1.1                          A bill for an act 
  1.2             relating to commerce; modifying and enacting the 
  1.3             amendments to Articles 3 and 4 of the Uniform 
  1.4             Commercial Code recommended by the National Conference 
  1.5             of Commissioners on Uniform State Laws; amending 
  1.6             Minnesota Statutes 2002, sections 336.3-103; 
  1.7             336.3-106; 336.3-116; 336.3-119; 336.3-305; 336.3-309; 
  1.8             336.3-312; 336.3-416; 336.3-417; 336.3-419; 336.3-602; 
  1.9             336.3-604; 336.3-605; 336.4-104; 336.4-207; 336.4-208; 
  1.10            336.4-212; 336.4-301; 336.4-403. 
  1.11  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.12                             ARTICLE 1
  1.13          AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 3
  1.14     Section 1.  Minnesota Statutes 2002, section 336.3-103, is 
  1.15  amended to read: 
  1.16     336.3-103 [DEFINITIONS.] 
  1.17     (a) In this article: 
  1.18     (1) "Acceptor" means a drawee who has accepted a draft. 
  1.19     (2) "Consumer account" means an account established by an 
  1.20  individual primarily for personal, family, or household purposes.
  1.21     (3) "Consumer transaction" means a transaction in which an 
  1.22  individual incurs an obligation primarily for personal, family, 
  1.23  or household purposes. 
  1.24     (4) "Drawee" means a person ordered in a draft to make 
  1.25  payment. 
  1.26     (3) (5) "Drawer" means a person who signs or is identified 
  1.27  in a draft as a person ordering payment. 
  1.28     (4) (6) "Good faith" means honesty in fact and the 
  2.1   observance of reasonable commercial standards of fair dealing. 
  2.2      (5) (7) "Maker" means a person who signs or is identified 
  2.3   in a note as a person undertaking to pay. 
  2.4      (6) (8) "Order" means a written instruction to pay money 
  2.5   signed by the person giving the instruction.  The instruction 
  2.6   may be addressed to any person, including the person giving the 
  2.7   instruction, or to one or more persons jointly or in the 
  2.8   alternative but not in succession.  An authorization to pay is 
  2.9   not an order unless the person authorized to pay is also 
  2.10  instructed to pay. 
  2.11     (7) (9) "Ordinary care" in the case of a person engaged in 
  2.12  business means observance of reasonable commercial standards, 
  2.13  prevailing in the area in which the person is located, with 
  2.14  respect to the business in which the person is engaged.  In the 
  2.15  case of a bank that takes an instrument for processing for 
  2.16  collection or payment by automated means, reasonable commercial 
  2.17  standards do not require the bank to examine the instrument if 
  2.18  the failure to examine does not violate the bank's prescribed 
  2.19  procedures and the bank's procedures do not vary unreasonably 
  2.20  from general banking usage not disapproved by this article or 
  2.21  article 4. 
  2.22     (8) (10) "Party" means a party to an instrument. 
  2.23     (11) "Principal obligor," with respect to an instrument, 
  2.24  means the accommodated party or any other party to the 
  2.25  instrument against whom a secondary obligor has recourse under 
  2.26  this article. 
  2.27     (9) (12) "Promise" means a written undertaking to pay money 
  2.28  signed by the person undertaking to pay.  An acknowledgment of 
  2.29  an obligation by the obligor is not a promise unless the obligor 
  2.30  also undertakes to pay the obligation. 
  2.31     (10) (13) "Prove" with respect to a fact means to meet the 
  2.32  burden of establishing the fact (section 336.1-201(8)). 
  2.33     (14) "Record" means information that is inscribed on a 
  2.34  tangible medium or that is stored in an electronic or other 
  2.35  medium and is retrievable in perceivable form. 
  2.36     (11) (15) "Remitter" means a person who purchases an 
  3.1   instrument from its issuer if the instrument is payable to an 
  3.2   identified person other than the purchaser. 
  3.3      (16) "Remotely-created item" means an item that is not 
  3.4   created by the payor bank and does not bear a handwritten or 
  3.5   facsimile signature purporting to be the signature of the drawer.
  3.6      (17) "Secondary obligor," with respect to an instrument, 
  3.7   means (a) an endorser or an accommodation party, (b) a drawer 
  3.8   having the obligation described in section 336.3-414(d), or (c) 
  3.9   any other party to the instrument that has recourse against 
  3.10  another party to the instrument pursuant to section 336.3-116(b).
  3.11     (b) Other definitions applying to this article and the 
  3.12  sections in which they appear are: 
  3.13     "Acceptance," section 336.3-409. 
  3.14     "Accommodated party," section 336.3-419. 
  3.15     "Accommodation party," section 336.3-419. 
  3.16     "Account," section 336.4-104. 
  3.17     "Alteration," section 336.3-407. 
  3.18     "Anomalous endorsement," section 336.3-205.  
  3.19     "Blank endorsement," section 336.3-205.  
  3.20     "Cashier's check," section 336.3-104. 
  3.21     "Certificate of deposit," section 336.3-104. 
  3.22     "Certified check," section 336.3-409.  
  3.23     "Check," section 336.3-104. 
  3.24     "Consideration," section 336.3-303. 
  3.25     "Draft," section 336.3-104. 
  3.26     "Endorsement," section 336.3-204.  
  3.27     "Endorser," section 336.3-204. 
  3.28     "Holder in due course," section 336.3-302. 
  3.29     "Incomplete instrument," section 336.3-115. 
  3.30     "Instrument," section 336.3-104. 
  3.31     "Issue," section 336.3-105. 
  3.32     "Issuer," section 336.3-105. 
  3.33     "Negotiable instrument," section 336.3-104. 
  3.34     "Negotiation," section 336.3-201. 
  3.35     "Note," section 336.3-104. 
  3.36     "Payable at a definite time," section 336.3-108. 
  4.1      "Payable on demand," section 336.3-108. 
  4.2      "Payable to bearer," section 336.3-109. 
  4.3      "Payable to order," section 336.3-109. 
  4.4      "Payment," section 336.3-602. 
  4.5      "Person entitled to enforce," section 336.3-301. 
  4.6      "Presentment," section 336.3-501. 
  4.7      "Reacquisition," section 336.3-207. 
  4.8      "Special endorsement," section 336.3-205.  
  4.9      "Teller's check," section 336.3-104. 
  4.10     "Transfer of instrument," section 336.3-203. 
  4.11     "Traveler's check," section 336.3-104. 
  4.12     "Value," section 336.3-303. 
  4.13     (c) The following definitions in other articles apply to 
  4.14  this article: 
  4.15     "Bank," section 336.4-105. 
  4.16     "Banking day," section 336.4-104. 
  4.17     "Clearinghouse," section 336.4-104. 
  4.18     "Collecting bank," section 336.4-105. 
  4.19     "Depositary bank," section 336.4-105. 
  4.20     "Documentary draft," section 336.4-104. 
  4.21     "Intermediary bank," section 336.4-105. 
  4.22     "Item," section 336.4-104. 
  4.23     "Payor bank," section 336.4-105. 
  4.24     "Suspends payments," section 336.4-104. 
  4.25     (d) In addition, article 1 contains general definitions and 
  4.26  principles of construction and interpretation applicable 
  4.27  throughout this article. 
  4.28     Sec. 2.  Minnesota Statutes 2002, section 336.3-106, is 
  4.29  amended to read: 
  4.30     336.3-106 [UNCONDITIONAL PROMISE OR ORDER.] 
  4.31     (a) Except as provided in this section, for the purposes of 
  4.32  section 336.3-104(a), a promise or order is unconditional unless 
  4.33  it states (i) an express condition to payment, (ii) that the 
  4.34  promise or order is subject to or governed by another 
  4.35  writing record, or (iii) that rights or obligations with respect 
  4.36  to the promise or order are stated in another writing record.  A 
  5.1   reference to another writing record does not of itself make the 
  5.2   promise or order conditional. 
