BILL ANALYSIS
H.B. 1728
By: Grusendorf (Montford)
Economic Development
5-27-95
Senate Committee Report (Unamended)
BACKGROUND
In 1985, a project was initiated by the National Conference of
Commissioners on State Laws and the American Law Institute to
revise Articles 3 and 4 of the Uniform Commercial Code (UCC). As of
October 1994, 36 states had adopted the revised articles, and four
other states and the District of Columbia have introduced the
revised articles in 1994. The revised Chapters 3 and 4 of the
Texas Business and Commerce Code are in substantially the form of
the uniform articles, with some Texas revisions to address consumer
and other issues.
While no attempt has been made to preserve the language of former
Chapter 3, it is not a radical departure from the previous law.
The new Chapter 3 clarifies ambiguities in the former chapter,
reconciles issues on which jurisdictions were split, replaces
archaic terminology, and deletes obsolete provisions. The major
substantive changes represent attempts by the national drafting
committee to modernize the UCC by recognizing the advances in
business and banking methods.
The scope of Chapter 3 remains negotiable instruments, but with
important adjustments and clarifications. For example, instruments
are not excluded from its coverage because payment is limited to
resort to a particular fund. Any notice required by the Federal
Trade Commission "Holder Rule" does not destroy negotiability, but
only limits holder in due course status. Interest is not included
within the "sum certain" requirement. In accordance with modern
expectations, a check not payable to order or bearer is fully
negotiable. Additionally, Chapter 3 clarifies its relationship
with federal law, expressly deferring to the regulations of the
Board of Governors of the Federal Reserve System.
Former Chapter 4 was derived from the prior uniform Article 4 that
was drafted in the 1950s near the end of the manual check
processing era. Since that time, the use of checks as a payment
system has exploded. Two areas of technological innovation--the
automated processing of checks based on the Magnetic Ink Character
Recognition technology that became widespread in the 1960s and the
end of a paper-based payment system and the emergence of an
electronic-based payments system--mandated changes to the former
statute. Additionally, revisions were needed to recognize the
intervention by Congress in 1987 through the Expedited Funds
Availability Act and a new, voluminous Regulation CC issued by the
Federal Reserve Board in 1988.
The goal of the national drafters of the revised uniform articles
was a faster, more efficient, less costly bank collection system.
Revised Chapter 4 continues the Price v. Neal rule that a payor
bank generally is liable for a forged drawer's signature, while
establishing a comparative negligence analysis for the liability of
payor banks if the customer fails to exercise reasonable care in
examining its bank statements.
PURPOSE
As proposed, H.B. 1728 amends provisions relating to negotiable
instruments and substantively revises Chapter 3 of the Uniform
Commercial Code.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 3, Business and Commerce Code, as
follows:
CHAPTER 3. NEGOTIABLE INSTRUMENTS
SUBCHAPTER A. GENERAL PROVISIONS AND DEFINITIONS
Sec. 3.101. SHORT TITLE: Uniform Commercial Code--Negotiable
Instruments.
Sec. 3.102. SUBJECT MATTER. (a) Provides that this chapter
applies to negotiable instruments, but does not apply to
money, payment orders governed by Chapter 4A, or securities
governed by Chapter 8.
(b) Provides that Chapters 4 and 9 govern, if there is a
conflict between this chapter and Chapter 4 or 9.
(c) Provides that regulations of the Board of Governors of
the Federal Reserve System and operating circulars of the
Federal Reserve Banks supersede any inconsistent provision
of this chapter to the extent of the inconsistency.
Sec. 3.103. DEFINITIONS. Defines "acceptor," "drawee,"
"drawer," "good faith," "maker," "order," "ordinary care,"
"party," "promise," "prove," and "remitter."
(b) Sets forth a list of other definitions applying to this
chapter and the sections in which they appear.
(c) Sets forth a list of definitions in other chapters that
apply to this chapter.
(d) Provides that Chapter 1 contains general definitions and
principles of construction and interpretation applicable
throughout this chapter.
Sec. 3.104. NEGOTIABLE INSTRUMENT. (a) Defines "negotiable
instrument."
(b) Defines "instrument."
(c) Provides that an order that meets all of the
requirements of Subsection (a), except Subdivision (1), and
otherwise falls within the definition of "check" in
Subsection (f) is a negotiable instrument and a check.
(d) Sets forth the conditions under which a promise or order
other than a check is not an instrument.
