41-03-51. (3-414) Obligation of drawer.
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/nd/title-41/chapter-41-03-negotiable-instruments/41-03-51·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
1. This section does not apply to cashier's checks or other drafts drawn on the drawer.
2. If an unaccepted draft is dishonored, the drawer is obliged to pay the draft 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 if the drawer signed an incomplete instrument, according to
its terms when completed as stated in sections 41-03-15 and 41-03-44. The obligation
is owed to a person entitled to enforce the draft or to an endorser that paid the draft
pursuant to section 41-03-52.
3. If a draft is accepted by a bank, the drawer is discharged, regardless of when or by
whom acceptance was obtained.
4. 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
endorser stated in subsections 1 and 3 of section 41-03-52.
5. 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 subsection 2 to pay the draft if
the draft is not a check. No disclaimer of the liability stated in subsection 2 is effective
if the draft is a check.
6. If a check is not presented for payment or given to a depositary bank for collection
within thirty days after its date, the drawee suspends payments after expiration of the
thirty-day period without paying the check, and 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.
41-03-52. (3-415) Obligation of endorser. 1. Subject to subsections 2, 3, and 4 and to subsection 4 of section 41-03-56, if an
instrument is dishonored, an endorser is obliged to pay the amount due on the
instrument according to the terms of the instrument at the time it was endorsed or, if
the endorser endorsed an incomplete instrument, according to its terms when
completed as stated in sections 41-03-15 and 41-03-44. The obligation of the endorser
is owed to a person entitled to enforce the instrument or to a subsequent endorser that
paid the instrument pursuant to this section. 2. If an endorsement states that it is made "without recourse" or otherwise disclaims
liability of the endorser, the endorser is not liable under subsection 1 to pay the
instrument. 3. If notice of dishonor of an instrument is required by section 41-03-60 and notice of
dishonor complying with that section is not given to an endorser, the liability of the
endorser under subsection 1 is discharged. 4. If a draft is accepted by a bank after an endorsement is made, the liability of the
endorser under subsection 1 is discharged. 5. If an endorser of a check is liable under subsection 1 and the check is not presented
for payment or given to a depositary bank for collection within thirty days after the day
the endorsement was made, the liability of the endorser under subsection 1 is
discharged.
41-03-53. (3-416) Transfer warranties. 1. A person who transfers an instrument for consideration warrants to the transferee and,
if the transfer is by endorsement, to any subsequent transferee that:
a. The warrantor is a person entitled to enforce the instrument.
b. All signatures on the instrument are authentic and authorized.
c. The instrument has not been altered.
d. The instrument is not subject to a defense or claim in recoupment (subsection 1
of section 41-03-31) of any party which can be asserted against the warrantor.
e. 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.
f. 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. 2. A person to whom the warranties under subsection 1 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. 3. The warranties stated in subsection 1 may not be disclaimed with respect to checks.
Unless notice of a claim for breach of warranty is given to the warrantor within thirty
days after the claimant has reason to know of the breach and the identity of the
warrantor, the liability of the warrantor under subsection 2 is discharged to the extent
of any loss caused by the delay in giving notice of the claim. 4. A cause of action for breach of warranty under this section accrues when the claimant
has reason to know of the breach. 5. If the warranty in subdivision f of subsection 1 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.
41-03-54. (3-417) Presentment warranties. 1. If an unaccepted draft is presented to the drawee for payment or acceptance and the
drawee pays or accepts the draft, the person obtaining payment or acceptance, at the
time of presentment, and a previous transferor of the draft, at the time of transfer,
warrant to the drawee making payment or accepting the draft in good faith that:
a. 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.
b. The draft has not been altered.
c. The warrantor has no knowledge that the signature of the purported drawer of the
draft is unauthorized.
d. 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. 2. 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 subsection 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 the
first two sentences of this subsection. 3. If a drawee asserts a claim for breach of warranty under subsection 1 based on an
unauthorized endorsement of the draft or an alteration of the draft, the warrantor may
defend by proving that the endorsement is effective under section 41-03-41 or
41-03-42 or the drawer is precluded under section 41-03-43 or 41-04-37 from
asserting against the drawee the unauthorized endorsement or alteration. 4. If a dishonored draft is presented for payment to the drawer or an endorser or any
other instrument is presented for payment to a party obliged to pay the instrument, and
payment is received, the following rules apply:
a. 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.
b. 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. 5. The warranties stated in subsections 1 and 4 cannot be disclaimed with respect to
checks. Unless notice of a claim for breach of warranty is given to the warrantor within
thirty days after the claimant has reason to know of the breach and the identity of the
warrantor, the liability of the warrantor under subsection 2 or 4 is discharged to the
extent of any loss caused by the delay in giving notice of the claim. 6. A cause of action for breach of warranty under this section accrues when the claimant
has reason to know of the breach. 7. A demand draft is a check, as provided in subsection 6 of section 41-03-04. 8. If the warranty in subdivision d of subsection 1 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.