  5.3      (b) A promise or order is not made conditional (i) by a 
  5.4   reference to another writing record for a statement of rights 
  5.5   with respect to collateral, prepayment, or acceleration, or (ii) 
  5.6   because payment is limited to resort to a particular fund or 
  5.7   source. 
  5.8      (c) If a promise or order requires, as a condition to 
  5.9   payment, a countersignature by a person whose specimen signature 
  5.10  appears on the promise or order, the condition does not make the 
  5.11  promise or order conditional for the purposes of section 
  5.12  336.3-104(a).  If the person whose specimen signature appears on 
  5.13  an instrument fails to countersign the instrument, the failure 
  5.14  to countersign is a defense to the obligation of the issuer, but 
  5.15  the failure does not prevent a transferee of the instrument from 
  5.16  becoming a holder of the instrument. 
  5.17     (d) If a promise or order at the time it is issued or first 
  5.18  comes into possession of a holder contains a statement, required 
  5.19  by applicable statutory or administrative law, to the effect 
  5.20  that the rights of a holder or transferee are subject to claims 
  5.21  or defenses that the issuer could assert against the original 
  5.22  payee, the promise or order is not thereby made conditional for 
  5.23  the purposes of section 336.3-104(a); but if the promise or 
  5.24  order is an instrument, there cannot be a holder in due course 
  5.25  of the instrument. 
  5.26     Sec. 3.  Minnesota Statutes 2002, section 336.3-116, is 
  5.27  amended to read: 
  5.28     336.3-116 [JOINT AND SEVERAL LIABILITY; CONTRIBUTION.] 
  5.29     (a) Except as otherwise provided in the instrument, two or 
  5.30  more persons who have the same liability on an instrument as 
  5.31  makers, drawers, acceptors, endorsers who endorse as joint 
  5.32  payees, or anomalous endorsers are jointly and severally liable 
  5.33  in the capacity in which they sign. 
  5.34     (b) Except as provided in section 336.3-419(e) or by 
  5.35  agreement of the affected parties, a party having joint and 
  5.36  several liability who pays the instrument is entitled to receive 
  6.1   from any party having the same joint and several liability 
  6.2   contribution in accordance with applicable law. 
  6.3      (c) Discharge of one party having joint and several 
  6.4   liability by a person entitled to enforce the instrument does 
  6.5   not affect the right under subsection (b) of a party having the 
  6.6   same joint and several liability to receive contribution from 
  6.7   the party discharged. 
  6.8      Sec. 4.  Minnesota Statutes 2002, section 336.3-119, is 
  6.9   amended to read: 
  6.10     336.3-119 [NOTICE OF RIGHT TO DEFEND ACTION.] 
  6.11     In an action for breach of an obligation for which a third 
  6.12  person is answerable over pursuant to this article or article 4, 
  6.13  the defendant may give the third person written notice of the 
  6.14  litigation in a record, and the person notified may then give 
  6.15  similar notice to any other person who is answerable over.  If 
  6.16  the notice states (i) that the person notified may come in and 
  6.17  defend and (ii) that failure to do so will bind the person 
  6.18  notified in an action later brought by the person giving the 
  6.19  notice as to any determination of fact common to the two 
  6.20  litigations, the person notified is so bound unless after 
  6.21  seasonable receipt of the notice the person notified does come 
  6.22  in and defend. 
  6.23     Sec. 5.  Minnesota Statutes 2002, section 336.3-305, is 
  6.24  amended to read: 
  6.25     336.3-305 [DEFENSES AND CLAIMS IN RECOUPMENT.] 
  6.26     (a) Except as stated in subsection (b) otherwise provided 
  6.27  in this section, the right to enforce the obligation of a party 
  6.28  to pay an instrument is subject to the following: 
  6.29     (1) a defense of the obligor based on (i) infancy of the 
  6.30  obligor to the extent it is a defense to a simple contract, (ii) 
  6.31  duress, lack of legal capacity, or illegality of the transaction 
  6.32  which, under other law, nullifies the obligation of the obligor, 
  6.33  (iii) fraud that induced the obligor to sign the instrument with 
  6.34  neither knowledge nor reasonable opportunity to learn of its 
  6.35  character or its essential terms, or (iv) discharge of the 
  6.36  obligor in insolvency proceedings; 
  7.1      (2) a defense of the obligor stated in another section of 
  7.2   this article or a defense of the obligor that would be available 
  7.3   if the person entitled to enforce the instrument were enforcing 
  7.4   a right to payment under a simple contract; and 
  7.5      (3) a claim in recoupment of the obligor against the 
  7.6   original payee of the instrument if the claim arose from the 
  7.7   transaction that gave rise to the instrument; but the claim of 
  7.8   the obligor may be asserted against a transferee of the 
  7.9   instrument only to reduce the amount owing on the instrument at 
  7.10  the time the action is brought. 
  7.11     (b) The right of a holder in due course to enforce the 
  7.12  obligation of a party to pay the instrument is subject to 
  7.13  defenses of the obligor stated in subsection (a)(1), but is not 
  7.14  subject to defenses of the obligor stated in subsection (a)(2) 
  7.15  or claims in recoupment stated in subsection (a)(3) against a 
  7.16  person other than the holder. 
  7.17     (c) Except as stated in subsection (d), in an action to 
  7.18  enforce the obligation of a party to pay the instrument, the 
  7.19  obligor may not assert against the person entitled to enforce 
  7.20  the instrument a defense, claim in recoupment, or claim to the 
  7.21  instrument (section 336.3-306) of another person, but the other 
  7.22  person's claim to the instrument may be asserted by the obligor 
  7.23  if the other person is joined in the action and personally 
  7.24  asserts the claim against the person entitled to enforce the 
  7.25  instrument.  An obligor is not obliged to pay the instrument if 
  7.26  the person seeking enforcement of the instrument does not have 
  7.27  rights of a holder in due course and the obligor proves that the 
  7.28  instrument is a lost or stolen instrument. 
  7.29     (d) In an action to enforce the obligation of an 
  7.30  accommodation party to pay an instrument, the accommodation 
  7.31  party may assert against the person entitled to enforce the 
  7.32  instrument any defense or claim in recoupment under subsection 
  7.33  (a) that the accommodated party could assert against the person 
  7.34  entitled to enforce the instrument, except the defenses of 
  7.35  discharge in insolvency proceedings, infancy, and lack of legal 
  7.36  capacity. 
  8.1      (e) In a consumer transaction, if law other than this 
  8.2   article requires that an instrument include a statement to the 
  8.3   effect that the rights of a holder or transferee are subject to 
  8.4   a claim or defense that the issuer could assert against the 
  8.5   original payee, and the instrument does not include such a 
  8.6   statement: 
  8.7      (1) the instrument has the same effect as if the instrument 
  8.8   included such a statement; 
  8.9      (2) the issuer may assert against the holder or transferee 
  8.10  all claims and defenses that would have been available if the 
  8.11  instrument included such a statement; and 
  8.12     (3) the extent to which claims may be asserted against the 
  8.13  holder or transferee is determined as if the instrument included 
  8.14  such a statement. 
  8.15     (f) This section is subject to law other than this article 
  8.16  that establishes a different rule for consumer transactions. 
  8.17     Sec. 6.  Minnesota Statutes 2002, section 336.3-309, is 
  8.18  amended to read: 
  8.19     336.3-309 [ENFORCEMENT OF LOST, DESTROYED, OR STOLEN 
  8.20  INSTRUMENT.] 
  8.21     (a) A person not in possession of an instrument is entitled 
  8.22  to enforce the instrument if (i) the person was in possession of 
  8.23  the instrument and 
  8.24     (1) the person seeking to enforce the instrument (A) was 
  8.25  entitled to enforce it the instrument when loss of possession 
  8.26  occurred, (ii) or (B) has directly or indirectly acquired 
  8.27  ownership of the instrument from a person who was entitled to 
  8.28  enforce the instrument when loss of possession occurred; 
  8.29     (2) the loss of possession was not the result of a transfer 
  8.30  by the person or a lawful seizure,; and 
  8.31     (iii) (3) the person cannot reasonably obtain possession of 
  8.32  the instrument because the instrument was destroyed, its 
  8.33  whereabouts cannot be determined, or it is in the wrongful 
  8.34  possession of an unknown person or a person that cannot be found 
  8.35  or is not amenable to service of process. 
