that notice on to another liable person. If the notice warns that the person may defend and that failing to do so will bind them, the person is bound unless they timely come in and defend.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 1. General Provisions and Definitions [3101 - 3119] ( Chapter 1 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3119. In an action for breach of an obligation for which a third person is answerable over pursuant to this division or Division 4 (commencing with Section 4101), the defendant 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. If the notice states (1) that the person notified may come in and defend and (2) that failure to do so will bind the person notified in an action later brought by the person giving the notice as to any determination of fact common to the two litigations, the person notified is so bound unless after seasonable receipt of the notice the person notified does come in and defend. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  96. 3201.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines “negotiation” of an instrument and explains when transfer alone is enough and when indorsement is also required.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3201. (a) “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. (b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  97. 3202.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. )

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    Negotiation remains effective even if the instrument was obtained through certain defects or wrongdoing, and rescission or other remedies may be limited against later protected holders.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3202. (a) Negotiation is effective even if obtained (1) from an infant, a corporation exceeding its powers, or a person without capacity, (2) by fraud, duress, or mistake, or (3) in breach of duty or as part of an illegal transaction. (b) To the extent permitted by other law, negotiation may be rescinded or may be subject to other remedies, but those remedies may not be asserted against a subsequent holder in due course or a person paying the instrument in good faith and without knowledge of facts that are a basis for rescission or other remedy. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  98. 3203.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section explains when an instrument is transferred, what rights pass to the transferee, and when transfer does not count as negotiation.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3203. (a) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument. (b) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument. (c) Unless otherwise agreed, if an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, the transferee has a specifically enforceable right to the unqualified indorsement of the transferor, but negotiation of the instrument does not occur until the indorsement is made. (d) If a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this division and has only the rights of a partial assignee. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  99. 3204.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines “indorsement” and “indorser,” and allows a holder to indorse an instrument in specified name forms when the instrument is payable to a holder under a different name.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3204. (a) “Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (1) negotiating the instrument, (2) restricting payment of the instrument, or (3) incurring indorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument. (b) “Indorser” means a person who makes an indorsement. (c) For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument. (d) If an instrument is payable to a holder under a name that is not the name of the holder, indorsement may be made by the holder in the name stated in the instrument or in the holder’s name or both, but signature in both names may be required by a person paying or taking the instrument for value or collection. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  100. 3205.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A holder can turn a blank indorsement into a special indorsement by adding identifying words above the indorser’s signature.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3205. (a) If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a “special indorsement.” When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. The principles stated in Section 3110 apply to special indorsements. (b) If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a “blank indorsement.” When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed. (c) The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the signature of the indorser, words identifying the person to whom the instrument is made payable. (d) “Anomalous indorsement” means an indorsement made by a person who is not the holder of the instrument. An anomalous indorsement does not affect the manner in which the instrument may be negotiated. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  101. 3206.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section limits the effect of certain indorsements on negotiable instruments and sets rules for banks and purchasers handling them.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3206. (a) An indorsement limiting payment to a particular person or otherwise prohibiting further transfer or negotiation of the instrument is not effective to prevent further transfer or negotiation of the instrument. (b) An indorsement stating a condition to the right of the indorsee to receive payment does not affect the right of the indorsee to enforce the instrument. A person paying the instrument or taking it for value or collection may disregard the condition, and the rights and liabilities of that person are not affected by whether the condition has been fulfilled. (c) If an instrument bears an indorsement (i) described in subdivision (b) of Section 4201, or (ii) in blank or to a particular bank using the words “for deposit,” “for collection,” or other words indicating a purpose of having the instrument collected by a bank for the indorser or for a particular account, the following rules apply: (1) A person, other than a bank, who purchases the instrument when so indorsed converts the instrument unless the amount paid for the instrument is received by the indorser or applied consistently with the indorsement. (2) A depositary bank that purchases the instrument or takes it for collection when so indorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement. (3) A payor bank that is also the depositary bank or that takes the instrument for immediate payment over the counter from a person other than a collecting bank converts the instrument unless the proceeds of the instrument are received by the indorser or applied consistently with the indorsement. (4) Except as otherwise provided in paragraph (3), a payor bank or intermediary bank may disregard the indorsement and is not liable if the proceeds of the instrument are not received by the indorser or applied consistently with the indorsement. (d) Except for an indorsement covered by subdivision (c), if an instrument bears an indorsement using words to the effect that payment is to be made to the indorsee as agent, trustee, or other fiduciary for the benefit of the indorser or another person, the following rules apply: (1) Unless there is notice of breach of fiduciary duty as provided in Section 3307, a person who purchases the instrument from the indorsee or takes the instrument from the indorsee for collection or payment may pay the proceeds of payment or the value given for the instrument to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser. (2) A subsequent transferee of the instrument or person who pays the instrument is neither given notice nor otherwise affected by the restriction in the indorsement unless the transferee or payor knows that the fiduciary dealt with the instrument or its proceeds in breach of fiduciary duty. (e) The presence on an instrument of an indorsement to which this section applies does not prevent a purchaser of the instrument from becoming a holder in due course of the instrument unless the purchaser is a converter under subdivision (c) or has notice or knowledge of breach of fiduciary duty as stated in subdivision (d). (f) In an action to enforce the obligation of a party to pay the instrument, the obligor has a defense if payment would violate an indorsement to which this section applies and the payment is not permitted by this section. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  102. 3207.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A former holder who gets the instrument back may cancel later indorsements, and if that makes the instrument payable to the reacquirer or to bearer, the reacquirer may negotiate it.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 2. Negotiation, Transfer, and Indorsement [3201 - 3207] ( Chapter 2 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3207. Reacquisition of an instrument occurs if it is transferred to a former holder, by negotiation or otherwise. A former holder who reacquires the instrument may cancel indorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An indorser whose indorsement is canceled is discharged, and the discharge is effective against any subsequent holder. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  103. 3301.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines who is a person entitled to enforce an instrument.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3301. “Person entitled to enforce” an instrument means (a) the holder of the instrument, (b) a nonholder in possession of the instrument who has the rights of a holder, or (c) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3309 or subdivision (d) of Section 3418. A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  104. 3302.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines when a holder is a holder in due course and limits that status in several situations.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3302. (a) Subject to subdivision (c) and subdivision (d) of Section 3106, “holder in due course” means the holder of an instrument if both of the following apply: (1) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity. (2) The holder took the instrument (A) for value, (B) in good faith, (C) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (D) without notice that the instrument contains an unauthorized signature or has been altered, (E) without notice of any claim to the instrument described in Section 3306, and (F) without notice that any party has a defense or claim in recoupment described in subdivision (a) of Section 3305. (b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subdivision (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument. (c) Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (1) by legal process or by purchase in an execution, bankruptcy, or creditor’s sale or similar proceeding, (2) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (3) as the successor in interest to an estate or other organization. (d) If, under paragraph (1) of subdivision (a) of Section 3303, the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance. (e) If (1) the person entitled to enforce an instrument has only a security interest in the instrument and (2) the person obliged to pay the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured. (f) To be effective, notice shall be received at a time and in a manner that gives a reasonable opportunity to act on it. (g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  105. 3303.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section explains when an instrument is treated as issued or transferred for value, defines consideration, and gives the drawer, maker, or issuer certain defenses in limited situations.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3303. (a) An instrument is issued or transferred for value if any of the following apply: (1) The instrument is issued or transferred for a promise of performance, to the extent the promise has been performed. (2) The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding. (3) The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due. (4) The instrument is issued or transferred in exchange for a negotiable instrument. (5) The instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument. (b) “Consideration” means any consideration sufficient to support a simple contract. The drawer or maker of an instrument has a defense if the instrument is issued without consideration. If an instrument is issued for a promise of performance, the issuer has a defense to the extent performance of the promise is due and the promise has not been performed. If an instrument is issued for value as stated in subdivision (a), the instrument is also issued for consideration. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  106. 3304.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section says when a negotiable instrument becomes overdue, depending on whether it is payable on demand or at a definite time.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3304. (a) An instrument payable on demand becomes overdue at the earliest of the following times: (1) On the day after the day demand for payment is duly made. (2) If the instrument is a check, 90 days after its date. (3) If the instrument is not a check, when the instrument has been outstanding for a period of time after its date which is unreasonably long under the circumstances of the particular case in light of the nature of the instrument and usage of the trade. (b) With respect to an instrument payable at a definite time the following rules apply: (1) If the principal is payable in installments and a due date has not been accelerated, the instrument becomes overdue upon default under the instrument for nonpayment of an installment, and the instrument remains overdue until the default is cured. (2) If the principal is not payable in installments and the due date has not been accelerated, the instrument becomes overdue on the day after the due date. (3) If a due date with respect to principal has been accelerated, the instrument becomes overdue on the day after the accelerated due date. (c) Unless the due date of principal has been accelerated, an instrument does not become overdue if there is default in payment of interest but no default in payment of principal. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  107. 3305.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section limits who can use certain defenses and claims when enforcing payment on an instrument.