(810 ILCS 5/Art. 3 Pt. 4 heading)
PART 4.
LIABILITY OF PARTIES
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(810 ILCS 5/3-401) (from Ch. 26, par. 3-401)
Sec. 3-401.
Signature.
(a) A person is not liable on an instrument unless (i) the person
signed the instrument, or (ii) the person is represented by an agent or
representative who signed the instrument and the signature is binding on
the represented person under Section 3-402.
(b) A signature may be made (i) manually or by means of a device or
machine, and (ii) by the use of any name, including any trade or assumed
name, or by a word, mark, or symbol executed or adopted by a person
with present intention to authenticate a writing.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-402) (from Ch. 26, par. 3-402)
Sec. 3-402.
Signature by representative.
(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.
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(2) Subject to subsection (c), if (i) the form of the
| | signature does not show unambiguously that the signature is made in a representative capacity or (ii) 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.
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(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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-403) (from Ch. 26, par. 3-403)
Sec. 3-403.
Unauthorized signature.
(a) Unless otherwise provided in this Article or Article 4, 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 Article.
(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 missing.
(c) The civil or criminal liability of a person who makes an
unauthorized signature is not affected by any provision of this Article
which makes the unauthorized signature effective for the purposes
of this Article.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-404) (from Ch. 26, par. 3-404)
Sec. 3-404.
Impostors; fictitious payees.
(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 (Section 3-110(a) or (b)) 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
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(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.
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(c) Under subsection (a) or (b), an indorsement is made in the name of a
payee if (i) it is made in a name substantially similar to that of the
payee or (ii) 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 subsection (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 substantially 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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-405) (from Ch. 26, par. 3-405)
Sec. 3-405.
Employer responsibility for fraudulent indorsement by employee.
(a) In this Section:
(1) "Employee" includes an independent contractor and
| | employee of an independent contractor retained by the employer.
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(2) "Fraudulent indorsement" means (i) in the case of
| | an instrument payable to the employer, a forged indorsement purporting to be that of the employer, or (ii) 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.
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(3) "Responsibility" with respect to instruments
| | means authority (i) to sign or indorse instruments on behalf of the employer, (ii) to process instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition, (iii) to prepare or process instruments for issue in the name of the employer, (iv) to supply information determining the names or addresses of payees of instruments to be issued in the name of the employer, (v) to control the disposition of instruments to be issued in the name of the employer, or (vi) to otherwise act 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.
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(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 substantially 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 subsection (b), an indorsement is made in the name of the
person to whom an instrument is payable if (i) it is made in a name
substantially similar to the name of that person or (ii) 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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-406) (from Ch. 26, par. 3-406)
Sec. 3-406.
Negligence contributing to forged signature or alteration of
instrument.
(a) A person whose failure to exercise ordinary care substantially
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 subsection (a), if the person asserting the preclusion
fails to exercise ordinary care in paying or taking the instrument and that
failure substantially 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 subsection (a), the burden of proving failure to exercise
ordinary care is on the person asserting the preclusion. Under subsection
(b), the burden of proving failure to exercise ordinary care is on the person
precluded.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-407) (from Ch. 26, par. 3-407)
Sec. 3-407.
Alteration.
(a) "Alteration" means (i) an unauthorized change in an instrument that
purports to modify in any respect the obligation of a party, or (ii) 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 subsection (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 (i) according
to its original terms, or (ii) in the case of an incomplete instrument
altered by unauthorized completion, according to its terms as completed.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-408) (from Ch. 26, par. 3-408)
Sec. 3-408.
Drawee not liable on unaccepted draft.
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.
(Source: P.A. 87-582.)
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(810 ILCS 5/3-409) (from Ch. 26, par. 3-409)
Sec. 3-409.
Acceptance of draft; certified check.
(a) "Acceptance" means the drawee's signed agreement to pay a draft as
presented. It must 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 subsection (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.
(Source: P.A. 87-582.)
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(810 ILCS 5/3-410) (from Ch. 26, par. 3-410)
Sec. 3-410.
Acceptance varying draft.
(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.
(Source: P.A. 87-582.)
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(810 ILCS 5/3-411) (from Ch. 26, par. 3-411)
Sec. 3-411.
Refusal to pay cashier's checks, teller's checks, and
certified checks.
(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 (i) refuses to pay a cashier's
check or certified check, (ii) stops payment of a teller's check, or (iii)
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 subsection (b) are not
recoverable if the refusal of the obligated bank to pay occurs because (i)
the bank suspends payments, (ii) 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, (iii) the obligated
bank has a reasonable doubt whether the person demanding payment is the
person entitled to enforce the instrument, or (iv) payment is prohibited
by law.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-412) (from Ch. 26, par. 3-412)
Sec. 3-412.
Obligation of issuer of note or cashier's check.
The issuer of a note or cashier's check or other draft drawn
on the drawer is obliged to pay the instrument (i) 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 (ii) if
the issuer signed an incomplete instrument, according to its
terms when completed, to the extent stated in Sections 3-115 and
3-407. The obligation is owed to a person entitled to enforce the
instrument or to an indorser who paid the instrument under Section 3-415.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-413) (from Ch. 26, par. 3-413)
Sec. 3-413.