  8.36     (b) A person seeking enforcement of an instrument under 
  9.1   subsection (a) must prove the terms of the instrument and the 
  9.2   person's right to enforce the instrument.  If that proof is 
  9.3   made, section 336.3-308 applies to the case as if the person 
  9.4   seeking enforcement had produced the instrument.  The court may 
  9.5   not enter judgment in favor of the person seeking enforcement 
  9.6   unless it finds that the person required to pay the instrument 
  9.7   is adequately protected against loss that might occur by reason 
  9.8   of a claim by another person to enforce the instrument.  
  9.9   Adequate protection may be provided by any reasonable means. 
  9.10     Sec. 7.  Minnesota Statutes 2002, section 336.3-312, is 
  9.11  amended to read: 
  9.12     336.3-312 [LOST, DESTROYED, OR STOLEN CASHIER'S CHECK, 
  9.13  TELLER'S CHECK, OR CERTIFIED CHECK.] 
  9.14     (a) In this section:  
  9.15     (1) "Check" means a cashier's check, teller's check, or 
  9.16  certified check.  
  9.17     (2) "Claimant" means a person who claims the right to 
  9.18  receive the amount of a cashier's check, teller's check, or 
  9.19  certified check that was lost, destroyed, or stolen.  
  9.20     (3) "Declaration of loss" means a written statement, made 
  9.21  in a record under penalty of perjury, to the effect that (i) the 
  9.22  declarer lost possession of a check, (ii) the declarer is the 
  9.23  drawer or payee of the check, in the case of a certified check, 
  9.24  or the remitter or payee of the check, in the case of a 
  9.25  cashier's check or teller's check, (iii) the loss of possession 
  9.26  was not the result of a transfer by the declarer or a lawful 
  9.27  seizure, and (iv) the declarer cannot reasonably obtain 
  9.28  possession of the check because the check was destroyed, its 
  9.29  whereabouts cannot be determined, or it is in the wrongful 
  9.30  possession of an unknown person or a person that cannot be found 
  9.31  or is not amenable to service of process.  
  9.32     (4) "Obligated bank" means the issuer of a cashier's check 
  9.33  or teller's check or the acceptor of a certified check.  
  9.34     (b) A claimant may assert a claim to the amount of a check 
  9.35  by a communication to the obligated bank describing the check 
  9.36  with reasonable certainty and requesting payment of the amount 
 10.1   of the check, if (i) the claimant is the drawer or payee of a 
 10.2   certified check or the remitter or payee of a cashier's check or 
 10.3   teller's check, (ii) the communication contains or is 
 10.4   accompanied by a declaration of loss of the claimant with 
 10.5   respect to the check, (iii) the communication is received at a 
 10.6   time and in a manner affording the bank a reasonable time to act 
 10.7   on it before the check is paid, and (iv) the claimant provides 
 10.8   reasonable identification if requested by the obligated bank.  
 10.9   Delivery of a declaration of loss is a warranty of the truth of 
 10.10  the statements made in the declaration.  If a claim is asserted 
 10.11  in compliance with this subsection, the following rules apply:  
 10.12     (1) The claim becomes enforceable at the later of (i) the 
 10.13  time the claim is asserted, or (ii) the 90th day following the 
 10.14  date of the check, in the case of a cashier's check or teller's 
 10.15  check, or the 90th day following the date of the acceptance, in 
 10.16  the case of a certified check.  
 10.17     (2) Until the claim becomes enforceable, it has no legal 
 10.18  effect and the obligated bank must pay the check or, in the case 
 10.19  of a teller's check, may permit the drawee to pay the check.  
 10.20  Payment to a person entitled to enforce the check discharges all 
 10.21  liability of the obligated bank with respect to the check.  
 10.22     (3) If the claim becomes enforceable before the check is 
 10.23  presented for payment, the obligated bank is not obliged to pay 
 10.24  the check.  
 10.25     (4) When the claim becomes enforceable, the obligated bank 
 10.26  becomes obliged to pay the amount of the check to the claimant 
 10.27  if payment of the check has not been made to a person entitled 
 10.28  to enforce the check.  Subject to section 336.4-302(a)(1), 
 10.29  payment to the claimant discharges all liability of the 
 10.30  obligated bank with respect to the check.  
 10.31     (c) If the obligated bank pays the amount of a check to a 
 10.32  claimant under subsection (b)(4) and the check is presented for 
 10.33  payment by a person having rights of a holder in due course, the 
 10.34  claimant is obliged to (i) refund the payment to the obligated 
 10.35  bank if the check is paid, or (ii) pay the amount of the check 
 10.36  to the person having rights of a holder in due course if the 
 11.1   check is dishonored.  
 11.2      (d) If a claimant has the right to assert a claim under 
 11.3   subsection (b) and is also a person entitled to enforce a 
 11.4   cashier's check, teller's check, or certified check which is 
 11.5   lost, destroyed, or stolen, the claimant may assert rights with 
 11.6   respect to the check either under this section or section 
 11.7   336.3-309. 
 11.8      Sec. 8.  Minnesota Statutes 2002, section 336.3-416, is 
 11.9   amended to read: 
 11.10     336.3-416 [TRANSFER WARRANTIES.] 
 11.11     (a) A person who transfers an instrument for consideration 
 11.12  warrants to the transferee and, if the transfer is by 
 11.13  endorsement, to any subsequent transferee that:  
 11.14     (1) the warrantor is a person entitled to enforce the 
 11.15  instrument; 
 11.16     (2) all signatures on the instrument are authentic and 
 11.17  authorized; 
 11.18     (3) the instrument has not been altered; 
 11.19     (4) the instrument is not subject to a defense or claim in 
 11.20  recoupment of any party which can be asserted against the 
 11.21  warrantor; and 
 11.22     (5) the warrantor has no knowledge of any insolvency 
 11.23  proceeding commenced with respect to the maker or acceptor or, 
 11.24  in the case of an unaccepted draft, the drawer; and 
 11.25     (6) with respect to a remotely-created item, the person on 
 11.26  whose account the item is drawn authorized the issuance of the 
 11.27  item in the amount for which the item is drawn.  
 11.28     (b) A person to whom the warranties under subsection (a) 
 11.29  are made and who took the instrument in good faith may recover 
 11.30  from the warrantor as damages for breach of warranty an amount 
 11.31  equal to the loss suffered as a result of the breach, but not 
 11.32  more than the amount of the instrument plus expenses and loss of 
 11.33  interest incurred as a result of the breach. 
 11.34     (c) The warranties stated in subsection (a) cannot be 
 11.35  disclaimed with respect to checks.  Unless notice of a claim for 
 11.36  breach of warranty is given to the warrantor within 30 days 
 12.1   after the claimant has reason to know of the breach and the 
 12.2   identity of the warrantor, the liability of the warrantor under 
 12.3   subsection (b) is discharged to the extent of any loss caused by 
 12.4   the delay in giving notice of the claim.  
 12.5      (d) A cause of action for breach of warranty under this 
 12.6   section accrues when the claimant has reason to know of the 
 12.7   breach.  
 12.8      (e) No claim for breach of the warranty in subsection 
 12.9   (a)(6) is available against a person to which an item was 
 12.10  transferred to the extent that under applicable law (including 
 12.11  the applicable choice-of-law principles) the person that 
 12.12  transferred the item to that person did not make the warranty in 
 12.13  subsection (a)(6). 
 12.14     Sec. 9.  Minnesota Statutes 2002, section 336.3-417, is 
 12.15  amended to read: 
 12.16     336.3-417 [PRESENTMENT WARRANTIES.] 