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3305. (a) Except as stated in subdivision (b), the right to enforce the obligation of a party to pay an instrument is subject to all of the following: (1) A defense of the obligor based on (A) infancy of the obligor to the extent it is a defense to a simple contract, (B) duress, lack of legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor, (C) fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms, or (D) discharge of the obligor in insolvency proceedings. (2) A defense of the obligor stated in another section of this division or a defense of the obligor that would be available if the person entitled to enforce the instrument were enforcing a right to payment under a simple contract. (3) A claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought. (b) The right of a holder in due course to enforce the obligation of a party to pay the instrument is subject to defenses of the obligor stated in paragraph (1) of subdivision (a), but is not subject to defenses of the obligor stated in paragraph (2) of subdivision (a) or claims in recoupment stated in paragraph (3) of subdivision (a) against a person other than the holder. (c) Except as stated in subdivision (d), in an action to enforce the obligation of a party to pay the instrument, the obligor may not assert against the person entitled to enforce the instrument a defense, claim in recoupment, or claim to the instrument (Section 3306) of another person, but the other person’s claim to the instrument may be asserted by the obligor if the other person is joined in the action and personally asserts the claim against the person entitled to enforce the instrument. An obligor is not obliged to pay the instrument if the person seeking enforcement of the instrument does not have rights of a holder in due course and the obligor proves that the instrument is a lost or stolen instrument. (d) In an action to enforce the obligation of an accommodation party to pay an instrument, the accommodation party may assert against the person entitled to enforce the instrument any defense or claim in recoupment under subdivision (a) that the accommodated party could assert against the person entitled to enforce the instrument, except the defenses of discharge in insolvency proceedings, infancy, and lack of legal capacity. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  108. 3306.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A person taking an instrument is subject to property or possessory claims in the instrument or its proceeds, unless the person has rights of a holder in due course. A holder in due course takes free of that claim.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3306. A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  109. 3307.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines “fiduciary” and “represented person,” then states when a taker of an instrument is treated as having notice of a claimed breach of fiduciary duty.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3307. (a) In this section: (1) “Fiduciary” means an agent, trustee, partner, corporate officer or director, limited liability company manager, or other representative owing a fiduciary duty with respect to an instrument. (2) “Represented person” means the principal, beneficiary, partnership, corporation, limited liability company, or other person to whom the duty stated in paragraph (1) is owed. (b) If (i) an instrument is taken from a fiduciary for payment or collection or for value, (ii) the taker has knowledge of the fiduciary status of the fiduciary, and (iii) the represented person makes a claim to the instrument or its proceeds on the basis that the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply: (1) Notice of breach of fiduciary duty by the fiduciary is notice of the claim of the represented person. (2) In the case of an instrument payable to the represented person or the fiduciary as such, the taker has notice of the breach of fiduciary duty if the instrument is (A) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (B) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (C) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person. (3) If an instrument is issued by the represented person or the fiduciary as such, and made payable to the fiduciary personally, the taker does not have notice of the breach of fiduciary duty unless the taker knows of the breach of fiduciary duty. (4) If an instrument is issued by the represented person or the fiduciary as such, to the taker as payee, the taker has notice of the breach of fiduciary duty if the instrument is (A) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (B) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (C) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person. (Amended by Stats. 1994, Ch. 1200, Sec. 8. Effective September 30, 1994.)
  110. 3308.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section sets rules for proving signature validity on an instrument and when a plaintiff is entitled to payment.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3308. (a) In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature. If an action to enforce the instrument is brought against a person as the undisclosed principal of a person who signed the instrument as a party to the instrument, the plaintiff has the burden of establishing that the defendant is liable on the instrument as a represented person under subdivision (a) of Section 3402. (b) If the validity of signatures is admitted or proved and there is compliance with subdivision (a), a plaintiff producing the instrument is entitled to payment if the plaintiff proves entitlement to enforce the instrument under Section 3301, unless the defendant proves a defense or claim in recoupment. If a defense or claim in recoupment is proved, the right to payment of the plaintiff is subject to the defense or claim, except to the extent the plaintiff proves that the plaintiff has rights of a holder in due course which are not subject to the defense or claim. (Added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  111. 3309.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A person who is not in possession of an instrument may enforce it if specified conditions are met.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3309. (a) A person not in possession of an instrument is entitled to enforce the instrument if (1) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (2) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (3) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. (b) A person seeking enforcement of an instrument under subdivision (a) shall prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, Section 3308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means. (Added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  112. 3310.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section explains when taking a check, note, or other instrument for an obligation discharges or suspends the obligation, and when the obligee may enforce the instrument or the obligation.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3310. (a) Unless otherwise agreed, if a certified check, cashier’s check, or teller’s check is taken for an obligation, the obligation is discharged to the same extent discharge would result if an amount of money equal to the amount of the instrument were taken in payment of the obligation. Discharge of the obligation does not affect any liability that the obligor may have as an indorser of the instrument. (b) Unless otherwise agreed and except as provided in subdivision (a), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply: (1) In the case of an uncertified check, suspension of the obligation continues until dishonor of the check or until it is paid or certified. Payment or certification of the check results in discharge of the obligation to the extent of the amount of the check. (2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in discharge of the obligation to the extent of the payment. (3) Except as provided in paragraph (4), if the check or note is dishonored and the obligee of the obligation for which the instrument was taken is the person entitled to enforce the instrument, the obligee may enforce either the instrument or the obligation. In the case of an instrument of a third person which is negotiated to the obligee by the obligor, discharge of the obligor on the instrument also discharges the obligation. (4) If the person entitled to enforce the instrument taken for an obligation is a person other than the obligee, the obligee may not enforce the obligation to the extent the obligation is suspended. If the obligee is the person entitled to enforce the instrument but no longer has possession of it because it was lost, stolen, or destroyed, the obligation may not be enforced to the extent of the amount payable on the instrument, and to that extent the obligee’s rights against the obligor are limited to enforcement of the instrument. (c) If an instrument other than one described in subdivision (a) or (b) is taken for an obligation, the effect is (1) that stated in subdivision (a) if the instrument is one on which a bank is liable as maker or acceptor, or (2) that stated in subdivision (b) in any other case. (Added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  113. 3311.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A claim may be discharged if a person proves they tendered an instrument in good faith as full satisfaction, the claim was disputed or unliquidated, and the claimant received payment.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3311. (a) If a person against whom a claim is asserted proves that (1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (2) the amount of the claim was unliquidated or subject to a bona fide dispute, and (3) the claimant obtained payment of the instrument, the following subdivisions apply. (b) Unless subdivision (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim. (c) Subject to subdivision (d), a claim is not discharged under subdivision (b) if either of the following applies: (1) The claimant, if an organization, proves that (A) within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place, and (B) the instrument or accompanying communication was not received by that designated person, office, or place. (2) The claimant, whether or not an organization, proves that within 90 days after payment of the instrument, the claimant tendered repayment of the amount of the instrument to the person against whom the claim is asserted. This paragraph does not apply if the claimant is an organization that sent a statement complying with subparagraph (A) of paragraph (1). (d) A claim is discharged if the person against whom the claim is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim. (Added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  114. 3312.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines key terms and lets a claimant make a loss claim to an obligated bank for a lost, destroyed, or stolen cashier’s check, teller’s check, or certified check.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 3. Enforcement of Instruments [3301 - 3312] ( Chapter 3 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3312. (a) In this section: (1) “Check” means a cashier’s check, teller’s check, or certified check. (2) “Claimant” means a person who claims the right to receive the amount of a cashier’s check, teller’s check, or certified check that was lost, destroyed, or stolen. (3) “Declaration of loss” means a written statement, made under penalty of perjury, to the effect that (i) the declarer lost possession of a check, (ii) the declarer is the drawer or payee of the check, in the case of a certified check, or the remitter or payee of the check, in the case of a cashier’s check or teller’s check, (iii) the loss of possession was not the result of a transfer by the declarer or a lawful seizure, and (iv) the declarer cannot reasonably obtain possession of the check because the check was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. (4) “Obligated bank” means the issuer of a cashier’s check or teller’s check or the acceptor of a certified check. (b) A claimant may assert a claim to the amount of a check by a communication to the obligated bank describing the check with reasonable certainty and requesting payment of the amount of the check, if (i) the claimant is the drawer or payee of a certified check or the remitter or payee of a cashier’s check or teller’s check, (ii) the communication contains or is accompanied by a declaration of loss of the claimant with respect to the check, (iii) the communication is received at a time and in a manner affording the bank a reasonable time to act on it before the check is paid, and (iv) the claimant provides reasonable identification if requested by the obligated bank. Delivery of a declaration of loss is a warranty of the truth of the statements made in the declaration. The warranty is made to the obligated bank and any person entitled to enforce the check. If a claim is asserted in compliance with this subdivision, the following rules apply: (1) The claim becomes enforceable at the later of (i) the time the claim is asserted, or (ii) the 90th day following the date of the check, in the case of a cashier’s check or teller’s check, or the 90th day following the date of the acceptance, in the case of a certified check. (2) Until the claim becomes enforceable, it has no legal effect and the obligated bank may pay the check or, in the case of a teller’s check, may permit the drawee to pay the check. Payment to a person entitled to enforce the check discharges all liability of the obligated bank with respect to the check. (3) If the claim becomes enforceable before the check is presented for payment, the obligated bank is not obliged to pay the check. (4) When the claim becomes enforceable, the obligated bank becomes obliged to pay the amount of the check to the claimant if payment of the check has not been made to a person entitled to enforce the check. Subject to paragraph (1) of subdivision (a) of Section 4302, payment to the claimant discharges all liability of the obligated bank with respect to the check. (c) If the obligated bank pays the amount of a check to a claimant under paragraph (4) of subdivision (b) and, after the claim became enforceable, the check is presented for payment by a person having rights of a holder in due course, the claimant is obliged to (i) refund the payment to the obligated bank if the check is paid, or (ii) pay the amount of the check to the person having rights of a holder in due course if the check is dishonored. (d) If a claimant has the right to assert a claim under subdivision (b) and is also a person entitled to enforce a cashier’s check, teller’s check, or certified check which is lost, destroyed, or stolen, the claimant may assert rights with respect to the check either under this section or Section 3309. (Added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  115. 3401.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A person is not liable on an instrument unless the person signed it, or an authorized agent or representative signed it and the signature binds the represented person under Section 3402.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3401. A person is not liable on an instrument unless (a) the person signed the instrument, or (b) the person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under Section 3402. (Amended by Stats. 2023, Ch. 210, Sec. 13. (SB 95) Effective January 1, 2024.)