(e) Sets forth the conditions under which an instrument is
a "note" or "draft."
(f) Defines "check."
(g) Defines "cashier's check."
(h) Defines "teller's check."
(i) Defines "traveler's check."
(j) Defines "certificate of deposit."
Sec. 3.105. ISSUE OF INSTRUMENT. (a) Defines "issue."
(b) Makes an unissued instrument, or an unissued incomplete
instrument that is completed, binding on the maker or
drawer, but nonissuance is a defense. Makes an instrument
that is conditionally issued or issued for a special purpose
binding on the maker or drawer, but failure of the condition
or special purpose to be fulfilled is a defense.
(c) Defines "issuer."
Sec. 3.106. UNCONDITIONAL PROMISE OR ORDER. (a) Sets forth
the conditions under which a promise or order is not
unconditional.
(b) Sets forth the conditions under which a promise or order
is not made conditional.
(c) Provides that, if a promise or order requires, as a
condition to payment, a countersignature by a person whose
specimen signature appears on the promise or order, the
condition does not make the promise or order conditional for
the purposes of Section 3.104(a). Provides that, if the
person whose specimen signature appears on an instrument
fails to countersign the instrument, the failure to
countersign is a defense to the obligation of the issuer,
but the failure does not prevent a transferee of the
instrument from becoming a holder of the instrument.
(d) Provides that, if a promise or order at the time it is
issued or first comes into possession of a holder contains
a statement to the effect that the rights of a holder or
transferee are subject to claims or defenses that the issuer
could assert against the original payee, the promise or
order is not thereby made conditional for the purposes of
Section 3.104(a); but if the promise or order is an
instrument, there cannot be a holder in due course of the
instrument.
Sec. 3.107. INSTRUMENT PAYABLE IN FOREIGN MONEY. Authorizes
an instrument that states the amount payable in foreign money,
unless the instrument otherwise provides, to be paid in the
foreign money or in an equivalent amount in dollars calculated
by using the current bank-offered spot rate at the place of
payment for the purchase of dollars on the day on which the
instrument is paid.
Sec. 3.108. PAYABLE ON DEMAND OR AT DEFINITE TIME. (a) Sets
forth the conditions under which a promise or order is
"payable on demand."
(b) Sets forth the conditions under which a promise or order
is "payable at a definite time."
(c) Provides that, if an instrument, payable at a fixed
date, is also payable on demand made before the fixed date,
the instrument is payable on demand until the fixed date
and, if demand for payment is not made before that date,
becomes payable at a definite time on the fixed date.
Sec. 3.109. PAYABLE TO BEARER OR TO ORDER. (a) Sets forth
the conditions under which an order is payable to bearer.
(b) Sets forth the conditions under which a promise or order
that is not payable to bearer is payable to order.
(c) Sets forth the conditions under which an instrument
payable to a bearer may become payable to an identified
person, and vice versa.
Sec. 3.110. IDENTIFICATION OF PERSON TO WHOM INSTRUMENT IS
PAYABLE. (a) Provides that the person to whom an instrument
is initially payable is determined by the intent of the
person. Provides that the instrument is payable to the person
intended by the signer even if that person is identified in
the instrument by a name or other identification that is not
that of the intended person. Provides that, if more than one
person signs in the name or on behalf of the issuer of an
instrument and all the signers do not intend the same person
as payee, the instrument is payable to any person intended by
one or more of the signers.
(b) Provides that, if the signature of the issuer of an
instrument is made by automated means, the payee of the
instrument is determined by the intent of the person who
supplied the name or identification of the payee.
(c) Authorizes a person to whom an instrument is payable to
be identified in any way. Sets forth rules applicable to
determining the holder of an instrument.
(d) Sets forth requirements for an instrument payable to two
or more persons.
Sec. 3.111. PLACE OF PAYMENT. Provides that an instrument is
payable at the place of payment stated in the instrument,
except as otherwise provided for items in Chapter 4. Sets
forth requirements in the event that no address is stated, or
if a drawee or maker has more than one place of business or no
place of business.
Sec. 3.112. INTEREST. (a) Provides that, unless otherwise
provided in the instrument, an instrument is not payable with
interest, and interest on an interest-bearing instrument is
payable from the date of the instrument.