 12.17     (a) If an unaccepted draft is presented to the drawee for 
 12.18  payment or acceptance and the drawee pays or accepts the draft, 
 12.19  (i) the person obtaining payment or acceptance, at the time of 
 12.20  presentment, and (ii) a previous transferor of the draft, at the 
 12.21  time of transfer, warrant to the drawee making payment or 
 12.22  accepting the draft in good faith that:  
 12.23     (1) the warrantor is, or was, at the time the warrantor 
 12.24  transferred the draft, a person entitled to enforce the draft or 
 12.25  authorized to obtain payment or acceptance of the draft on 
 12.26  behalf of a person entitled to enforce the draft; 
 12.27     (2) the draft has not been altered; and 
 12.28     (3) the warrantor has no knowledge that the signature of 
 12.29  the drawer of the draft is unauthorized; and 
 12.30     (4) with respect to any remotely-created item, the person 
 12.31  on whose account the item is drawn authorized the issuance of 
 12.32  the item in the amount for which the item is drawn.  
 12.33     (b) A drawee making payment may recover from any warrantor 
 12.34  damages for breach of warranty equal to the amount paid by the 
 12.35  drawee less the amount the drawee received or is entitled to 
 12.36  receive from the drawer because of the payment.  In addition, 
 13.1   the drawee is entitled to compensation for expenses and loss of 
 13.2   interest resulting from the breach.  The right of the drawee to 
 13.3   recover damages under this subsection is not affected by any 
 13.4   failure of the drawee to exercise ordinary care in making 
 13.5   payment.  If the drawee accepts the draft, breach of warranty is 
 13.6   a defense to the obligation of the acceptor.  If the acceptor 
 13.7   makes payment with respect to the draft, the acceptor is 
 13.8   entitled to recover from any warrantor for breach of warranty 
 13.9   the amounts stated in this subsection.  
 13.10     (c) If a drawee asserts a claim for breach of warranty 
 13.11  under subsection (a) based on an unauthorized endorsement of the 
 13.12  draft or an alteration of the draft, the warrantor may defend by 
 13.13  proving that the endorsement is effective under section 
 13.14  336.3-404 or 336.3-405 or the drawer is precluded under section 
 13.15  336.3-406 or 336.4-406 from asserting against the drawee the 
 13.16  unauthorized endorsement or alteration.  
 13.17     (d) If (i) a dishonored draft is presented for payment to 
 13.18  the drawer or an endorser or (ii) any other instrument is 
 13.19  presented for payment to a party obliged to pay the instrument, 
 13.20  and (iii) payment is received, the following rules apply:  
 13.21     (1) The person obtaining payment and a prior transferor of 
 13.22  the instrument warrant to the person making payment in good 
 13.23  faith that the warrantor is, or was, at the time the warrantor 
 13.24  transferred the instrument, a person entitled to enforce the 
 13.25  instrument or authorized to obtain payment on behalf of a person 
 13.26  entitled to enforce the instrument.  
 13.27     (2) The person making payment may recover from any 
 13.28  warrantor for breach of warranty an amount equal to the amount 
 13.29  paid plus expenses and loss of interest resulting from the 
 13.30  breach.  
 13.31     (e) The warranties stated in subsections (a) and (d) cannot 
 13.32  be disclaimed with respect to checks.  Unless notice of a claim 
 13.33  for breach of warranty is given to the warrantor within 30 days 
 13.34  after the claimant has reason to know of the breach and the 
 13.35  identity of the warrantor, the liability of the warrantor under 
 13.36  subsection (b) or (d) is discharged to the extent of any loss 
 14.1   caused by the delay in giving notice of the claim.  
 14.2      (f) A cause of action for breach of warranty under this 
 14.3   section accrues when the claimant has reason to know of the 
 14.4   breach. 
 14.5      (g) No claim for breach of the warranty in subsection 
 14.6   (a)(4) is available against a person to which an item was 
 14.7   transferred to the extent that under applicable law (including 
 14.8   the applicable choice-of-law principles) the person that 
 14.9   transferred the item to that person did not make the warranty in 
 14.10  subsection (a)(4). 
 14.11     Sec. 10.  Minnesota Statutes 2002, section 336.3-419, is 
 14.12  amended to read: 
 14.13     336.3-419 [INSTRUMENTS SIGNED FOR ACCOMMODATION.] 
 14.14     (a) If an instrument is issued for value given for the 
 14.15  benefit of a party to the instrument ("accommodated party") and 
 14.16  another party to the instrument ("accommodation party") signs 
 14.17  the instrument for the purpose of incurring liability on the 
 14.18  instrument without being a direct beneficiary of the value given 
 14.19  for the instrument, the instrument is signed by the 
 14.20  accommodation party "for accommodation."  
 14.21     (b) An accommodation party may sign the instrument as 
 14.22  maker, drawer, acceptor, or endorser and, subject to subsection 
 14.23  (d), is obliged to pay the instrument in the capacity in which 
 14.24  the accommodation party signs.  The obligation of an 
 14.25  accommodation party may be enforced notwithstanding any statute 
 14.26  of frauds and whether or not the accommodation party receives 
 14.27  consideration for the accommodation.  
 14.28     (c) A person signing an instrument is presumed to be an 
 14.29  accommodation party and there is notice that the instrument is 
 14.30  signed for accommodation if the signature is an anomalous 
 14.31  endorsement or is accompanied by words indicating that the 
 14.32  signer is acting as surety or guarantor with respect to the 
 14.33  obligation of another party to the instrument.  Except as 
 14.34  provided in section 336.3-605, the obligation of an 
 14.35  accommodation party to pay the instrument is not affected by the 
 14.36  fact that the person enforcing the obligation had notice when 
 15.1   the instrument was taken by that person that the accommodation 
 15.2   party signed the instrument for accommodation.  
 15.3      (d) If the signature of a party to an instrument is 
 15.4   accompanied by words indicating unambiguously that the party is 
 15.5   guaranteeing collection rather than payment of the obligation of 
 15.6   another party to the instrument, the signer is obliged to pay 
 15.7   the amount due on the instrument to a person entitled to enforce 
 15.8   the instrument only if (i) execution of judgment against the 
 15.9   other party has been returned unsatisfied, (ii) the other party 
 15.10  is insolvent or in an insolvency proceeding, (iii) the other 
 15.11  party cannot be served with process, or (iv) it is otherwise 
 15.12  apparent that payment cannot be obtained from the other party.  
 15.13     (e) If the signature of a party to an instrument is 
 15.14  accompanied by words indicating that the party guarantees 
 15.15  payment or the signer signs the instrument as an accommodation 
 15.16  party in some other manner that does not unambiguously indicate 
 15.17  an intention to guarantee collection rather than payment, the 
 15.18  signer is obligated to pay the amount due on the instrument to a 
 15.19  person entitled to enforce the instrument in the same 
 15.20  circumstances as the accommodated party would be obliged, 
 15.21  without prior resort to the accommodated party by the person 
 15.22  entitled to enforce the instrument. 
 15.23     (f) An accommodation party who pays the instrument is 
 15.24  entitled to reimbursement from the accommodated party and is 
 15.25  entitled to enforce the instrument against the accommodated 
 15.26  party.  In proper circumstances, an accommodation party may 
 15.27  obtain relief that requires the accommodated party to perform 
 15.28  its obligations on the instrument.  An accommodated party who 
 15.29  that pays the instrument has no right of recourse against, and 
 15.30  is not entitled to contribution from, an accommodation party. 
 15.31     Sec. 11.  Minnesota Statutes 2002, section 336.3-602, is 
 15.32  amended to read: 
 15.33     336.3-602 [PAYMENT.] 
 15.34     (a) Subject to subsection (b) (e), an instrument is paid to 
 15.35  the extent payment is made (i) by or on behalf of a party 
 15.36  obliged to pay the instrument, and (ii) to a person entitled to 
 16.1   enforce the instrument.  
 16.2      (b) Subject to subsection (e), a note is paid to the extent 
 16.3   payment is made by or on behalf of a party obliged to pay the 
 16.4   note to a person that formerly was entitled to enforce the note 
 16.5   only if at the time of the payment the party obliged to pay has 
 16.6   not received adequate notification that the note has been 
 16.7   transferred and that payment is to be made to the transferee.  A 
 16.8   notification is adequate only if it is signed by the transferor 
 16.9   or the transferee; reasonably identifies the transferred note; 
 16.10  and provides an address at which payments subsequently are to be 
 16.11  made.  Upon request, a transferee shall seasonably furnish 
 16.12  reasonable proof that the note has been transferred.  Unless the 
 16.13  transferee complies with the request, a payment to the person 
 16.14  that formerly was entitled to enforce the note is effective for 
 16.15  purposes of subsection (c) even if the party obliged to pay the 
 16.16  note has received a notification under this paragraph. 