41-03-55. (3-418) Payment or acceptance by mistake. 1. Except as provided in subsection 3, if the drawee of a draft pays or accepts the draft
and the drawee acted on the mistaken belief that payment of the draft had not been
stopped under section 41-04-34 or that the signature of the purported 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 subsection are not affected by
failure of the drawee to exercise ordinary care in paying or accepting the draft. 2. Except as provided in subsection 3, if an instrument has been paid or accepted by
mistake and the case is not covered by subsection 1, the person paying or accepting
may, to the extent permitted by the law governing mistake and restitution, recover the
payment from the person to whom or for whose benefit payment was made or, in the
case of acceptance, may revoke the acceptance. 3. The remedies provided by subsection 1 or 2 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 subsection does not limit
remedies provided by section 41-03-54 or 41-04-38. 4. Notwithstanding section 41-04-27, if an instrument is paid or accepted by mistake and
the payor or acceptor recovers payment or revokes acceptance under subsection 1 or
2, 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.
41-03-56. (3-419) Instruments signed for accommodation. 1. 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". 2. An accommodation party may sign the instrument as maker, drawer, acceptor, or
endorser and, subject to subsection 4, 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 regardless of whether the
accommodation party receives consideration for the accommodation. 3. 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 endorsement 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 41-03-67, 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. 4. 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 execution of
judgment against the other party has been returned unsatisfied, the other party is
insolvent or in an insolvency proceeding, the other party cannot be served with
process, or it is otherwise apparent that payment cannot be obtained from the party
whose obligation is guaranteed. 5. An accommodation party that 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 that pays the instrument has no right of
recourse against, and is not entitled to contribution from, an accommodation party.
41-03-57. (3-420) Conversion of instrument. 1. The law applicable to conversion of personal property applies to instruments. An
instrument is also converted if it is purchased 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 the issuer or acceptor of the
instrument or by a payee or endorsee who did not receive delivery of the instrument
either directly or through delivery to an agent or a copayee. 2. In an action under subsection 1, 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. 3. A representative, other than a depositary bank, that 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.
41-03-58. (3-501) Presentment. 1. "Presentment" means a demand made by or on behalf of a person entitled to enforce
an instrument 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
to accept a draft made to the drawee. 2. The following rules are subject to chapter 41-04, agreement of the parties, and
clearinghouse rules and the like:
a. Presentment may be made at the place of payment of the instrument and must
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;
is effective if made to any one of two or more makers, acceptors, drawees, or
other payors.
b. Upon demand of the person to whom presentment is made, the person making
presentment must exhibit the instrument; give reasonable identification and, if
presentment is made on behalf of another person, reasonable evidence of
authority to do so; and sign a receipt on the instrument for any payment made or
surrender the instrument if full payment is made.
c. Without dishonoring the instrument, the party to whom presentment is made may
return the instrument for lack of a necessary endorsement or refuse payment or
acceptance for failure of the presentment to comply with the terms of the
instrument, an agreement of the parties, or other law or applicable rule.
d. 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 two p.m. for
the receipt and processing of instruments presented for payment or acceptance
and presentment is made after the cutoff hour.
41-03-59. (3-502) Dishonor. 1. Dishonor of a note is governed by the following rules:
a. 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.
b. 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.
c. If the note is not payable on demand and subdivision b does not apply, the note is
dishonored if it is not paid on the day it becomes payable. 2. Dishonor of an unaccepted draft other than a documentary draft is governed by the
following rules:
a. 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 41-04-29 or 41-04-30, or becomes accountable for the
amount of the check under section 41-04-30.
b. If the draft is payable on demand and subdivision a 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.
c. If a draft is payable on a date stated in the draft, the draft is dishonored if
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 presentment for acceptance is duly made before the day the draft
becomes payable and the draft is not accepted on the day of presentment.
d. 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. 3. Dishonor of an unaccepted documentary draft occurs according to the rules stated in
subdivisions b, c, and e of subsection 2, 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. 4. Dishonor of an accepted draft is governed by the following rules:
a. 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.
b. 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. 5. In any case in which presentment is otherwise required for dishonor under this section
and presentment is excused under section 41-03-61, dishonor occurs without
presentment if the instrument is not duly accepted or paid. 6. 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.
41-03-60. (3-503) Notice of dishonor. 1. The obligation of an endorser stated in subsection 1 of section 41-03-52 and the
obligation of a drawer stated in subsection 3 of section 41-03-51 may not be enforced
unless the endorser or drawer is given notice of dishonor of the instrument complying
with this section or notice of dishonor is excused under subsection 3 of section
41-03-51. 2. 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 a sufficient notice of dishonor. 3. Subject to subsection 3 of section 41-03-61, with respect to an instrument taken for
collection by a collecting bank, notice must be given by the bank before midnight of the
next banking day following the banking day on which the bank receives the notice of
dishonor of the instrument and by any other person within thirty days following the day
on which dishonor occurs.