Obligation of acceptor.
(a) The acceptor of a draft is obliged to pay the draft (i) 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, (ii)
if the acceptance varies the terms of the draft, according to the terms of
the draft as varied, or (iii) if the acceptance is of a draft that is an
incomplete instrument, according to its terms when completed, to the
extent stated in Sections 3-115 and 3-407. 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 3-414 or 3-415.
(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 (i) the certification or acceptance does not state an
amount, (ii) the amount of the instrument is subsequently raised, and (iii)
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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-414) (from Ch. 26, par. 3-414)
Sec. 3-414.
Obligation of drawer.
(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 (i) 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 (ii) if
the drawer signed an incomplete instrument, according to its terms when
completed as stated in Sections 3-115 and 3-407. The obligation is owed to
a person entitled to enforce the draft or to an indorser who paid the
draft under Section 3-415.
(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 Section
3-415(a) and (c).
(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 subsection (b) to pay the draft if the draft is not a check.
A disclaimer of the liability stated in subsection (b) is not effective if the
draft is a check.
(f) If (i) a check is not presented for payment or given to a depositary
bank for collection within 30 days after its date, (ii) the drawee suspends
payments after expiration of the 30-day period without paying the check,
and (iii) 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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-415) (from Ch. 26, par. 3-415)
Sec. 3-415.
Obligation of indorser.
(a) Subject to subsections (b), (c), and (d) and to Section 3-419(d), if
an instrument is dishonored, an indorser is obliged to pay the amount due
on the instrument (i) according to the terms of the instrument at the time
it was indorsed, or (ii) if the indorser indorsed an incomplete instrument,
according to its terms when completed to the extent stated in Sections 3-115
and 3-407. 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 subsection (a) to pay the instrument.
(c) If notice of dishonor of an instrument is required by Section 3-503
and notice of dishonor complying with that Section is not given to an
indorser, the liability of the indorser under subsection (a) is discharged.
(d) If a draft is accepted by a bank after an indorsement is made, the
liability of the indorser under subsection (a) is discharged.
(e) If an indorser of a check is liable under subsection (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 subsection (a) is discharged.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-416) (from Ch. 26, par. 3-416)
Sec. 3-416.
Transfer warranties.
(a) A person who transfers an instrument for consideration warrants to
the transferee and, if the transfer is by indorsement, to any subsequent
transferee that:
(1) the warrantor is a person entitled to enforce the
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(2) all signatures on the instrument are authentic
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(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, and
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(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.
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(b) A person to whom the warranties under subsection (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 subsection (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 subsection (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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-417) (from Ch. 26, par. 3-417)
Sec. 3-417.
Presentment warranties.
(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 making payment or accepting the draft in good faith that:
(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;
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(2) the draft has not been altered; and
(3) the warrantor has no knowledge that the signature
| | of the purported drawer of the draft is unauthorized.
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(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 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 this subsection.
(c) If a drawee asserts a claim for breach of warranty under subsection
(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 3-404 or 3-405 or the drawer is precluded under
Section 3-406 or 4-406 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.
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(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.
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(e) The warranties stated in subsections (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 subsection (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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-418) (from Ch. 26, par. 3-418)
Sec. 3-418.
Payment or acceptance by mistake.
(a) Except as provided in subsection (c), if the drawee of a draft pays
or accepts the draft and the drawee acted on the mistaken belief that (i)
payment of the draft had not been stopped under Section 4-403 or (ii) 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 subsection are not affected by
failure of the drawee to exercise ordinary care in paying or accepting
the draft.
(b) Except as provided in subsection (c), if an instrument has been paid
or accepted by mistake and the case is not covered by subsection (a), the
person paying or accepting may, to the extent permitted by the law
governing mistake and restitution, (i) recover the payment from the person
to whom or for whose benefit payment was made or (ii) in the case of
acceptance, may revoke the acceptance.
(c) The remedies provided by subsection (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 subsection does not limit remedies provided by Section 3-417 or 4-407.
(d) Notwithstanding Section 4-215, if an instrument is paid or accepted
by mistake and the payor or acceptor recovers payment or revokes acceptance
under subsection (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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-419) (from Ch. 26, par. 3-419)
Sec. 3-419.
Instruments signed for accommodation.
(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 subsection (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 3-605, 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 (i) execution of judgment
against the other party has been returned unsatisfied, (ii) the other party
is insolvent or in an insolvency proceeding, (iii) the other party cannot
be served with process, or (iv) 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 that pays
the instrument has no right of recourse against, and is not entitled to
contribution from, an accommodation party.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/3-420) (from Ch. 26, par. 3-420)
Sec. 3-420.
Conversion of instrument.
(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 (i) the issuer or acceptor of
the instrument or (ii) a payee or indorsee who did not receive delivery of the
instrument either directly or through delivery to an agent or a co-payee.
(b) In an action under subsection (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, 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.
(Source: P.A. 87-582; 87-1135.)
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