(b) Authorizes interest to be stated in an instrument as a
fixed or variable amount of money, or as a fixed or variable
rate or rates. Authorizes the amount or rate of interest to
be stated or described in the instrument in any manner and
to require reference to information not constrained in the
instrument. Sets forth requirements in the event that the
amount of interest payable cannot be ascertained from the
description of an instrument.
Sec. 3.113. DATE OF INSTRUMENT. (a) Authorizes an instrument
to be antedated or postdated. Provides that the due date
determines the time of payment if the instrument is payable at
a fixed period after date, and that an instrument payable on
demand is not payable before the date of the instrument except
as provided in Section 4.401(c).
(b) Provides that, if an instrument is undated, its date is
the date of its issue or, in the case of an unissued
instrument, the date it first comes into possession of a
holder.
Sec. 3.114. CONTRADICTORY TERMS OF INSTRUMENT. Provides
that, if an instrument contains contradictory terms,
typewritten terms prevail over printed terms, handwritten
terms prevail over both, and words prevail over numbers.
Sec. 3.115. INCOMPLETE INSTRUMENT. (a) Defines "incomplete
instrument."
(b) Authorizes an incomplete instrument, if it is an
instrument under Section 3.104, to be enforced according to
its terms if it is not completed, or according to its terms
as augmented by completion. Authorizes an instrument, if
the instrument is not an instrument under Section 3.104,
but, after completion, the requirements of Section 3.104 are
met, to be enforced according to its terms as augmented by
completion.
(c) Provides that there is an alteration of the incomplete
instrument under Section 3.407, if words or numbers are
added to an incomplete instrument without authority of the
signer.
(d) Places the burden of establishing that words or numbers
were added to an incomplete instrument without authority of
the signer on the person asserting the lack of authority.
Sec. 3.116. JOINT AND SEVERAL LIABILITY; CONTRIBUTION. (a)
Provides that two or more persons who have the same liability
in an instrument as makers, drawers, acceptors, indorsers who
indorse as joint payees, or anomalous indorsers are jointly
and severally liable in the capacity in which they sign,
except as otherwise provided in the instrument.
(b) Entitles a party having joint and several liability who
pays the instrument to receive from any party having the
same joint and several liability contribution in accordance
with applicable law, except as provided in Section 3.419(e)
or by agreement of the affected person.
(c) Provides that discharge of one party having joint and
several liability by a person entitled to enforce the
instrument does not affect the right under Subsection (b) of
a party having the same joint and several liability to
receive contribution from the party discharged.
Sec. 3.117. OTHER AGREEMENTS AFFECTING INSTRUMENT.
Authorizes the obligation of a party to an instrument to pay
the instrument to be modified, supplemented, or nullified by
a separate agreement of the obligor and a person entitled to
enforce the instrument, if the instrument is issued or the
obligation is incurred in reliance on the agreement or as part
of the same transaction giving rise to the agreement.
Provides that, to the extent that an obligation is modified,
supplemented, or nullified by an agreement under this section,
the agreement is a defense to the obligation.
Sec. 3.118. STATUTE OF LIMITATIONS. (a) Requires an action
to enforce the obligation of a party to pay a note payable at
a definite time to be commenced within six years after the due
date or dates stated in the note or, if a due date is
accelerated, within six years after the accelerated due date,
except as provided in Subsection (e).
(b) Requires an action to enforce the obligation of a party
to pay a note, if demand for payment is made to the maker of
a note payable on demand, to be commenced within six years
after the demand, except as provided in Subsection (d) or
(e). Sets forth provisions in the event that no demand for
payment is made to the maker.
(c) Requires an action to enforce the obligation of a party
to an unaccepted draft to pay the draft to be commenced
within three years after dishonor of the draft or 10 years
after the date of the draft, whichever period expires first,
except as provided in Subsection (d) or (e).
(d) Requires an action to enforce the obligation or the
acceptor of a certified check or the issuer of a teller's
check, cashier's check, or traveler's check, to be commenced
within three years after demand for payment is made to the
acceptor or issuer.
(e) Requires an action to enforce the obligation of a party
to a certificate of deposit to pay the instrument to be
commenced within six years after the demand for payment is
made to the maker, but if the instrument states a due date
and the maker is not required to pay before that date, the
six-year period begins when a demand for payment is in
effect and the due date has passed.
(f) Sets forth the time by which an action to enforce the
obligation of a party to pay an accepted draft, other than
a certified check, must be commenced.
(g) Requires certain actions to be commenced within three
years after the cause of action accrues, unless governed by
other law.