  116. 3402.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section says when a representative’s signature binds the represented person and when the representative is, or is not, personally liable on the instrument.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3402. (a) If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person or the name of the signer, the represented person is bound by the signature to the same extent the represented person would be bound if the signature were on a simple contract. If the represented person is bound, the signature of the representative is the “authorized signature of the represented person” and the represented person is liable on the instrument, whether or not identified in the instrument. (b) If a representative signs the name of the representative to an instrument and the signature is an authorized signature of the represented person, the following rules apply: (1) If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified in the instrument, the representative is not liable on the instrument. (2) Subject to subdivision (c), if (A) the form of the signature does not show unambiguously that the signature is made in a representative capacity or (B) the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument. (c) If a representative signs the name of the representative as drawer of a check without indication of the representative status and the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check if the signature is an authorized signature of the represented person. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  117. 3403.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    An unauthorized signature is generally ineffective, except in the stated good-faith/value scenario, and it may be ratified.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3403. (a) Unless otherwise provided in this division or Division 4 (commencing with Section 4101), an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value. An unauthorized signature may be ratified for all purposes of this division. (b) If the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is lacking. (c) The civil or criminal liability of a person who makes an unauthorized signature is not affected by any provision of this division which makes the unauthorized signature effective for the purposes of this division. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  118. 3404.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section sets rules for instruments obtained by impostor or fictitious-payee situations, including when an endorsement is effective and when a loss may be recovered for lack of ordinary care.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3404. (a) If an impostor, by use of the mails or otherwise, induces the issuer of an instrument to issue the instrument to the impostor, or to a person acting in concert with the impostor, by impersonating the payee of the instrument or a person authorized to act for the payee, an indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection. (b) If (i) a person whose intent determines to whom an instrument is payable (subdivision (a) or (b) of Section 3110) does not intend the person identified as payee to have any interest in the instrument, or (ii) the person identified as payee of an instrument is a fictitious person, the following rules apply until the instrument is negotiated by special indorsement: (1) Any person in possession of the instrument is its holder. (2) An indorsement by any person in the name of the payee stated in the instrument is effective as the indorsement of the payee in favor of a person who, in good faith, pays the instrument or takes it for value or for collection. (c) Under subdivision (a) or (b), an indorsement is made in the name of a payee if (1) it is made in a name substantially similar to that of the payee or (2) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to that of the payee. (d) With respect to an instrument to which subdivision (a) or (b) applies, if a person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure contributes to loss resulting from payment of the instrument, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  119. 3405.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines key terms about employee responsibility for instruments and says a fraudulent indorsement can be treated as effective if the employer entrusted the employee with responsibility and the indorsement is made in the named person’s name.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3405. (a) In this section: (1) “Employee” includes an independent contractor and employee of an independent contractor retained by the employer. (2) “Fraudulent indorsement” means (A) in the case of an instrument payable to the employer, a forged indorsement purporting to be that of the employer, or (B) in the case of an instrument with respect to which the employer is the issuer, a forged indorsement purporting to be that of the person identified as payee. (3) “Responsibility” with respect to instruments means authority (A) to sign or indorse instruments on behalf of the employer, (B) to process instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition, (C) to prepare or process instruments for issue in the name of the employer, (D) to supply information determining the names or addresses of payees of instruments to be issued in the name of the employer, (E) to control the disposition of instruments to be issued in the name of the employer, or (F) to act otherwise with respect to instruments in a responsible capacity. “Responsibility” does not include authority that merely allows an employee to have access to instruments or blank or incomplete instrument forms that are being stored or transported or are part of incoming or outgoing mail, or similar access. (b) For the purpose of determining the rights and liabilities of a person who, in good faith, pays an instrument or takes it for value or for collection, if an employer entrusted an employee with responsibility with respect to the instrument and the employee or a person acting in concert with the employee makes a fraudulent indorsement of the instrument, the indorsement is effective as the indorsement of the person to whom the instrument is payable if it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails to exercise ordinary care in paying or taking the instrument and that failure contributes to loss resulting from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss. (c) Under subdivision (b), an indorsement is made in the name of the person to whom an instrument is payable if (1) it is made in a name substantially similar to the name of that person or (2) the instrument, whether or not indorsed, is deposited in a depositary bank to an account in a name substantially similar to the name of that person. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  120. 3406.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A person whose lack of ordinary care helps cause an alteration or forged signature cannot use that alteration or forgery against a good-faith payer or taker.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3406. (a) A person whose failure to exercise ordinary care contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection. (b) Under subdivision (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss. (c) Under subdivision (a), the burden of proving failure to exercise ordinary care is on the person asserting the preclusion. Under subdivision (b), the burden of proving failure to exercise ordinary care is on the person precluded. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  121. 3407.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    The section defines “alteration” and says a fraudulent alteration can discharge an affected party, unless that party assents or is barred from objecting; other alterations do not discharge the party.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3407. (a) “Alteration” means (1) an unauthorized change in an instrument that purports to modify in any respect the obligation of a party, or (2) an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. (b) Except as provided in subdivision (c), an alteration fraudulently made discharges a party whose obligation is affected by the alteration unless that party assents or is precluded from asserting the alteration. No other alteration discharges a party, and the instrument may be enforced according to its original terms. (c) A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice of the alteration, may enforce rights with respect to the instrument (1) according to its original terms, or (2) in the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  122. 3408.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A check or draft does not automatically assign funds held by the drawee, and the drawee is not liable on the instrument until it accepts it.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3408. A check or other draft does not of itself operate as an assignment of funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until the drawee accepts it. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  123. 3409.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines acceptance and certified checks, allows a holder in some cases to fill in a missing acceptance date in good faith, and says a drawee does not have to certify a check.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3409. (a) “Acceptance” means the drawee’s signed agreement to pay a draft as presented. It shall be written on the draft and may consist of the drawee’s signature alone. Acceptance may be made at any time and becomes effective when notification pursuant to instructions is given or the accepted draft is delivered for the purpose of giving rights on the acceptance to any person. (b) A draft may be accepted although it has not been signed by the drawer, is otherwise incomplete, is overdue, or has been dishonored. (c) If a draft is payable at a fixed period after sight and the acceptor fails to date the acceptance, the holder may complete the acceptance by supplying a date in good faith. (d) “Certified check” means a check accepted by the bank on which it is drawn. Acceptance may be made as stated in subdivision (a) or by a writing on the check which indicates that the check is certified. The drawee of a check has no obligation to certify the check, and refusal to certify is not dishonor of the check. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  124. 3410.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    If an acceptance changes the terms of a draft, the holder may refuse it and treat the draft as dishonored; the drawee may then cancel the acceptance.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3410. (a) If the terms of a drawee’s acceptance vary from the terms of the draft as presented, the holder may refuse the acceptance and treat the draft as dishonored. In that case, the drawee may cancel the acceptance. (b) The terms of a draft are not varied by an acceptance to pay at a particular bank or place in the United States, unless the acceptance states that the draft is to be paid only at that bank or place. (c) If the holder assents to an acceptance varying the terms of a draft, the obligation of each drawer and indorser that does not expressly assent to the acceptance is discharged. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  125. 3411.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    An obligated bank may have to pay compensation, interest losses, and sometimes consequential damages if it wrongly refuses or stops payment on certain checks.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3411. (a) In this section, “obligated bank” means the acceptor of a certified check or the issuer of a cashier’s check or teller’s check bought from the issuer. (b) If the obligated bank wrongfully (1) refuses to pay a cashier’s check or certified check, (2) stops payment of a teller’s check, or (3) refuses to pay a dishonored teller’s check, the person asserting the right to enforce the check is entitled to compensation for expenses and loss of interest resulting from the nonpayment and may recover consequential damages if the obligated bank refuses to pay after receiving notice of particular circumstances giving rise to the damages. (c) Expenses or consequential damages under subdivision (b) are not recoverable if the refusal of the obligated bank to pay occurs because (1) the bank suspends payments, (2) the obligated bank asserts a claim or defense of the bank that it has reasonable grounds to believe is available against the person entitled to enforce the instrument, (3) the obligated bank has a reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument, or (4) payment is prohibited by law. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  126. 3412.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    The issuer of a note, cashier’s check, or similar draft must pay the instrument.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3412. The issuer of a note or cashier’s check or other draft drawn on the drawer is obliged to pay the instrument (a) according to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder, or (b) if the issuer signed an incomplete instrument, according to its terms when completed, to the extent stated in Sections 3115 and 3407. The obligation is owed to a person entitled to enforce the instrument or to an indorser who paid the instrument under Section 3415. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  127. 3413.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    The acceptor of a draft must pay it under the stated terms, with special rules for varied, incomplete, or certified/accepted instruments.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3413. (a) The acceptor of a draft is obliged to pay the draft (1) according to its terms at the time it was accepted, even though the acceptance states that the draft is payable “as originally drawn” or equivalent terms, (2) if the acceptance varies the terms of the draft, according to the terms of the draft as varied, or (3) if the acceptance is of a draft that is an incomplete instrument, according to its terms when completed, to the extent stated in Sections 3115 and 3407. The obligation is owed to a person entitled to enforce the draft or to the drawer or an indorser who paid the draft under Section 3414 or 3415. (b) If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor is that amount. If (1) the certification or acceptance does not state an amount, (2) the amount of the instrument is subsequently raised, and (3) the instrument is then negotiated to a holder in due course, the obligation of the acceptor is the amount of the instrument at the time it was taken by the holder in due course. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  128. 3414.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    The drawer generally must pay a dishonored unaccepted draft, subject to listed exceptions.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3414. (a) This section does not apply to cashier’s checks or other drafts drawn on the drawer. (b) If an unaccepted draft is dishonored, the drawer is obliged to pay the draft (1) according to its terms at the time it was issued or, if not issued, at the time it first came into possession of a holder, or (2) if the drawer signed an incomplete instrument, according to its terms when completed, to the extent stated in Sections 3115 and 3407. The obligation is owed to a person entitled to enforce the draft or to an indorser who paid the draft under Section 3415. (c) If a draft is accepted by a bank, the drawer is discharged, regardless of when or by whom acceptance was obtained. (d) If a draft is accepted and the acceptor is not a bank, the obligation of the drawer to pay the draft if the draft is dishonored by the acceptor is the same as the obligation of an indorser under subdivisions (a) and (c) of Section 3415. (e) If a draft states that it is drawn “without recourse” or otherwise disclaims liability of the drawer to pay the draft, the drawer is not liable under subdivision (b) to pay the draft if the draft is not a check. A disclaimer of the liability stated in subdivision (b) is not effective if the draft is a check. (f) If (1) a check is not presented for payment or given to a depositary bank for collection within 30 days after its date, (2) the drawee suspends payments after expiration of the 30-day period without paying the check, and (3) because of the suspension of payments, the drawer is deprived of funds maintained with the drawee to cover payment of the check, the drawer to the extent deprived of funds may discharge its obligation to pay the check by assigning to the person entitled to enforce the check the rights of the drawer against the drawee with respect to the funds. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  129. 3415.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    An indorser of a dishonored instrument must pay the amount due, unless an exception applies.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3415. (a) Subject to subdivisions (b), (c), and (d) and to subdivision (d) of Section 3419, if an instrument is dishonored, an indorser is obliged to pay the amount due on the instrument (1) according to the terms of the instrument at the time it was indorsed, or (2) if the indorser indorsed an incomplete instrument, according to its terms when completed, to the extent stated in Sections 3115 and 3407. The obligation of the indorser is owed to a person entitled to enforce the instrument or to a subsequent indorser who paid the instrument under this section. (b) If an indorsement states that it is made “without recourse” or otherwise disclaims liability of the indorser, the indorser is not liable under subdivision (a) to pay the instrument. (c) If notice of dishonor of an instrument is required by Section 3503 and notice of dishonor complying with that section is not given to an indorser, the liability of the indorser under subdivision (a) is discharged. (d) If a draft is accepted by a bank after an indorsement is made, the liability of the indorser under subdivision (a) is discharged. (e) If an indorser of a check is liable under subdivision (a) and the check is not presented for payment, or given to a depositary bank for collection, within 30 days after the day the indorsement was made, the liability of the indorser under subdivision (a) is discharged. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  130. 3416.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    A person who transfers an instrument for consideration gives specified warranties to the transferee, and a good-faith recipient may recover damages for breach.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3416. (a) A person who transfers an instrument for consideration warrants all of the following to the transferee and, if the transfer is by indorsement, to any subsequent transferee: (1) The warrantor is a person entitled to enforce the instrument. (2) All signatures on the instrument are authentic and authorized. (3) The instrument has not been altered. (4) The instrument is not subject to a defense or claim in recoupment of any party which can be asserted against the warrantor. (5) The warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer. (6) If the instrument is a demand draft, creation of the instrument according to the terms on its face was authorized by the person identified as drawer. (b) A person to whom the warranties under subdivision (a) are made and who took the instrument in good faith may recover from the warrantor as damages for breach of warranty an amount equal to the loss suffered as a result of the breach, but not more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach. (c) The warranties stated in subdivision (a) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the liability of the warrantor under subdivision (b) is discharged to the extent of any loss caused by the delay in giving notice of the claim. (d) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach. (e) If the warranty in paragraph (6) of subdivision (a) is not given by a transferor under applicable conflict of law rules, then the warranty is not given to that transferor when that transferor is a transferee. (Amended by Stats. 1996, Ch. 316, Sec. 3. Effective January 1, 1997.)
  131. 3417.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section says certain people who handle an unaccepted draft or other instrument must give warranty promises to a good-faith drawee or payer, and it sets recovery rights if those warranties are breached.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3417. (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant all of the following to the drawee making payment or accepting the draft in good faith: (1) The warrantor is, or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft. (2) The draft has not been altered. (3) The warrantor has no knowledge that the signature of the drawer of the draft is unauthorized. (4) If the draft is a demand draft, creation of the demand draft according to the terms on its face was authorized by the person identified as drawer. (b) A drawee making payment may recover from any warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subdivision is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft, breach of warranty is a defense to the obligation of the acceptor. If the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from any warrantor for breach of warranty the amounts stated in this subdivision. (c) If a drawee asserts a claim for breach of warranty under subdivision (a) based on an unauthorized indorsement of the draft or an alteration of the draft, the warrantor may defend by proving that the indorsement is effective under Section 3404 or 3405 or the drawer is precluded under Section 3406 or 4406 from asserting against the drawee the unauthorized indorsement or alteration. (d) If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) any other instrument is presented for payment to a party obliged to pay the instrument, and (iii) payment is received, the following rules apply: (1) The person obtaining payment and a prior transferor of the instrument warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the instrument, a person entitled to enforce the instrument or authorized to obtain payment on behalf of a person entitled to enforce the instrument. (2) The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach. (e) The warranties stated in subdivisions (a) and (d) cannot be disclaimed with respect to checks. Unless notice of a claim for breach of warranty is given to the warrantor within 30 days after the claimant has reason to know of the breach and the identity of the warrantor, the liability of the warrantor under subdivision (b) or (d) is discharged to the extent of any loss caused by the delay in giving notice of the claim. (f) A cause of action for breach of warranty under this section accrues when the claimant has reason to know of the breach. (g) A demand draft is a check, as provided in subdivision (f) of Section 3104. (h) If the warranty in paragraph (4) of subdivision (a) is not given by a transferor under applicable conflict of law rules, then the warranty is not given to that transferor when that transferor is a transferee. (Amended by Stats. 1996, Ch. 316, Sec. 4. Effective January 1, 1997.)
  132. 3418.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section lets a drawee or other payer recover money paid or cancel acceptance when a draft or instrument was handled by mistake, but not against certain good-faith holders for value.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3418. (a) Except as provided in subdivision (c), if the drawee of a draft pays or accepts the draft and the drawee acted on the mistaken belief that (1) payment of the draft had not been stopped pursuant to Section 4403 or (2) the signature of the drawer of the draft was authorized, the drawee may recover the amount of the draft from the person to whom or for whose benefit payment was made or, in the case of acceptance, may revoke the acceptance. Rights of the drawee under this subdivision are not affected by failure of the drawee to exercise ordinary care in paying or accepting the draft. (b) Except as provided in subdivision (c), if an instrument has been paid or accepted by mistake and the case is not covered by subdivision (a), the person paying or accepting may, to the extent permitted by the law governing mistake and restitution, (1) recover the payment from the person to whom or for whose benefit payment was made or (2) in the case of acceptance, may revoke the acceptance. (c) The remedies provided by subdivision (a) or (b) may not be asserted against a person who took the instrument in good faith and for value or who in good faith changed position in reliance on the payment or acceptance. This subdivision does not limit remedies provided by Section 3417 or 4407. (d) Notwithstanding Section 4215, if an instrument is paid or accepted by mistake and the payor or acceptor recovers payment or revokes acceptance under subdivision (a) or (b), the instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  133. 3419.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    An accommodation party may sign an instrument and is generally liable to pay it in that role, with special rules for collection guarantees and reimbursement.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3419. (a) If an instrument is issued for value given for the benefit of a party to the instrument (“accommodated party”) and another party to the instrument (“accommodation party”) signs the instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument, the instrument is signed by the accommodation party “for accommodation.” (b) An accommodation party may sign the instrument as maker, drawer, acceptor, or indorser and, subject to subdivision (d), is obliged to pay the instrument in the capacity in which the accommodation party signs. The obligation of an accommodation party may be enforced notwithstanding any statute of frauds and whether or not the accommodation party receives consideration for the accommodation. (c) A person signing an instrument is presumed to be an accommodation party and there is notice that the instrument is signed for accommodation if the signature is an anomalous indorsement or is accompanied by words indicating that the signer is acting as surety or guarantor with respect to the obligation of another party to the instrument. Except as provided in Section 3605, the obligation of an accommodation party to pay the instrument is not affected by the fact that the person enforcing the obligation had notice when the instrument was taken by that person that the accommodation party signed the instrument for accommodation. (d) If the signature of a party to an instrument is accompanied by words indicating unambiguously that the party is guaranteeing collection rather than payment of the obligation of another party to the instrument, the signer is obliged to pay the amount due on the instrument to a person entitled to enforce the instrument only if (1) execution of judgment against the other party has been returned unsatisfied, (2) the other party is insolvent or in an insolvency proceeding, (3) the other party cannot be served with process, or (4) it is otherwise apparent that payment cannot be obtained from the other party. (e) An accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party. An accommodated party who pays the instrument has no right of recourse against, and is not entitled to contribution from, an accommodation party. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  134. 3420.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section sets when an instrument is treated as converted, limits who may sue for conversion, caps recovery, and gives a limited protection to certain good-faith representatives.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 4. Liability of Parties [3401 - 3420] ( Chapter 4 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3420. (a) The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by (1) the issuer or acceptor of the instrument or (2) a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a copayee. (b) In an action under subdivision (a), the measure of liability is presumed to be the amount payable on the instrument, but recovery may not exceed the amount of the plaintiff’s interest in the instrument. (c) A representative, other than a depositary bank, who has in good faith dealt with an instrument or its proceeds on behalf of one who was not the person entitled to enforce the instrument is not liable in conversion to that person beyond the amount of any proceeds that it has not paid out. (Added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  135. 3501.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section defines presentment and sets rules for how it can be made, what the presenter must do on demand, and when the recipient may treat presentment as occurring on the next business day.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3501. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  136. 3502.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section says when a note or draft is treated as dishonored, mainly based on whether it is paid, accepted, and presented on time.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3502. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  137. 3503.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. )