 16.17     (c) Subject to subsection (e), to the extent of the a 
 16.18  payment under subsections (a) and (b), the obligation of the 
 16.19  party obliged to pay the instrument is discharged even though 
 16.20  payment is made with knowledge of a claim to the instrument 
 16.21  under section 336.3-306 by another person.  
 16.22     (d) Subject to subsection (e), a transferee, or any party 
 16.23  that has acquired rights in the instrument directly or 
 16.24  indirectly from a transferee, including any such party that has 
 16.25  rights as a holder in due course, is deemed to have notice of 
 16.26  any payment that is made under subsection (b) after the date 
 16.27  that the note is transferred to the transferee but before the 
 16.28  party obliged to pay the note receives adequate notification of 
 16.29  the transfer. 
 16.30     (b) (e) The obligation of a party to pay the instrument is 
 16.31  not discharged under subsection subsections (a) through (d) if:  
 16.32     (1) a claim to the instrument under section 336.3-306 is 
 16.33  enforceable against the party receiving payment and (i) payment 
 16.34  is made with knowledge by the payor that payment is prohibited 
 16.35  by injunction or similar process of a court of competent 
 16.36  jurisdiction, or (ii) in the case of an instrument other than a 
 17.1   cashier's check, teller's check, or certified check, the party 
 17.2   making payment accepted, from the person having a claim to the 
 17.3   instrument, indemnity against loss resulting from refusal to pay 
 17.4   the person entitled to enforce the instrument; or 
 17.5      (2) the person making payment knows that the instrument is 
 17.6   a stolen instrument and pays a person it knows is in wrongful 
 17.7   possession of the instrument.  
 17.8      (f) As used in this section, "signed," with respect to a 
 17.9   record that is not a writing, includes the attachment to or 
 17.10  logical association with the record of an electronic symbol, 
 17.11  sound, or process with the present intent to adopt or accept the 
 17.12  record. 
 17.13     Sec. 12.  Minnesota Statutes 2002, section 336.3-604, is 
 17.14  amended to read: 
 17.15     336.3-604 [DISCHARGE BY CANCELLATION OR RENUNCIATION.] 
 17.16     (a) A person entitled to enforce an instrument, with or 
 17.17  without consideration, may discharge the obligation of a party 
 17.18  to pay the instrument (i) by an intentional voluntary act, such 
 17.19  as surrender of the instrument to the party, destruction, 
 17.20  mutilation, or cancellation of the instrument, cancellation or 
 17.21  striking out of the party's signature, or the addition of words 
 17.22  to the instrument indicating discharge, or (ii) by agreeing not 
 17.23  to sue or otherwise renouncing rights against the party by a 
 17.24  signed writing record.  
 17.25     (b) Cancellation or striking out of an endorsement pursuant 
 17.26  to subsection (a) does not affect the status and rights of a 
 17.27  party derived from the endorsement.  
 17.28     (c) In this section, "signed," with respect to a record 
 17.29  that is not a writing, includes the attachment to or logical 
 17.30  association with the record of an electronic symbol, sound, or 
 17.31  process with the present intent to adopt or accept the record. 
 17.32     Sec. 13.  Minnesota Statutes 2002, section 336.3-605, is 
 17.33  amended to read: 
 17.34     336.3-605 [DISCHARGE OF ENDORSERS AND ACCOMMODATION PARTIES 
 17.35  SECONDARY OBLIGORS.] 
 17.36     (a) In this section, the term "endorser" includes a drawer 
 18.1   having the obligation described in section 336.3-414(d).  
 18.2      (b) Discharge, under section 336.3-604, of the obligation 
 18.3   of a party to pay an instrument does not discharge the 
 18.4   obligation of an endorser or accommodation party having a right 
 18.5   of recourse against the discharged party.  
 18.6      (c) If a person entitled to enforce an instrument agrees, 
 18.7   with or without consideration, to an extension of the due date 
 18.8   of the obligation of a party to pay the instrument, the 
 18.9   extension discharges an endorser or accommodation party having a 
 18.10  right of recourse against the party whose obligation is extended 
 18.11  to the extent the endorser or accommodation party proves that 
 18.12  the extension caused loss to the endorser or accommodation party 
 18.13  with respect to the right of recourse.  
 18.14     (d) If a person entitled to enforce an instrument agrees, 
 18.15  with or without consideration, to a material modification of the 
 18.16  obligation of a party other than an extension of the due date, 
 18.17  the modification discharges the obligation of an endorser or 
 18.18  accommodation party having a right of recourse against the 
 18.19  person whose obligation is modified to the extent the 
 18.20  modification causes loss to the endorser or accommodation party 
 18.21  with respect to the right of recourse.  The loss suffered by the 
 18.22  endorser or accommodation party as a result of the modification 
 18.23  is equal to the amount of the right of recourse unless the 
 18.24  person enforcing the instrument proves that no loss was caused 
 18.25  by the modification or that the loss caused by the modification 
 18.26  was an amount less than the amount of the right of recourse.  
 18.27     (e) If the obligation of a party to pay an instrument is 
 18.28  secured by an interest in collateral and a person entitled to 
 18.29  enforce the instrument impairs the value of the interest in 
 18.30  collateral, the obligation of an endorser or accommodation party 
 18.31  having a right of recourse against the obligor is discharged to 
 18.32  the extent of the impairment.  The value of an interest in 
 18.33  collateral is impaired to the extent (i) the value of the 
 18.34  interest is reduced to an amount less than the amount of the 
 18.35  right of recourse of the party asserting discharge, or (ii) the 
 18.36  reduction in value of the interest causes an increase in the 
 19.1   amount by which the amount of the right of recourse exceeds the 
 19.2   value of the interest.  The burden of proving impairment is on 
 19.3   the party asserting discharge.  
 19.4      (f) If the obligation of a party is secured by an interest 
 19.5   in collateral not provided by an accommodation party and a 
 19.6   person entitled to enforce the instrument impairs the value of 
 19.7   the interest in collateral, the obligation of any party who is 
 19.8   jointly and severally liable with respect to the secured 
 19.9   obligation is discharged to the extent the impairment causes the 
 19.10  party asserting discharge to pay more than that party would have 
 19.11  been obliged to pay, taking into account rights of contribution, 
 19.12  if impairment had not occurred.  If the party asserting 
 19.13  discharge is an accommodation party not entitled to discharge 
 19.14  under subsection (e), the party is deemed to have a right to 
 19.15  contribution based on joint and several liability rather than a 
 19.16  right to reimbursement.  The burden of proving impairment is on 
 19.17  the party asserting discharge.  
 19.18     (g) Under subsection (e) or (f), impairing value of an 
 19.19  interest in collateral includes (i) failure to obtain or 
 19.20  maintain perfection or recordation of the interest in 
 19.21  collateral, (ii) release of collateral without substitution of 
 19.22  collateral of equal value, (iii) failure to perform a duty to 
 19.23  preserve the value of collateral owed, under article 9 or other 
 19.24  law, to a debtor or surety or other person secondarily liable, 
 19.25  or (iv) failure to comply with applicable law in disposing of 
 19.26  collateral.  
 19.27     (h) An accommodation party is not discharged under 
 19.28  subsection (c), (d), or (e) unless the person entitled to 
 19.29  enforce the instrument knows of the accommodation or has notice 
 19.30  under section 336.3-419(c) that the instrument was signed for 
 19.31  accommodation. 
 19.32     (i) A party is not discharged under this section if (i) the 
 19.33  party asserting discharge consents to the event or conduct that 
 19.34  is the basis of the discharge, or (ii) the instrument or a 
 19.35  separate agreement of the party provides for waiver of discharge 
 19.36  under this section either specifically or by general language 
 20.1   indicating that parties waive defenses based on suretyship or 
 20.2   impairment of collateral. 