Sec. 3.119. NOTICE OF RIGHT TO DEFEND ACTION. Authorizes a
defendant, in an action for breach of an obligation for which
a third person is answerable over pursuant to this chapter or
Chapter 4, to give the third person written notice of the
litigation. Authorizes the person notified to give similar
notice to any other person who is answerable over. Provides
that, if the notice states that the person notified may come
in and defend, and that failure to do so will bind the person
notified in an action later brought by the person giving the
notice as to any determination of fact common to the two
litigations, the person notified is so bound unless after
seasonable receipt of the notice the person notified does not
come in and defend.
SUBCHAPTER B. NEGOTIATION, TRANSFER, AND INDORSEMENT
Sec. 3.201. NEGOTIATION. (a) Defines "negotiation."
(b) Provides that, if an instrument is payable to an
identified person, negotiation requires transfer of
possession of the instrument and its indorsement by the
holder, except for negotiation by a remitter. Authorizes an
instrument, if payable to bearer, to be negotiated by
transfer of possession alone.
Sec. 3.202. NEGOTIATION SUBJECT TO RESCISSION. (a) Provides
that notification is effective even if obtained under certain
circumstances.
(b) Authorizes negotiation to be rescinded or subject to
other remedies, to the extent permitted by other law.
Prohibits those remedies from being asserted against a
subsequent holder in due course or a person paying the
instrument in good faith and without knowledge of facts that
are a basis for rescission or other remedy.
Sec. 3.203. TRANSFER OF INSTRUMENT; RIGHTS ACQUIRED BY
TRANSFER. (a) Provides that an instrument is transferred when
it is delivered by a person other than its issuer for the
purpose of giving to the person receiving delivery the right
to enforce the instrument.
(b) Provides that transfer of an instrument vests in the
transferee any right of the transferor to enforce the
instrument. Prohibits the transferee from acquiring rights
of a holder in due course by a transfer from a holder in due
course if the transferee engaged in fraud or illegality
affecting the instrument.
(c) Grants a transferee a specifically enforceable right to
the unqualified indorsement of the transferor, if an
instrument is transferred for value and the transferee does
not become a holder because of lack of indorsement by the
transferor. Provides that negotiation of the instrument
does not occur until the indorsement is made.
(d) Provides that negotiation of the instrument does not
occur if a transferor purports to transfer less than the
entire instrument.
Sec. 3.204. INDORSEMENT. (a) Defines "indorsement."
(b) Defines "indorser."
(c) Provides that an indorsement that transfers a security
interest in the instrument is effective as an unqualified
indorsement of the instrument, for the purpose of
determining whether the transferee of an instrument is a
holder.
(d) Authorizes indorsement to be made by the holder in the
name stated in the instrument or in the holder's name or
both, if an instrument is payable to a holder under a name
that is not the name of the holder. Authorizes signature in
both names to be required by a person paying or taking the
instrument for value or collection.
Sec. 3.205. SPECIAL INDORSEMENT; BLANK INDORSEMENT; ANOMALOUS
INDORSEMENT. (a) Provides that an indorsement made by the
holder of an instrument and that identifies a person to whom
it makes the instrument payable is a "special indorsement."
Sets forth provisions for a specially indorsed instrument.
(b) Provides that an indorsement made by the holder of an
instrument and that is not a special indorsement is a "blank
indorsement." Sets forth provisions for an instrument
indorsed in blank.
(c) Authorizes the holder to convert a blank indorsement
that consists of only a signature into a special indorsement
by writing, above the signature of the indorser, words
identifying the person to whom the instrument is made
payable.
(d) Defines "anomalous indorsement."
Sec. 3.206. RESTRICTIVE INDORSEMENT. (a) Provides that an
indorsement limiting payment to a particular person or
otherwise prohibiting further transfer or negotiation of the
instrument is not effective to prevent further transfer or
negotiation of the instrument.
(b) Provides that an indorsement stating a condition to the
right of the indorsee to receive payment does not affect the
right of the indorsee to enforce the instrument. Authorizes
a person paying the instrument or taking it for value or
collection to disregard the condition. Provides that the
rights and liabilities of that person are not affected by
whether the condition has been fulfilled.
(c) Provides that, if an instrument bears an indorsement
described in Section 4.201(b), or in blank or to a
particular bank using the words "for deposit" or "for
collection," or other words indicating a purpose of having
the instrument collected by a bank for the indorser or for
a particular account, certain rules apply.