41-03-61. (3-504) Excused presentment and notice of dishonor. 1. Presentment for payment or acceptance of an instrument is excused if the person
entitled to present the instrument cannot with reasonable diligence make presentment;
the maker or acceptor has repudiated an obligation to pay the instrument or is dead or
in insolvency proceedings; by the terms of the instrument presentment is not
necessary to enforce the obligation of endorsers or the drawer; the drawer or endorser
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 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. 2. Notice of dishonor is excused if by the terms of the instrument notice of dishonor is not
necessary to enforce the obligation of a party to pay the instrument or if the party
whose obligation is being enforced waived notice of dishonor. A waiver of presentment
is also a waiver of notice of dishonor. 3. 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.
41-03-62. (3-505) Evidence of dishonor. 1. The following are admissible as evidence and create a presumption of dishonor and of
any notice of dishonor stated:
a. A document regular in form as provided in subsection 2 which purports to be a
protest.
b. 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.
c. A book or record of the drawee, payor bank, or collecting bank, kept in the usual
course of business which shows dishonor, even if there is no evidence of who
made the entry. 2. A protest is a certificate of dishonor made by a United States consul or vice consul, or
a notary public or other person authorized to administer oaths by the law of the place
where dishonor occurs. It may be made upon information satisfactory to that person.
The protest must 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.
41-03-63. (3-601) Discharge and effect of discharge. 1. The obligation of a party to pay the instrument is discharged as stated in this chapter
or by an act or agreement with the party which would discharge an obligation to pay
money under a simple contract. 2. 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.
41-03-64. (3-602) Payment. 1. Subject to subsection 2, an instrument is paid to the extent payment is made by or on
behalf of a party obliged to pay the instrument 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 41-03-32 by another person. 2. The obligation of a party to pay the instrument is not discharged under subsection 1 if
either:
a. A claim to the instrument under section 41-03-32 is enforceable against the party
receiving payment and payment is made with knowledge by the payor that
payment is prohibited by jurisdiction or, 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.
b. The person making payment knows that the instrument is a stolen instrument and
pays a person that it knows is in wrongful possession of the instrument.
41-03-65. (3-603) Tender of payment. 1. 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. 2. 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 endorser or accommodation party
having a right of recourse with respect to the obligation to which the tender relates. 3. If tender of payment of an amount due on an instrument is made to the 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.
41-03-66. (3-604) Discharge by cancellation or renunciation. 1. A person entitled to enforce an instrument may, with or without consideration,
discharge the obligation of a party to pay the instrument 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 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. 2. Cancellation or striking out of an endorsement under subsection 1 does not affect the
status and rights of a party derived from the endorsement.
41-03-67. (3-605) Discharge of endorsers and accommodation parties. 1. For the purposes of this section, the term "endorser" includes a drawer having the
obligation stated in subsection 3 of section 41-03-51. 2. Discharge under section 41-03-66 of the obligation of a party to pay an instrument
does not discharge the obligation of an endorser or accommodation party having a
right of recourse against the discharged party. 3. 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 endorser or accommodation party having a right of recourse
against the party whose obligation is extended to the extent the endorser or
accommodation party proves that the extension caused loss to the endorser or
accommodation party with respect to the right of recourse. 4. 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 endorser or accommodation
party having a right of recourse against the person whose obligation is modified to the
extent the modification causes loss to the endorser or accommodation party with
respect to the right of recourse. The endorser or accommodation party is deemed to
have suffered loss as a result of the modification 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 less than the
amount of the right of recourse. 5. 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 endorser 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 that 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 that the reduction in value of the interest causes an increase in
the amount by which the amount of the right of recourse exceeds the values of the
interest. The burden of proving impairment is on the party asserting discharge. 6. 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 subsection 5, 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. 7. Under subsection 5 or 6, impairing value of an interest in collateral includes failure to
obtain or maintain perfection or recordation of the interest in collateral; release of
collateral without substitution of collateral of equal value; failure to perform a duty to
preserve the value of collateral owed, under chapter 41-01 or other law, to a debtor or
surety or other person secondarily liable; or failure to comply with applicable law in
disposing of collateral. 8. An accommodation party is not discharged under subsection 3, 4, or 5 unless the
person entitled to enforce the instrument knows of the accommodation or has notice
under subsection 3 or 4 of section 41-03-56 that the instrument was signed for
accommodation. 9. A party is not discharged under this section if the party asserting discharge consents to
the event or conduct that is the basis of the discharge or 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.