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    Notice of dishonor may be given by any person, and it must be given within the stated deadlines for collecting-bank and other instruments if the obligation of an indorser or drawer is to be enforced.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3503. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  138. 3504.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. )

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    This section excuses presentment for payment or acceptance, excuses notice of dishonor in two situations, and excuses delay in giving notice when the delay was beyond the notifier’s control and diligence was used afterward.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3504. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  139. 3505.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. )

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    Certain records and documents are admissible as evidence and can create a presumption of dishonor and related notice of dishonor.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 5. Dishonor [3501 - 3505] ( Chapter 5 added by Stats. 1992, Ch. 914, Sec. 6. ) ## 3505. (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. (Amended by Stats. 2011, Ch. 269, Sec. 4. (AB 75) Effective January 1, 2012.)
  140. 3601.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. )

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    A party’s duty to pay an instrument is discharged under this division or by an agreement or act that would discharge a simple-contract money obligation, but that discharge does not work against a holder in due course who took without notice.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. ) ## 3601. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  141. 3602.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. )

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    An instrument is paid and the payer’s obligation is discharged when payment is made by or for the party who must pay and to someone entitled to enforce it, subject to listed exceptions.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. ) ## 3602. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  142. 3603.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. )

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    Tender of payment can discharge certain obligations on a negotiable instrument, including interest after the due date and, if tender is refused, part of an indorser’s or accommodation party’s obligation.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. ) ## 3603. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  143. 3604.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. )

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    A person entitled to enforce an instrument may discharge a party’s payment obligation by intentional acts or by a signed agreement not to sue.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. ) ## 3604. (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. (Amended by Stats. 2023, Ch. 210, Sec. 14. (SB 95) Effective January 1, 2024.)
  144. 3605.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. )

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    This section limits when an indorser or accommodation party is discharged after changes to an instrument or its collateral.

    ## Commercial Code - COM ## DIVISION 3. NEGOTIABLE INSTRUMENTS [3101 - 3605] ( Division 3 repealed and added by Stats. 1992, Ch. 914, Sec. 6. ) ## CHAPTER 6. Discharge and Payment [3601 - 3605] ( Heading of Chapter 6 renamed from Part 6 by Stats. 2015, Ch. 303, Sec. 44. ) ## 3605. (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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 6. Effective January 1, 1993.)
  145. 4101.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4101. This division may be cited as Uniform Commercial Code—Bank Deposits and Collections. (Amended by Stats. 1992, Ch. 914, Sec. 7. Effective January 1, 1993.)
  146. 4102.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    This section says which division or place's law controls when bank-item rules overlap or when a bank's liability is involved.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4102. (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. (Amended by Stats. 1992, Ch. 914, Sec. 8. Effective January 1, 1993.)
  147. 4103.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    Parties may vary this division by agreement, but they cannot waive a bank’s responsibility for bad faith or failure to use ordinary care, or cap damages for that failure.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4103. (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. (Amended by Stats. 1992, Ch. 914, Sec. 9. Effective January 1, 1993.)
  148. 4104.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    This section defines terms used in Division 4 of the Commercial Code, including account, banking day, customer, item, draft, midnight deadline, settle, and suspends payments.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4104. (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. (Amended by Stats. 2006, Ch. 254, Sec. 45. Effective January 1, 2007.)
  149. 4105.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    This section defines several banking terms used in the division.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4105. 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. (Amended by Stats. 1992, Ch. 914, Sec. 11. Effective January 1, 1993.)
  150. 4106.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    If an item is payable through or at a named bank, that bank is treated as a collecting bank, the item may be presented only by or through the bank, and the bank is not authorized by that label alone to pay it.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4106. (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. (Added by Stats. 1992, Ch. 914, Sec. 12. Effective January 1, 1993.)
  151. 4107.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    A bank branch or separate office is treated as a separate bank for timing and notice/place purposes under this division and Division 3.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4107. 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). (Added by renumbering Section 4106 by Stats. 1992, Ch. 914, Sec. 13. Effective January 1, 1993.)
  152. 4108.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    A bank may set a cutoff hour of 2 p.m. or later for handling money and items and making book entries.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4108. (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. (Added by renumbering Section 4107 by Stats. 1992, Ch. 914, Sec. 14. Effective January 1, 1993.)
  153. 4109.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    A collecting bank may, in good faith and unless instructed otherwise, extend certain time limits by up to two additional banking days. Delay beyond the code’s or instructions’ time limits is excused only for specified disruptions and only if the bank acts with required diligence.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4109. (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. (Added by renumbering Section 4108 by Stats. 1992, Ch. 914, Sec. 15. Effective January 1, 1993.)
  154. 4110.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    This section defines electronic presentment and explains when presentment is treated as made.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4110. (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. (Added by Stats. 1992, Ch. 914, Sec. 16. Effective January 1, 1993.)
  155. 4111.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. )