(d) Provides that, except for an indorsement covered by
Subsection (a), if an instrument bears an indorsement using
words to the effect that payment is to be made to the
indorsee as agent, trustee, or other fiduciary for the
benefit of any person, certain rules apply.
(e) Provides that the presence of an instrument of an
indorsement to which this section applies does not prevent
a purchaser of the instrument from becoming a holder in due
course of the instrument unless the purchaser is a converter
under Subsection (c) or has notice or knowledge of breach of
fiduciary duty as stated in Subsection (d).
(f) Provides that, in an action to enforce the obligation of
a party to pay the instrument, the obligor has a defense if
payment would violate an indorsement to which this section
applies and the payment is not permitted by this section.
Sec. 3.207. REACQUISITION. Provides that reacquisition of an
instrument occurs if it is transferred to a former holder.
Authorizes a former holder who reacquires the instrument to
cancel indorsements made after the reacquirer first became a
holder of the instrument. Authorizes the reacquirer to
negotiate the instrument, if the cancellation causes the
instrument to be payable to the reacquirer or bearer.
Provides that an indorser whose instrument is canceled is
discharged, and the discharge is effective against any
subsequent holder.
SUBCHAPTER C. ENFORCEMENT OF INSTRUMENTS
Sec. 3.301. PERSON ENTITLED TO ENFORCE INSTRUMENT. Defines
"person entitled to enforce" an instrument.
Sec. 3.202. HOLDER IN DUE COURSE. (a) Defines "holder in due
course."
(b) Provides that notice of discharge of a party, other than
discharge in an insolvency proceeding, is not notice of a
defense under Subsection (a), but discharge is effective
against a person who became a holder in due course with
notice of the discharge. Provides that public filing or
recording of a document does not of itself constitute notice
of a defense, claim in recoupment, or claim to the
instrument.
(c) Provides that a person does not acquire rights of a
holder in due course of certain instruments, except to the
extent a transferor or predecessor in interest has rights as
a holder in due course.
(d) Authorizes the holder, if under Section 3.303(a)(1) the
promise of performance that is the consideration for an
instrument has been partially performed, to assert rights as
a holder in due course of the instrument only to the
fraction of the amount payable under the instrument equal to
the value of the partial performance divided by the value of
the promised performance.
(e) Authorizes the person entitled to enforce the
instrument, if the person entitled to enforce the instrument
has only a security interest in the instrument and the
person obliged to pay the instrument has a defense, claim in
recoupment, or claim to the instrument that may be asserted
against the person who granted the security interest, to
assert rights as a holder in due course only to an amount
payable under the instrument that, at the time of
enforcement of the instrument, does not exceed the amount of
the unpaid obligation secured.
(f) Requires notice, in order to be effective, to be
received at a time and in a manner that gives a reasonable
opportunity to act on it.
(g) Subjects this section to any law limiting status as a
holder in due course in particular classes of transactions.
Sec. 3.303. VALUE AND CONSIDERATION. (a) Sets forth the
conditions under which an instrument is issued or transferred
for value.
(b) Defines "consideration." Sets forth provisions relating
to consideration of instruments.
Sec. 3.304. OVERDUE INSTRUMENT. (a) Sets forth time at the
earliest of which an instrument payable on demand becomes
overdue.
(b) Requires certain rules to apply with respect to an
instrument payable at a definite time.
(c) Provides that, unless the due date of principal has been
accelerated, an instrument does not become overdue if there
is a default in payment of interest but no default in
payment of principal.
Sec. 3.305. DEFENSES AND CLAIMS IN RECOUPMENT. Subjects the
right to enforce the obligation of a party to pay an
instrument to certain defenses and claims, except as provided
in Subsection (b).
(b) Subjects the right of a holder in due course to enforce
the obligation of a party to pay the instrument to defenses
of the obligor stated in Subsection (a)(1), but is not
subject to defenses of the obligor stated in Subsection
(a)(2) or claims in recoupment stated in Subsection (a)(3)
against a person other than the holder.
(c) Prohibits the obligor, in an action to enforce the
obligation of a party to pay the instrument, from asserting
against the person entitled to enforce the instrument a
defense, claim in recoupment, or claim to the instrument of
another person, except as provided in Subsection (d).
