(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.
(1959, P.A. 133, S. 3-406; P.A. 91-304, S. 43.)
History: P.A. 91-304 substantially revised former provisions and added Subsec. (b) re allocation of loss and Subsec. (c) re burden of proof.
Cited. 164 C. 604. “Negligence” in section means the failure to exercise “reasonable” and “ordinary” care, i.e. whether a prudent person would have foreseen the danger of forgery as a result of his action. 167 C. 478. Cited. 170 C. 691; 187 C. 637; 242 C. 17.
Cited. 2 CA 110.
Cited. 39 CS 240.