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    Actions to enforce rights, duties, or obligations under this division must be filed within 3 years after the cause of action accrues.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 1. General Provisions and Definitions [4101 - 4111] ( Chapter 1 enacted by Stats. 1963, Ch. 819. ) ## 4111. 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. (Added by Stats. 1992, Ch. 914, Sec. 17. Effective January 1, 1993.)
  156. 4201.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    For certain items indorsed “pay any bank,” only a bank may acquire holder rights until the item is returned to the customer or specially indorsed to a non-bank.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4201. (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. (Amended by Stats. 1992, Ch. 914, Sec. 18. Effective January 1, 1993.)
  157. 4202.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A collecting bank must exercise ordinary care when handling items, notices, settlements, and transit losses, generally by acting before its midnight deadline.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4202. (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. (Amended by Stats. 1992, Ch. 914, Sec. 19. Effective January 1, 1993.)
  158. 4203.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    Only a collecting bank’s transferor may give instructions that affect the bank or count as notice to it, subject to Division 3. The collecting bank is not liable to prior parties for actions taken under those instructions or under an agreement with the transferor.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4203. 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. (Amended by Stats. 1992, Ch. 914, Sec. 20. Effective January 1, 1993.)
  159. 4204.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A collecting bank must send items by a reasonably prompt method, considering stated factors. It may also send items in several specified ways, and a presenting bank may make presentment at a requested place.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4204. (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. (Amended by Stats. 1992, Ch. 914, Sec. 21. Effective January 1, 1993.)
  160. 4205.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    When a customer delivers an item to a depositary bank for collection, the bank becomes a holder of the item if the customer was a holder when delivering it, and it may become a holder in due course if Section 3302’s other requirements are met. The bank also warrants to collecting banks, the payor bank or other payor, and the drawer that the item’s amount was paid to the customer or deposited to the customer’s account.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4205. 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. (Repealed and added by Stats. 1992, Ch. 914, Sec. 23. Effective January 1, 1993.)
  161. 4206.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    An agreed method that identifies the transferor bank is enough to allow an item to be transferred to another bank.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4206. Any agreed method that identifies the transferor bank is sufficient for the item’s further transfer to another bank. (Amended by Stats. 1992, Ch. 914, Sec. 24. Effective January 1, 1993.)
  162. 4207.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A transferring customer or collecting bank gives warranties about the item, must pay if the item is dishonored, and cannot disclaim that payment obligation or the warranty rules for checks.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4207. (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. (Amended by Stats. 1996, Ch. 316, Sec. 5. Effective January 1, 1997.)
  163. 4208.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    This section gives warranty rules for drafts and other items when payment or acceptance is made, including who warrants what, who can recover for breach, and a 30-day notice rule for warranty claims.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4208. (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. (Amended by Stats. 1996, Ch. 316, Sec. 6. Effective January 1, 1997.)
  164. 4209.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    A person who encodes information on an item after issue, or who retains an item for electronic presentment, gives warranties to certain banks and payors about correctness and compliance. A good-faith recipient of those warranties may recover damages for breach.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4209. (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. (Added by Stats. 1992, Ch. 914, Sec. 29. Effective January 1, 1993.)
  165. 4210.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    A collecting bank gets a security interest in deposited items and related documents or proceeds, and in some cases does not need a security agreement or filing to enforce or perfect it.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4210. (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. (Amended by Stats. 2006, Ch. 254, Sec. 46. Effective January 1, 2007.)
  166. 4211.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A bank is treated as having given value, for holder-in-due-course purposes, to the extent it has a security interest in an item and otherwise meets Section 3302.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4211. 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. (Added by renumbering Section 4209 by Stats. 1992, Ch. 914, Sec. 30. Effective January 1, 1993.)
  167. 4212.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

    Verify source ↗

    A collecting bank may use written notice to present certain items, and related notices and responses must meet specific timing rules.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4212. (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. (Added by renumbering Section 4210 by Stats. 1992, Ch. 914, Sec. 31. Effective January 1, 1993.)
  168. 4213.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    This section sets default rules for when bank settlement happens and what form it takes if no other rule or agreement controls.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4213. (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. (Added by Stats. 1992, Ch. 914, Sec. 33. Effective January 1, 1993.)
  169. 4214.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    A collecting bank may revoke a provisional settlement, charge back a customer’s credit, or get a refund if final settlement fails and it returns the item or gives notice on time; if it is late, it can still act but is liable for delay losses.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4214. (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. (Added by renumbering Section 4212 by Stats. 1992, Ch. 914, Sec. 34. Effective January 1, 1993.)
  170. 4215.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    This section says when an item or deposit is treated as finally paid and when bank credits become available for withdrawal.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4215. (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. (Added by renumbering Section 4213 by Stats. 1992, Ch. 914, Sec. 35. Effective January 1, 1993.)
  171. 4216.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. )

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    If a bank closes after receiving an item, the item may have to be returned, and in some cases the item owner gets a preferred claim.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201 - 4216] ( Chapter 2 enacted by Stats. 1963, Ch. 819. ) ## 4216. (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. (Added by renumbering Section 4214 by Stats. 1992, Ch. 914, Sec. 36. Effective January 1, 1993.)
  172. 4301.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. Collection of Items: Payor Banks [4301 - 4303] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    A payor bank may undo a settlement for certain demand items if it acts before final payment and its midnight deadline, either by returning the item or by sending written notice of dishonor or nonpayment when return is impossible.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. Collection of Items: Payor Banks [4301 - 4303] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 4301. (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. (Amended by Stats. 1992, Ch. 914, Sec. 37. Effective January 1, 1993.)
  173. 4302.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. Collection of Items: Payor Banks [4301 - 4303] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    A payor bank that receives an item can be liable for its amount unless it handles the item within the time rules stated here or has a listed defense.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. Collection of Items: Payor Banks [4301 - 4303] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 4302. (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. (Amended by Stats. 1992, Ch. 914, Sec. 38. Effective January 1, 1993.)
  174. 4303.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. Collection of Items: Payor Banks [4301 - 4303] ( Chapter 3 enacted by Stats. 1963, Ch. 819. )

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    A payor bank may process items in any order, but late notice, stop-payment orders, legal process, or setoff can come too late to change the bank’s duty to pay or charge the customer’s account once certain events have already happened.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 3. Collection of Items: Payor Banks [4301 - 4303] ( Chapter 3 enacted by Stats. 1963, Ch. 819. ) ## 4303. (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. (Amended by Stats. 1992, Ch. 914, Sec. 39. Effective January 1, 1993.)
  175. 4401.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    A bank may charge a customer’s account for properly payable items, including overdrafts and certain postdated or altered checks, but it can be liable for damages if it pays a postdated check after receiving proper notice.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 4401. (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. (Amended by Stats. 1992, Ch. 914, Sec. 40. Effective January 1, 1993.)
  176. 4402.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    A payor bank must not dishonor a properly payable item, but it may dishonor an item that would create an overdraft unless it agreed to pay it.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 4402. (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. (Amended by Stats. 1992, Ch. 914, Sec. 41. Effective January 1, 1993.)
  177. 4403.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    A customer, or another authorized signer in some cases, may stop payment on an item or close the account by giving the bank a reasonably certain order in time for the bank to act.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 4403. (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. (Amended by Stats. 1992, Ch. 914, Sec. 42. Effective January 1, 1993.)
  178. 4404.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    A bank generally does not have to pay a stale check presented more than six months after its date, except certified checks, but it may still charge the customer’s account if the later payment was made in good faith.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 4404. 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. (Amended by Stats. 1992, Ch. 914, Sec. 43. Effective January 1, 1993.)
  179. 4405.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    A bank’s authority to handle an item is not cancelled by a customer’s incompetence or death until the bank knows of it and has a reasonable chance to act. After death, the bank may still pay or certify certain checks for 10 days, unless a person with an interest in the account orders stop payment.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 4405. (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. (Amended by Stats. 1992, Ch. 914, Sec. 44. Effective January 1, 1993.)
  180. 4406.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    Banks must give customers enough information or the paid items themselves when sending account statements, and customers must review statements promptly and report unauthorized payments quickly.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 4406. (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. (Amended by Stats. 2016, Ch. 277, Sec. 3. (AB 2907) Effective January 1, 2017.)
  181. 4407.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. )