 20.3      (a) If a person entitled to enforce an instrument releases 
 20.4   the obligation of a principal obligor in whole or in part, and 
 20.5   another party to the instrument is a secondary obligor with 
 20.6   respect to the obligation of that principal obligor, the 
 20.7   following rules apply: 
 20.8      (1) Any obligations of the principal obligor to the 
 20.9   secondary obligor with respect to any previous payment by the 
 20.10  secondary obligor are not affected.  Unless the terms of the 
 20.11  release preserve the secondary obligor's recourse, the principal 
 20.12  obligor is discharged, to the extent of the release, from any 
 20.13  other duties to the secondary obligor under this article.  
 20.14     (2) Unless the terms of the release provide that the person 
 20.15  entitled to enforce the instrument retains the right to enforce 
 20.16  the instrument against the secondary obligor, the secondary 
 20.17  obligor is discharged to the same extent as the principal 
 20.18  obligor from any unperformed portion of its obligation on the 
 20.19  instrument.  If the instrument is a check and the obligation of 
 20.20  the secondary obligor is based on an indorsement of the check, 
 20.21  the secondary obligor is discharged without regard to the 
 20.22  language or circumstances of the discharge or other release. 
 20.23     (3) If the secondary obligor is not discharged under 
 20.24  paragraph (2), the secondary obligor is discharged to the extent 
 20.25  of the value of the consideration for the release, and to the 
 20.26  extent that the release would otherwise cause the secondary 
 20.27  obligor a loss. 
 20.28     (b) If a person entitled to enforce an instrument grants a 
 20.29  principal obligor an extension of the time at which one or more 
 20.30  payments are due on the instrument and another party to the 
 20.31  instrument is a secondary obligor with respect to the obligation 
 20.32  of that principal obligor, the following rules apply: 
 20.33     (1) Any obligations of the principal obligor to the 
 20.34  secondary obligor with respect to any previous payment by the 
 20.35  secondary obligor are not affected.  Unless the terms of the 
 20.36  extension preserve the secondary obligor's recourse, the 
 21.1   extension correspondingly extends the time for performance of 
 21.2   any other duties owed to the secondary obligor by the principal 
 21.3   obligor under this article. 
 21.4      (2) The secondary obligor is discharged to the extent that 
 21.5   the extension would otherwise cause the secondary obligor a loss.
 21.6      (3) To the extent that the secondary obligor is not 
 21.7   discharged under paragraph (2), the secondary obligor may 
 21.8   perform its obligations to a person entitled to enforce the 
 21.9   instrument as if the time for payment had not been extended or, 
 21.10  unless the terms of the extension provide that the person 
 21.11  entitled to enforce the instrument retains the right to enforce 
 21.12  the instrument against the secondary obligor as if the time for 
 21.13  payment had not been extended, treat the time for performance of 
 21.14  its obligations as having been extended correspondingly. 
 21.15     (c) If a person entitled to enforce an instrument agrees, 
 21.16  with or without consideration, to a modification of the 
 21.17  obligation of a principal obligor other than a complete or 
 21.18  partial release or an extension of the due date and another 
 21.19  party to the instrument is a secondary obligor with respect to 
 21.20  the obligation of that principal obligor, the following rules 
 21.21  apply: 
 21.22     (1) Any obligations of the principal obligor to the 
 21.23  secondary obligor with respect to any previous payment by the 
 21.24  secondary obligor are not affected.  The modification 
 21.25  correspondingly modifies any other duties owed to the secondary 
 21.26  obligor by the principal obligor under this article. 
 21.27     (2) The secondary obligor is discharged from any 
 21.28  unperformed portion of its obligation to the extent that the 
 21.29  modification would otherwise cause the secondary obligor a loss. 
 21.30     (3) To the extent that the secondary obligor is not 
 21.31  discharged under paragraph (2), the secondary obligor may 
 21.32  satisfy its obligation on the instrument as if the modification 
 21.33  had not occurred, or treat its obligation on the instrument as 
 21.34  having been modified correspondingly. 
 21.35     (d) If the obligation of a principal obligor is secured by 
 21.36  an interest in collateral, another party to the instrument is a 
 22.1   secondary obligor with respect to that obligation, and a person 
 22.2   entitled to enforce the instrument impairs the value of the 
 22.3   interest in collateral, the obligation of the secondary obligor 
 22.4   is discharged to the extent of the impairment.  The value of an 
 22.5   interest in collateral is impaired to the extent the value of 
 22.6   the interest is reduced to an amount less than the amount of the 
 22.7   recourse of the secondary obligor, or the reduction in value of 
 22.8   the interest causes an increase in the amount by which the 
 22.9   amount of the recourse exceeds the value of the interest.  For 
 22.10  purposes of this subsection, impairing the value of an interest 
 22.11  in collateral includes failure to obtain or maintain perfection 
 22.12  or recordation of the interest in collateral, release of 
 22.13  collateral without substitution of collateral of equal value or 
 22.14  equivalent reduction of the underlying obligation, failure to 
 22.15  perform a duty to preserve the value of collateral owed, under 
 22.16  Article 9 or other law, to a debtor or other person secondarily 
 22.17  liable, and failure to comply with applicable law in disposing 
 22.18  of or otherwise enforcing the interest in collateral. 
 22.19     (e) A secondary obligor is not discharged under subsection 
 22.20  (a)(3), (b), (c), or (d) unless the person entitled to enforce 
 22.21  the instrument knows that the person is a secondary obligor or 
 22.22  has notice under section 336.3-419(c) that the instrument was 
 22.23  signed for accommodation. 
 22.24     (f) A secondary obligor is not discharged under this 
 22.25  section if the secondary obligor consents to the event or 
 22.26  conduct that is the basis of the discharge, or the instrument or 
 22.27  a separate agreement of the party provides for waiver of 
 22.28  discharge under this section specifically or by general language 
 22.29  indicating that parties waive defenses based on suretyship or 
 22.30  impairment of collateral.  Unless the circumstances indicate 
 22.31  otherwise, consent by the principal obligor to an act that would 
 22.32  lead to a discharge under this section constitutes consent to 
 22.33  that act by the secondary obligor if the secondary obligor 
 22.34  controls the principal obligor or deals with the person entitled 
 22.35  to enforce the instrument on behalf of the principal obligor. 
 22.36     (g) A release or extension preserves a secondary obligor's 
 23.1   recourse if the terms of the release or extension provide that 
 23.2   the person entitled to enforce the instrument retains the right 
 23.3   to enforce the instrument against the secondary obligor and the 
 23.4   recourse of the secondary obligor continues as if the release or 
 23.5   extension had not been granted. 
 23.6      (h) Except as otherwise provided in subsection (i), a 
 23.7   secondary obligor asserting discharge under this section has the 
 23.8   burden of persuasion both with respect to the occurrence of the 
 23.9   acts alleged to harm the secondary obligor and loss or prejudice 
 23.10  caused by those acts.  
 23.11     (i) If the secondary obligor demonstrates prejudice caused 
 23.12  by an impairment of its recourse, and the circumstances of the 
 23.13  case indicate that the amount of loss is not reasonably 
 23.14  susceptible of calculation or requires proof of facts that are 
 23.15  not ascertainable, it is presumed that the act impairing 
 23.16  recourse caused a loss or impairment equal to the liability of 
 23.17  the secondary obligor on the instrument.  In that event, the 
 23.18  burden of persuasion as to any lesser amount of the loss is on 
 23.19  the person entitled to enforce the instrument. 
 23.20                             ARTICLE 2
 23.21          AMENDMENTS TO UNIFORM COMMERCIAL CODE ARTICLE 4
 23.22     Section 1.  Minnesota Statutes 2002, section 336.4-104, is 
 23.23  amended to read: 
 23.24     336.4-104 [DEFINITIONS AND INDEX OF DEFINITIONS.] 