Authorizes the other person's claim to be asserted by the
obligor if the other person is joined in the action and
personally asserts the claim against the person entitled to
enforce the instrument. Provides that an obligor is not
obliged to pay the instrument if the person seeking
enforcement of the instrument does not have rights of a
holder in due course and the obligor proves that the
instrument is a lost or stolen instrument.
(d) Authorizes the accommodation party, in an action to
enforce the obligation of an accommodation party to pay an
instrument, to assert against the person entitled to enforce
the instrument any defense or claim in recoupment under
Subsection (a) that the accommodation party could assert
against the person entitled to enforce the instrument,
except the defenses of discharge in insolvency proceedings,
infancy, and lack of legal capacity.
Sec. 3.306. CLAIMS TO AN INSTRUMENT. Subjects a person
taking an instrument, other than a person having rights of a
holder in due course, to a claim of property or possessory
right in the instrument or its proceeds. Provides that a
person having rights of a holder in due course takes free of
the claim to the instrument.
Sec. 3.307. NOTICE OF BREACH OF FIDUCIARY DUTY. (a) Defines
"fiduciary" and "represented person."
(b) Requires certain rules to apply if an instrument is
taken from a fiduciary for payment or collection or for
value, the taker has knowledge of the fiduciary status of
the fiduciary, and the represented person makes a claim to
the instrument or its proceeds on the basis that the
transaction of the fiduciary is a breach of fiduciary duty.
Sec. 3.308. PROOF OF SIGNATURES AND STATUS AS HOLDER IN DUE
COURSE. (a) Provides that, in an action with respect to an
instrument, the authenticity of, and authority to make, each
signature on the instrument are admitted unless specifically
denied in the pleadings. Sets forth provisions in the event
that the validity of a signature is denied in the pleadings.
Places on the plaintiff the burden of establishing that the
defendant is liable on the instrument as a represented person
under Section 3.402(a), if an action to enforce the instrument
is brought against a person as the undisclosed principal of a
person who signed the instrument as a party to the instrument.
(b) Entitles the plaintiff producing the instrument to
payment if the plaintiff proves entitlement to enforce the
instrument under Section 3.301 and if the validity of
signatures is admitted or proved and there is compliance
with Subsection (a). Subjects the right of payment of the
plaintiff to the defense or claim, if a defense or claim in
recoupment is proved, except to the extent the plaintiff
proves that the plaintiff has rights of a holder in due
course that are not subject to the defense or claim.
Sec. 3.309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN
INSTRUMENT. (a) Entitles a person who is not in possession of
an instrument to enforce the instrument under certain
conditions.
(b) Requires a person seeking enforcement of an instrument
under Subsection (a) to prove the terms of the instrument
and the person's right to enforce the instrument. Sets
forth provisions in the event that proof is made.
Sec. 3.310. EFFECT OF INSTRUMENT ON OBLIGATION FOR WHICH
TAKEN. (a) Provides that, unless otherwise agreed, if a
certified check, cashier's check, or teller's check is taken
for an obligation, the obligation is discharged to the same
extent discharge would result if an amount of money equal to
the amount of the instrument were taken in payment of the
obligation. Provides that discharge of the obligation does
not affect any liability that the obligor may have as an
indorser of the instrument.
(b) Provides that, unless otherwise agreed and except as
provided in Subsection (A), if a note or an uncertified
check is taken for an obligation, the obligation is
suspended to the same extent the obligation would be
discharged if an amount of money equal to the amount of the
instrument were taken, and that certain rules apply.
(c) Sets forth the effect in the event that an instrument
other than one described in Subsection (a) or (b) is taken
for an obligation.
Sec. 3.311. ACCORD AND SATISFACTION BY USE OF INSTRUMENT.
(a) Sets forth the conditions under which Subsections (b)-(d)
apply.
(b) Provides that the claim is discharged if the person
against whom the claim is asserted provides that the
instrument or accompanying written communication contained
a conspicuous statement to the effect that the instrument
was tendered as full satisfaction of the claim, unless
Subsection (c) applies.
(c) Sets forth conditions under which a claim is not
discharged under Subsection (b), subject to Subsection (d).
(d) Provides that a claim is discharged if the person
against whom the claim is asserted proves that within a
reasonable time before the collection of the instrument was
initiated, the claimant or agent knew that the instrument
was tendered in full satisfaction of the claim.