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    A payor bank may be subrogated to certain rights if it pays an item in specified problematic circumstances, but only to prevent unjust enrichment and only as needed to avoid the bank’s loss.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 4. Relationship Between Payor Bank and Its Customer [4401 - 4407] ( Chapter 4 enacted by Stats. 1963, Ch. 819. ) ## 4407. 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. (Amended by Stats. 1992, Ch. 914, Sec. 46. Effective January 1, 1993.)
  182. 4501.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    A bank that takes a documentary draft for collection must present or send the draft and accompanying documents for presentment, and must notify its customer seasonably if the draft is not paid or accepted in due course.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 4501. 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. (Amended by Stats. 1992, Ch. 914, Sec. 47. Effective January 1, 1993.)
  183. 4502.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    A collecting bank may wait to present a draft until a reasonable time for the goods to arrive, and it must notify its transferor if payment or acceptance is refused because the goods have not arrived.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 4502. 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. (Amended by Stats. 1992, Ch. 914, Sec. 48. Effective January 1, 1993.)
  184. 4503.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    A bank handling a documentary draft must deliver the documents based on whether the draft is accepted or paid, and on dishonor it must act with diligence, notify its transferor, and request instructions unless it uses a designated referee.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 4503. 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. (Amended by Stats. 1992, Ch. 914, Sec. 49. Effective January 1, 1993.)
  185. 4504.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. )

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    A presenting bank may reasonably store, sell, or otherwise deal with goods after a dishonored documentary draft if it requested instructions and none arrive within a reasonable time.