 23.25     (a) In this article, unless the context otherwise requires: 
 23.26     (1) "Account" means any deposit or credit account with a 
 23.27  bank, including a demand, time, savings, passbook, share draft, 
 23.28  or like account, other than an account evidenced by a 
 23.29  certificate of deposit; 
 23.30     (2) "Afternoon" means the period of a day between noon and 
 23.31  midnight; 
 23.32     (3) "Banking day" means that part of any day, excluding 
 23.33  Saturday, Sunday, and holidays, on which a bank is open to the 
 23.34  public for carrying on substantially all of its banking 
 23.35  functions; 
 23.36     (4) "Clearinghouse" means an association of banks or other 
 24.1   payors regularly clearing items; 
 24.2      (5) "Customer" means a person having an account with a bank 
 24.3   or for whom a bank has agreed to collect items, including a bank 
 24.4   that maintains an account at another bank; 
 24.5      (6) "Documentary draft" means a draft to be presented for 
 24.6   acceptance or payment if specified documents, certificated 
 24.7   securities (section 336.8-102) or instructions for 
 24.8   uncertificated securities (section 336.8-102), or other 
 24.9   certificates, statements, or the like are to be received by the 
 24.10  drawee or other payor before acceptance or payment of the draft; 
 24.11     (7) "Draft" means a draft as defined in section 336.3-104 
 24.12  or an item, other than an instrument, that is an order; 
 24.13     (8) "Drawee" means a person ordered in a draft to make 
 24.14  payment; 
 24.15     (9) "Item" means an instrument or a promise or order to pay 
 24.16  money handled by a bank for collection or payment.  The term 
 24.17  does not include a payment order governed by article 4A or a 
 24.18  credit or debit card slip; 
 24.19     (10) "Midnight deadline" with respect to a bank is midnight 
 24.20  on its next banking day following the banking day on which it 
 24.21  receives the relevant item or notice or from which the time for 
 24.22  taking action commences to run, whichever is later; 
 24.23     (11) "Settle" means to pay in cash, by clearinghouse 
 24.24  settlement, in a charge or credit or by remittance, or otherwise 
 24.25  as agreed.  A settlement may be either provisional or final; 
 24.26     (12) "Suspends payments" with respect to a bank means that 
 24.27  it has been closed by order of the supervisory authorities, that 
 24.28  a public officer has been appointed to take it over, or that it 
 24.29  ceases or refuses to make payments in the ordinary course of 
 24.30  business. 
 24.31     (b) Other definitions applying to this article and the 
 24.32  sections in which they appear are: 
 24.33     "Agreement for electronic presentment," section 336.4-110 
 24.34     "Bank," section 336.4-105 
 24.35     "Collecting bank," section 336.4-105 
 24.36     "Depositary bank," section 336.4-105 
 25.1      "Intermediary bank," section 336.4-105 
 25.2      "Payor bank," section 336.4-105 
 25.3      "Presenting bank," section 336.4-105 
 25.4      "Presentment notice," section 336.4-110 
 25.5      (c) The following definitions in other articles apply to 
 25.6   this article: 
 25.7      "Acceptance," section 336.3-409 
 25.8      "Alteration," section 336.3-407 
 25.9      "Cashier's check," section 336.3-104 
 25.10     "Certificate of deposit," section 336.3-104 
 25.11     "Certified check," section 336.3-409 
 25.12     "Check," section 336.3-104 
 25.13     "Good faith," section 336.3-103 
 25.14     "Holder in due course," section 336.3-302 
 25.15     "Instrument," section 336.3-104 
 25.16     "Notice of dishonor," section 336.3-503 
 25.17     "Order," section 336.3-103 
 25.18     "Ordinary care," section 336.3-103 
 25.19     "Person entitled to enforce," section 336.3-301 
 25.20     "Presentment," section 336.3-501 
 25.21     "Promise," section 336.3-103 
 25.22     "Prove," section 336.3-103 
 25.23     "Record," section 336.3-103 
 25.24     "Remotely-created item," section 336.3-103 
 25.25     "Teller's check," section 336.3-104 
 25.26     "Unauthorized signature," section 336.3-403 
 25.27     (d) In addition, article 1 contains general definitions and 
 25.28  principles of construction and interpretation applicable 
 25.29  throughout this article. 
 25.30     Sec. 2.  Minnesota Statutes 2002, section 336.4-207, is 
 25.31  amended to read: 
 25.32     336.4-207 [TRANSFER WARRANTIES.] 
 25.33     (a) A customer or collecting bank that transfers an item 
 25.34  and receives a settlement or other consideration warrants to the 
 25.35  transferee and to any subsequent collecting bank that:  
 25.36     (1) the warrantor is a person entitled to enforce the item; 
 26.1      (2) all signatures on the item are authentic and 
 26.2   authorized; 
 26.3      (3) the item has not been altered; 
 26.4      (4) the item is not subject to a defense or claim in 
 26.5   recoupment (section 336.3-305(a)) of any party that can be 
 26.6   asserted against the warrantor; and 
 26.7      (5) the warrantor has no knowledge of any insolvency 
 26.8   proceeding commenced with respect to the maker or acceptor or, 
 26.9   in the case of an unaccepted draft, the drawer; and 
 26.10     (6) with respect to any remotely-created item, the person 
 26.11  on whose account the item is drawn authorized the issuance of 
 26.12  the item in the amount for which the item is drawn.  
 26.13     (b) If an item is dishonored, a customer or collecting bank 
 26.14  transferring the item and receiving settlement or other 
 26.15  consideration is obliged to pay the amount due on the item (i) 
 26.16  according to the terms of the item at the time it was 
 26.17  transferred, or (ii) if the transfer was of an incomplete item, 
 26.18  according to its terms when completed as stated in sections 
 26.19  336.3-115 and 336.3-407.  The obligation of a transferor is owed 
 26.20  to the transferee and to any subsequent collecting bank that 
 26.21  takes the item in good faith.  A transferor cannot disclaim its 
 26.22  obligation under this subsection by an endorsement stating that 
 26.23  it is made "without recourse" or otherwise disclaiming liability.
 26.24     (c) A person to whom the warranties under subsection (a) 
 26.25  are made and who took the item in good faith may recover from 
 26.26  the warrantor as damages for breach of warranty an amount equal 
 26.27  to the loss suffered as a result of the breach, but not more 
 26.28  than the amount of the item plus expenses and loss of interest 
 26.29  incurred as a result of the breach.  
 26.30     (d) The warranties stated in subsection (a) cannot be 
 26.31  disclaimed with respect to checks.  Unless notice of a claim for 
 26.32  breach of warranty is given to the warrantor within 30 days 
 26.33  after the claimant has reason to know of the breach and the 
 26.34  identity of the warrantor, the warrantor is discharged to the 
 26.35  extent of any loss caused by the delay in giving notice of the 
 26.36  claim. 
 27.1      (e) A cause of action for breach of warranty under this 
 27.2   section accrues when the claimant has reason to know of the 
 27.3   breach. 
 27.4      (f) No claim for breach in the warranty in subsection 
 27.5   (a)(6) is available against a person to which an item was 
 27.6   transferred to the extent that under applicable law (including 
 27.7   the applicable choice-of-law principles) the person that 
 27.8   transferred the item to that person did not make the warranty in 
 27.9   subsection (a)(6). 
 27.10     Sec. 3.  Minnesota Statutes 2002, section 336.4-208, is 
 27.11  amended to read: 
 27.12     336.4-208 [PRESENTMENT WARRANTIES.] 
 27.13     (a) If an unaccepted draft is presented to the drawee for 
 27.14  payment or acceptance and the drawee pays or accepts the draft, 
 27.15  (i) the person obtaining payment or acceptance, at the time of 
 27.16  presentment, and (ii) a previous transferor of the draft, at the 
 27.17  time of transfer, warrant to the drawee that pays or accepts the 
 27.18  draft in good faith that:  
 27.19     (1) the warrantor is, or was, at the time the warrantor 
 27.20  transferred the draft, a person entitled to enforce the draft or 
 27.21  authorized to obtain payment or acceptance of the draft on 
 27.22  behalf of a person entitled to enforce the draft; 
 27.23     (2) the draft has not been altered; and 
 27.24     (3) the warrantor has no knowledge that the signature of 
 27.25  the purported drawer of the draft is unauthorized; and 
 27.26     (4) with respect to any remotely-created item, the person 
 27.27  on whose account the item is drawn authorized the issuance of 
 27.28  the item in the amount for which the item is drawn.  