Sec. 3.312. LOST, DESTROYED, OR STOLEN CASHIER'S CHECK,
TELLER'S CHECK, OR CERTIFIED CHECK. (a) Defines "check,"
"claimant," "declaration of loss," and "obligated bank."
(b) Authorizes a claimant to assert a claim to the amount of
a check by a communication to the obligated bank describing
the check with reasonable certainty and requesting payment
of the amount of the check under certain conditions.
Provides that delivery of a declaration of loss is a
warranty of the truth of the statements made in the
declaration. Requires certain rules to apply if a claim is
asserted in compliance with this subsection.
(c) Provides that if the obligated bank pays the amount of
a check to a claimant and the check is presented for payment
by a person having rights of a holder in due course, the
claimant is obliged to refund the payment to the bank; or
pay the amount of the check to the rights holder.
(d) Authorizes the claimant to assert rights with respect to
the check under either this section or Section 3.309 if the
claimant has the right to assert a claim and is also
entitled to enforce a cashier's check, teller's check, a
certified check that is lost, destroyed, or stolen.
SUBCHAPTER D. LIABILITY OF PARTIES
Sec. 3.401. SIGNATURE. (a) Provides that a person is not
liable on an instrument except under certain circumstances.
(b) Authorizes a signature to be made manually or
mechanically, and by the use of any name.
Sec. 3.402. SIGNATURE BY REPRESENTATIVE. (a) Provides that
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. Provides that 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) Sets forth rules that apply if a representative signs
the name of the representative to an instrument and the
signature is an authorized signature of the representative.
(c) Provides that if a representative signs the name of the
representative as a check drawer 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.
Sec. 3.403. UNAUTHORIZED SIGNATURE. (a) Provides that an
unauthorized signature is ineffective except under certain
circumstances. Authorizes an unauthorized signature to be
ratified for all purposes of this chapter.
(b) Provides that if the signature of more than one person
is required to constitute the authorized signature of an
organization, the organization's signature is unauthorized
if one of the signatures is lacking.
(c) Provides that the civil or criminal liability of a
person who makes an unauthorized signature is not affected
by any provision of this chapter that makes the unauthorized
signature effective.
Sec. 3.404. IMPOSTORS; FICTITIOUS PAYEES. (a) Provides that
if an imposter induces the issuer of an instrument to issue
the instrument to the imposter, or to a person acting with the
imposter in a certain capacity, an instrument indorsement by
any person in the name of the payee is effective in favor of
a person who pays the instrument or takes it for value or for
collection.
(b) Sets forth rules that apply until the instrument is
negotiated by special indorsement if a person whose intent
determines to whom an instrument is payable does not intend
the payee to have the any interest in the instrument, or if
the payee of an instrument is a fictitious person.
(c) Sets forth circumstances under which an indorsement is
made in the name of the payee.
(d) Authorizes the person bearing the loss to recover from
the person failing to exercise ordinary care (care) to the
extent failure to exercise care contributed to the loss if
a person paying the instrument or taking it for value or for
collection fails to exercise care in paying or taking the
instrument and that failure contributes to loss resulting
from payment of the instrument.
Sec. 3.405. EMPLOYER'S RESPONSIBILITY FOR FRAUDULENT
INDORSEMENT BY EMPLOYEE. (a) Defines "employee," "fraudulent
indorsement," and "responsibility."
(b) Provides that if an employer entrusted an employee with
responsibility with respect to the instrument and the
employee or a person acting with the employee makes a
fraudulent endorsement 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. Authorizes the person bearing the loss to recover
from the person failing to exercise ordinary care to the
extent the failure to exercise care contributed to the loss
if a person paying the instrument or taking it for value or
for collection fails to exercise care in paying or taking
the instrument and that failure contributes to loss
resulting from the fraud.
(c) Provides that an indorsement is made in the name of the
person to whom an instrument is payable if certain
circumstances are met.
Sec. 3.406. NEGLIGENCE CONTRIBUTED TO FORGED SIGNATURE OR
ALTERATION OF INSTRUMENT. (a) Provides that a person whose
failure to exercise care substantially contributes to an
alteration of an instrument or to making of a forged signature
of an instrument is precluded from asserting the alteration of
the forgery against a person who pays the instrument or takes
it for value or collection.
(b) Provides that if the person asserting the preclusion
fails to exercise care in paying or taking the instrument
and that failure contributes to loss, the loss is allocated
between the person precluded and the person asserting the
preclusion according to the extent to which the failure of
each to exercise care contributed to the loss.