    ## Commercial Code - COM ## DIVISION 4. BANK DEPOSITS AND COLLECTIONS [4101 - 4504] ( Division 4 enacted by Stats. 1963, Ch. 819. ) ## CHAPTER 5. Collection of Documentary Drafts [4501 - 4504] ( Chapter 5 enacted by Stats. 1963, Ch. 819. ) ## 4504. (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. (Amended by Stats. 1992, Ch. 914, Sec. 50. Effective January 1, 1993.)
  186. 5101.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5101. This division may be cited as Uniform Commercial Code—Letters of Credit. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  187. 5102.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    This section defines key terms used in the letters of credit division.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5102. (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. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  188. 5103.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    This section says the division applies to letters of credit and related rights and obligations, and that some of its effects can be varied by agreement except for listed exceptions.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5103. (a) This division applies to letters of credit and to certain rights and obligations arising out of transactions involving letters of credit. (b) The statement of a rule in this division does not by itself require, imply, or negate application of the same or a different rule to a situation not provided for, or to a person not specified, in this division. (c) With the exception of this subdivision, subdivisions (a) and (d), paragraphs 9 and 10 of subdivision (a) of Section 5102, subdivision (d) of Section 5106, and subdivision (d) of Section 5114, and except to the extent prohibited in Section 1302 and subdivision (d) of Section 5117, the effect of this division may be varied by agreement or by a provision stated or incorporated by reference in an undertaking. A term in an agreement or undertaking generally excusing liability or generally limiting remedies for failure to perform obligations is not sufficient to vary obligations prescribed by this division. (d) Rights and obligations of an issuer to a beneficiary or a nominated person under a letter of credit are independent of the existence, performance, or nonperformance of a contract or arrangement out of which the letter of credit arises or which underlies it, including contracts or arrangements between the issuer and the applicant and between the applicant and the beneficiary. (Amended by Stats. 2006, Ch. 254, Sec. 47. Effective January 1, 2007.)
  189. 5104.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    A letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued in any form that is a signed record.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5104. A letter of credit, confirmation, advice, transfer, amendment, or cancellation may be issued in any form that is a signed record. (Amended by Stats. 2023, Ch. 210, Sec. 15. (SB 95) Effective January 1, 2024.)
  190. 5105.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    No consideration is required to issue, amend, transfer, or cancel a letter of credit, advice, or confirmation.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5105. Consideration is not required to issue, amend, transfer, or cancel a letter of credit, advice, or confirmation. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  191. 5106.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    This section explains when a letter of credit becomes enforceable, when it can be revoked, how consent affects amendments or cancellation, and when it expires.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5106. (a) A letter of credit is issued and becomes enforceable according to its terms against the issuer when the issuer sends or otherwise transmits it to the person requested to advise or to the beneficiary. A letter of credit is revocable only if it so provides. (b) After a letter of credit is issued, rights and obligations of a beneficiary, applicant, confirmer, and issuer are not affected by an amendment or cancellation to which that person has not consented except to the extent the letter of credit provides that it is revocable or that the issuer may amend or cancel the letter of credit without that consent. (c) If there is no stated expiration date or other provision that determines its duration, a letter of credit expires one year after its stated date of issuance or, if none is stated, after the date on which it is issued. (d) A letter of credit that states that it is perpetual expires five years after its stated date of issuance, or if none is stated, after the date on which it is issued. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  192. 5107.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    A confirmer must take on issuer-like obligations for a letter of credit to the extent of its confirmation; certain non-confirming nominated persons and advisers are not required to honor or give value for a presentation.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5107. (a) A confirmer is directly obligated on a letter of credit and has the rights and obligations of an issuer to the extent of its confirmation. The confirmer also has rights against and obligations to the issuer as if the issuer were an applicant and the confirmer had issued the letter of credit at the request and for the account of the issuer. (b) A nominated person who is not a confirmer is not obligated to honor or otherwise give value for a presentation. (c) A person requested to advise may decline to act as an adviser. An adviser that is not a confirmer is not obligated to honor or give value for a presentation. An adviser undertakes to the issuer and to the beneficiary accurately to advise the terms of the letter of credit, confirmation, amendment, or advice received by that person and undertakes to the beneficiary to check the apparent authenticity of the request to advise. Even if the advice is inaccurate, the letter of credit, confirmation, or amendment is enforceable as issued. (d) A person who notifies a transferee beneficiary of the terms of a letter of credit, confirmation, amendment, or advice has the rights and obligations of an adviser under subdivision (c). The terms in the notice to the transferee beneficiary may differ from the terms in any notice to the transferor beneficiary to the extent permitted by the letter of credit, confirmation, amendment, or advice received by the person who so notifies. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  193. 5108.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    An issuer must honor presentations that strictly comply with the letter of credit, dishonor noncomplying presentations, follow standard banking practice, and respond within a reasonable time.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5108. (a) Except as otherwise provided in Section 5109, an issuer shall honor a presentation that, as determined by the standard practice referred to in subdivision (e), appears on its face strictly to comply with the terms and conditions of the letter of credit. Except as otherwise provided in Section 5113 and unless otherwise agreed with the applicant, an issuer shall dishonor a presentation that does not appear so to comply. (b) An issuer has a reasonable time after presentation, but not beyond the end of the seventh business day of the issuer after the day of its receipt of documents: (1) to honor, (2) if the letter of credit provides for honor to be completed more than seven business days after presentation, to accept a draft or incur a deferred obligation, or (3) to give notice to the presenter of discrepancies in the presentation. (c) Except as otherwise provided in subdivision (d), an issuer is precluded from asserting as a basis for dishonor any discrepancy if timely notice is not given, or any discrepancy not stated in the notice if timely notice is given. (d) Failure to give the notice specified in subdivision (b) or to mention fraud, forgery, or expiration in the notice does not preclude the issuer from asserting as a basis for dishonor fraud or forgery as described in subdivision (a) of Section 5109 or expiration of the letter of credit before presentation. (e) An issuer shall observe standard practice of financial institutions that regularly issue letters of credit. Determination of the issuer’s observance of the standard practice is a matter of interpretation for the court. The court shall offer the parties a reasonable opportunity to present evidence of the standard practice. (f) An issuer is not responsible for: (1) the performance or nonperformance of the underlying contract, arrangement, or transaction, (2) an act or omission of others, or (3) observance or knowledge of the usage of a particular trade other than the standard practice referred to in subdivision (e). (g) If an undertaking constituting a letter of credit under paragraph (10) of subdivision (a) of Section 5102 contains nondocumentary conditions, an issuer shall disregard the nondocumentary conditions and treat them as if they were not stated. (h) An issuer that has dishonored a presentation shall return the documents or hold them at the disposal of, and send advice to that effect to, the presenter. (i) An issuer that has honored a presentation as permitted or required by this division: (1) is entitled to be reimbursed by the applicant in immediately available funds not later than the date of its payment of funds; (2) takes the documents free of claims of the beneficiary or presenter; (3) is precluded from asserting a right of recourse on a draft under Sections 3414 and 3415; (4) except as otherwise provided in Sections 5110 and 5117, is precluded from restitution of money paid or other value given by mistake to the extent the mistake concerns discrepancies in the documents or tender which are apparent on the face of the presentation; and (5) is discharged to the extent of its performance under the letter of credit unless the issuer honored a presentation in which a required signature of a beneficiary was forged. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  194. 5109.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    This section says when an issuer must honor a letter-of-credit presentation, when it may choose to honor or dishonor it, and when a court may block honor because of forgery or material fraud.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5109. (a) If a presentation is made that appears on its face strictly to comply with the terms and conditions of the letter of credit, but a required document is forged or materially fraudulent, or honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant: (1) the issuer shall honor the presentation, if honor is demanded by (i) a nominated person who has given value in good faith and without notice of forgery or material fraud, (ii) a confirmer who has honored its confirmation in good faith, (iii) a holder in due course of a draft drawn under the letter of credit which was taken after acceptance by the issuer or nominated person, or (iv) an assignee of the issuer’s or nominated person’s deferred obligation that was taken for value and without notice of forgery or material fraud after the obligation was incurred by the issuer or nominated person; and (2) the issuer, acting in good faith, may honor or dishonor the presentation in any other case. (b) If an applicant claims that a required document is forged or materially fraudulent or that honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant, a court of competent jurisdiction may temporarily or permanently enjoin the issuer from honoring a presentation or grant similar relief against the issuer or other persons only if the court finds that: (1) the relief is not prohibited under the law applicable to an accepted draft or deferred obligation incurred by the issuer; (2) a beneficiary, issuer, or nominated person who may be adversely affected is adequately protected against loss that it may suffer because the relief is granted; (3) all of the conditions to entitle a person to the relief under the law of this state have been met; and (4) on the basis of the information submitted to the court, the applicant is more likely than not to succeed under its claim of forgery or material fraud and the person demanding honor does not qualify for protection under paragraph (1) of subdivision (a). (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  195. 5110.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    If a presentation is honored, the beneficiary must warrant that there was no specified fraud or forgery and that the drawing does not violate the relevant agreements.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5110. (a) If its presentation is honored, the beneficiary warrants: (1) to the issuer, any other person to whom presentation is made, and the applicant that there is no fraud or forgery of the kind described in subdivision (a) of Section 5109; and (2) to the applicant that the drawing does not violate any agreement between the applicant and beneficiary or any other agreement intended by them to be augmented by the letter of credit. (b) The warranties in subdivision (a) are in addition to warranties arising under Division 3 (commencing with Section 3101), Division 4 (commencing with Section 4101), Division 7 (commencing with Section 7101), and Division 8 (commencing with Section 8101) because of the presentation or transfer of documents covered by any of those divisions. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  196. 5111.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    This section sets remedies for wrongful dishonor, repudiation, and related breaches under a letter of credit.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5111. (a) If an issuer wrongfully dishonors or repudiates its obligation to pay money under a letter of credit before presentation, the beneficiary, successor, or nominated person presenting on its own behalf may recover from the issuer the amount that is the subject of the dishonor or repudiation. If the issuer’s obligation under the letter of credit is not for the payment of money, the claimant may obtain specific performance or, at the claimant’s election, recover an amount equal to the value of performance from the issuer. In either case, the claimant may also recover incidental but not consequential damages. The claimant is not obligated to take action to avoid damages that might be due from the issuer under this subdivision. If, although not obligated to do so, the claimant avoids damages, the claimant’s recovery from the issuer must be reduced by the amount of damages avoided. The issuer has the burden of proving the amount of damages avoided. In the case of repudiation the claimant need not present any document. (b) If an issuer wrongfully dishonors a draft or demand presented under a letter of credit or honors a draft or demand in breach of its obligation to the applicant, the applicant may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach. (c) If an adviser or nominated person other than a confirmer breaches an obligation under this article or an issuer breaches an obligation not covered in subdivision (a) or (b), a person to whom the obligation is owed may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach. To the extent of the confirmation, a confirmer has the liability of an issuer specified in this subdivision and subdivisions (a) and (b). (d) An issuer, nominated person, or adviser who is found liable under subdivision (a), (b), or (c) shall pay interest on the amount owed thereunder from the date of wrongful dishonor or other appropriate date. (e) Reasonable attorney’s fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy is sought under this article. (f) Damages that would otherwise be payable by a party for breach of an obligation under this article may be liquidated by agreement or undertaking, but only in an amount or by a formula that is reasonable in light of the harm anticipated. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  197. 5112.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    A beneficiary generally may not transfer the right to draw or demand performance under a letter of credit unless the letter says it is transferable, subject to Section 5113.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5112. (a) Except as otherwise provided in Section 5113, unless a letter of credit provides that it is transferable, the right of a beneficiary to draw or otherwise demand performance under a letter of credit may not be transferred. (b) Even if a letter of credit provides that it is transferable, the issuer may refuse to recognize or carry out a transfer if: (1) the transfer would violate applicable law; or (2) the transferor or transferee has failed to comply with any requirement stated in the letter of credit or any other requirement relating to transfer imposed by the issuer which is within the standard practice referred to in subdivision (e) of Section 5108 or is otherwise reasonable under the circumstances. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  198. 5113.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    A successor of a letter-of-credit beneficiary may act in the beneficiary’s name or as disclosed successor, and the issuer must recognize a disclosed successor if the stated recognition requirements are met.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5113. (a) A successor of a beneficiary may consent to amendments, sign and present documents, and receive payment or other items of value in the name of the beneficiary without disclosing its status as a successor. (b) A successor of a beneficiary may consent to amendments, sign and present documents, and receive payment or other items of value in its own name as the disclosed successor of the beneficiary. Except as otherwise provided in subdivision (e), an issuer shall recognize a disclosed successor of a beneficiary as beneficiary in full substitution for its predecessor upon compliance with the requirements for recognition by the issuer of a transfer of drawing rights by operation of law under the standard practice referred to in subdivision (e) of Section 5108 or, in the absence of such a practice, compliance with other reasonable procedures sufficient to protect the issuer. (c) An issuer is not obliged to determine whether a purported successor is a successor of a beneficiary or whether the signature of a purported successor is genuine or authorized. (d) Honor of a purported successor’s apparently complying presentation under subdivision (a) or (b) has the consequences specified in subdivision (i) of Section 5108 even if the purported successor is not the successor of a beneficiary. Documents signed in the name of the beneficiary or of a disclosed successor by a person who is neither the beneficiary nor the successor of the beneficiary are forged documents for the purposes of Section 5109. (e) An issuer whose rights of reimbursement are not covered by subdivision (d) or substantially similar law and any confirmer or nominated person may decline to recognize a presentation under subdivision (b). (f) A beneficiary whose name is changed after the issuance of a letter of credit has the same rights and obligations as a successor of a beneficiary under this section. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  199. 5114.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    A beneficiary may assign proceeds of a letter of credit, and the issuer or nominated person generally does not have to recognize the assignment until it consents.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5114. (a) In this section, “proceeds of a letter of credit” means the cash, check, accepted draft, or other item of value paid or delivered upon honor or giving of value by the issuer or any nominated person under the letter of credit. The term does not include a beneficiary’s drawing rights or documents presented by the beneficiary. (b) A beneficiary may assign its right to part or all of the proceeds of a letter of credit. The beneficiary may do so before presentation as a present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit. (c) An issuer or nominated person need not recognize an assignment of proceeds of a letter of credit until it consents to the assignment. (d) An issuer or nominated person has no obligation to give or withhold its consent to an assignment of proceeds of a letter of credit, but consent may not be unreasonably withheld if the assignee possesses and exhibits the letter of credit and presentation of the letter of credit is a condition to honor. (e) Rights of a transferee beneficiary or nominated person are independent of the beneficiary’s assignment of the proceeds of a letter of credit and are superior to the assignee’s right to the proceeds. (f) Neither the rights recognized by this section between an assignee and an issuer, transferee beneficiary, or nominated person nor the issuer’s or nominated person’s payment of proceeds to an assignee or third person affect the rights between the assignee and any person other than the issuer, transferee beneficiary, or nominated person. The mode of creating and perfecting a security interest in or granting an assignment of a beneficiary’s rights to proceeds is governed by Division 9 (commencing with Section 9101) or other law. Against persons other than the issuer, transferee beneficiary, or nominated person, the rights and obligations arising upon the creation of a security interest or other assignment of a beneficiary’s right to proceeds and its perfection are governed by Division 9 (commencing with Section 9101) or other law. (Added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)
  200. 5115.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. )

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    A lawsuit to enforce a right or obligation under this article must be started within one year, measured from the later of the letter of credit’s expiration date or the date the claim accrues.

    ## Commercial Code - COM ## DIVISION 5. LETTERS OF CREDIT [5101 - 5118] ( Division 5 repealed and added by Stats. 1996, Ch. 176, Sec. 7. ) ## 5115. An action to enforce a right or obligation arising under this article must be commenced within one year after the expiration date of the relevant letter of credit or one year after the cause of action accrues, whichever occurs later. A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. (Repealed and added by Stats. 1996, Ch. 176, Sec. 7. Effective January 1, 1997.)

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