 27.29     (b) A drawee making payment may recover from a warrantor 
 27.30  damages for breach of warranty equal to the amount paid by the 
 27.31  drawee less the amount the drawee received or is entitled to 
 27.32  receive from the drawer because of the payment.  In addition, 
 27.33  the drawee is entitled to compensation for expenses and loss of 
 27.34  interest resulting from the breach.  The right of the drawee to 
 27.35  recover damages under this subsection is not affected by any 
 27.36  failure of the drawee to exercise ordinary care in making 
 28.1   payment.  If the drawee accepts the draft (i) breach of warranty 
 28.2   is a defense to the obligation of the acceptor, and (ii) if the 
 28.3   acceptor makes payment with respect to the draft, the acceptor 
 28.4   is entitled to recover from a warrantor for breach of warranty 
 28.5   the amounts stated in this subsection.  
 28.6      (c) If a drawee asserts a claim for breach of warranty 
 28.7   under subsection (a) based on an unauthorized endorsement of the 
 28.8   draft or an alteration of the draft, the warrantor may defend by 
 28.9   proving that the endorsement is effective under section 
 28.10  336.3-404 or 336.3-405 or the drawer is precluded under section 
 28.11  336.3-406 or 336.4-406 from asserting against the drawee the 
 28.12  unauthorized endorsement or alteration.  
 28.13     (d) If (i) a dishonored draft is presented for payment to 
 28.14  the drawer or an endorser or (ii) any other item is presented 
 28.15  for payment to a party obliged to pay the item, and the item is 
 28.16  paid, the person obtaining payment and a prior transferor of the 
 28.17  item warrant to the person making payment in good faith that the 
 28.18  warrantor is, or was, at the time the warrantor transferred the 
 28.19  item, a person entitled to enforce the item or authorized to 
 28.20  obtain payment on behalf of a person entitled to enforce the 
 28.21  item.  The person making payment may recover from any warrantor 
 28.22  for breach of warranty an amount equal to the amount paid plus 
 28.23  expenses and loss of interest resulting from the breach.  
 28.24     (e) The warranties stated in subsections (a) and (d) cannot 
 28.25  be disclaimed with respect to checks.  Unless notice of a claim 
 28.26  for breach of warranty is given to the warrantor within 30 days 
 28.27  after the claimant has reason to know of the breach and the 
 28.28  identity of the warrantor, the warrantor is discharged to the 
 28.29  extent of any loss caused by the delay in giving notice of the 
 28.30  claim.  
 28.31     (f) A cause of action for breach of warranty under this 
 28.32  section accrues when the claimant has reason to know of the 
 28.33  breach. 
 28.34     (g) No claim for breach of the warranty in subsection 
 28.35  (a)(4) is available against a person to which an item was 
 28.36  transferred to the extent that under applicable law (including 
 29.1   the applicable choice-of-law principle) the person that 
 29.2   transferred the item to that person did not make the warranty in 
 29.3   subsection (a)(4). 
 29.4      Sec. 4.  Minnesota Statutes 2002, section 336.4-212, is 
 29.5   amended to read: 
 29.6      336.4-212 [PRESENTMENT BY NOTICE OF ITEM NOT PAYABLE BY, 
 29.7   THROUGH, OR AT BANK; LIABILITY OF DRAWER OR ENDORSER.] 
 29.8      (a) Unless otherwise instructed, a collecting bank may 
 29.9   present an item not payable by, through, or at a bank by sending 
 29.10  to the party to accept or pay a written record providing notice 
 29.11  that the bank holds the item for acceptance or payment.  The 
 29.12  notice must be sent in time to be received on or before the day 
 29.13  when presentment is due and the bank must meet any requirement 
 29.14  of the party to accept or pay under section 336.3-501 by the 
 29.15  close of the bank's next banking day after it knows of the 
 29.16  requirement.  
 29.17     (b) If presentment is made by notice and payment, 
 29.18  acceptance, or request for compliance with a requirement under 
 29.19  section 336.3-501 is not received by the close of business on 
 29.20  the day after maturity or, in the case of demand items, by the 
 29.21  close of business on the third banking day after notice was 
 29.22  sent, the presenting bank may treat the item as dishonored and 
 29.23  charge any drawer or endorser by sending it notice of the facts. 
 29.24     Sec. 5.  Minnesota Statutes 2002, section 336.4-301, is 
 29.25  amended to read: 
 29.26     336.4-301 [DEFERRED POSTING; RECOVERY OF PAYMENT BY RETURN 
 29.27  OF ITEMS; TIME OF DISHONOR; RETURN OF ITEMS BY PAYOR BANK.] 
 29.28     (a) If a payor bank settles for a demand item other than a 
 29.29  documentary draft presented otherwise than for immediate payment 
 29.30  over the counter before midnight of the banking day of receipt, 
 29.31  the payor bank may revoke the settlement and recover the 
 29.32  settlement if, before it has made final payment and before its 
 29.33  midnight deadline, it: 
 29.34     (1) returns the item; or 
 29.35     (2) returns an image of the item, if the party to which the 
 29.36  return is made has entered into an agreement to accept an image 
 30.1   as a return of the item and the image is returned in accordance 
 30.2   with that agreement; or 
 30.3      (3) sends written a record providing notice of dishonor or 
 30.4   nonpayment if the item is unavailable for return. 
 30.5      (b) If a demand item is received by a payor bank for credit 
 30.6   on its books, it may return the item or send notice of dishonor 
 30.7   and may revoke any credit given or recover the amount thereof 
 30.8   withdrawn by its customer, if it acts within the time limit and 
 30.9   in the manner specified in subsection (a).  
 30.10     (c) Unless previous notice of dishonor has been sent, an 
 30.11  item is dishonored at the time when for purposes of dishonor it 
 30.12  is returned or notice sent in accordance with this section.  
 30.13     (d) An item is returned: 
 30.14     (1) as to an item presented through a clearinghouse, when 
 30.15  it is delivered to the presenting or last collecting bank or to 
 30.16  the clearinghouse or is sent or delivered in accordance with 
 30.17  clearinghouse rules; or 
 30.18     (2) in all other cases, when it is sent or delivered to the 
 30.19  bank's customer or transferor or pursuant to instructions.  
 30.20     Sec. 6.  Minnesota Statutes 2002, section 336.4-403, is 
 30.21  amended to read: 
 30.22     336.4-403 [CUSTOMER'S RIGHT TO STOP PAYMENT; BURDEN OF 
 30.23  PROOF OF LOSS.] 
 30.24     (a) A customer or any person authorized to draw on the 
 30.25  account if there is more than one person may stop payment of any 
 30.26  item drawn on the customer's account or close the account by an 
 30.27  order to the bank describing the item or account with reasonable 
 30.28  certainty received at a time and in a manner that affords the 
 30.29  bank a reasonable opportunity to act on it before any action by 
 30.30  the bank with respect to the item described in section 
 30.31  336.4-303.  If the signature of more than one person is required 
 30.32  to draw on an account, any of these persons may stop payment or 
 30.33  close the account.  
 30.34     (b) A stop-payment order is effective for six months, but 
 30.35  it lapses after 14 calendar days if the original order was oral 
 30.36  and was not confirmed in writing a record within that period.  A 
 31.1   stop-payment order may be renewed for additional six-month 
 31.2   periods by a writing record given to the bank within a period 
 31.3   during which the stop-payment order is effective.  
 31.4      (c) The burden of establishing the fact and amount of loss 
 31.5   resulting from the payment of an item contrary to a stop-payment 
 31.6   order or order to close an account is on the customer.  The loss 
 31.7   from payment of an item contrary to a stop-payment order may 
 31.8   include damages for dishonor of subsequent items under section 
 31.9   336.4-402.