(c) Provides that under Subsection (a) the burden of proving
failure to exercise care is on the person asserting the
preclusion. Provides that under Subsection (b) the burden
of proving failure to exercise care is on the person
precluded.
Sec. 3.407. ALTERATION. (a) Defines "alteration."
(b) Provides that 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. Provides that no other alteration discharges a
party. Authorizes the instrument to be enforced according
to its original terms.
(c) Authorizes a payor bank or drawee paying a fraudulently
altered instrument or a person taking it for value to
enforce certain rights with respect to the instrument.
Sec. 3.408. DRAWEE NOT LIABLE ON UNACCEPTED DRAFT. Provides
that 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 that drawee is not liable on the instrument
until the drawee accepts it.
Sec. 3.409. ACCEPTANCE OF DRAFT; CERTIFIED CHECK. (a)
Defines "acceptance."
(b) Authorizes a draft to be accepted although it has not
been signed by the drawer, is incomplete, is overdue, or has
been dishonored.
(c) Authorizes the holder to complete the acceptance by
supplying a date in good faith if a draft is payable at a
fixed period after sight and the acceptor fails to date the
acceptance.
(d) Defines "certified check."
Sec. 3.410. ACCEPTANCE VARYING DRAFT. (a) Authorizes the
holder to refuse the acceptance and treat the draft as
dishonored if the drawer's acceptance vary from the terms of
the draft as presented. Authorizes the drawee to cancel
acceptance in that case.
(b) Provides that the terms of the draft are not varied by
an acceptance to pay at a particular bank or place in the
U.S., unless that the acceptance states that the draft is to
be paid only at the bank or place.
(c) Provides that 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.
Sec. 3.411. REFUSAL TO PAY CASHIER'S CHECKS, TELLER'S
CHECKS, AND CERTIFIED CHECKS. (a) Defines "obligated bank."
(b) Provides that if the obligated bank wrongfully refuses
to pay a cashier's check, certified check, or a dishonored
teller's check, or stops payment of a teller's check, the
person asserting the right to enforce the check is entitled
to compensation for expenses and loss of interest resulting
from nonpayment and may recover consequential damages if the
obligated bank refuses to pay after receiving notice of
particular circumstances giving rise to damages.
(c) Provides that expenses or consequential damages are not
recoverable if the refusal of the obligated bank to pay
occurs for certain reasons.
Sec. 3.412. OBLIGATION OF ISSUER OF NOTE OR CASHIER CHECK.
Sets forth requirements under which the issuer of a note or
cashier's check or other draft drawn on the drawer is obliged
to pay the instrument. Provides that the obligation is owed
to a person entitled to enforce the instrument or to an
indorser who paid the instrument.
Sec. 3.413. OBLIGATION OF ACCEPTOR. (a) Sets forth
requirements under which an acceptor of a draft is obliged to
pay a draft. Provides that the obligation is owed to a person
entitled to enforce the draft or to the drawer or an indorser
who paid the draft.
(b) Provides that if the obligation of a check or other
acceptance of a draft states the amount certified or
accepted, the obligation of the acceptor is the amount of
the instrument at the time it was taken by the holder in due
course if certain conditions are met.
Sec. 3.414. OBLIGATION OF DRAWER. (a) Provides that this
section does not apply to a cashier's check or other drafts
drawn on the drawer.
(b) Sets forth requirements under which a drawer is obliged
to pay the draft if an unaccepted draft is dishonored.
Provided that the obligation is owed to a person entitled to
enforce the draft or to an indorser who paid the draft.
(c) Provides that if a draft is accepted by a bank, the
drawer is discharged, regardless of when or by whom
acceptance was obtained.
(d) Provides that if a draft is accepted and the acceptor is
not a bank, the obligation of the drawer to pay the draft if
it is dishonored by the acceptor is the same as the
obligation of an indorser under Sections 3.415(a) and (c).
(e) Provides that if a draft states "without recourse" or
otherwise disclaims liability of the drawer to pay the
draft, the drawer is not liable to pay the draft if it is
not a check. Provides that a disclaimer of the liability is
not effective if the draft is a check.
(f) Authorizes the drawer, under certain conditions, to the
extent deprived of funds, to 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.
Sec. 3.415. OBLIGATION OF INDORSER. (a) Sets forth
conditions under which an indorser is obliged to pay the
amount due on the instrument if the instrument is dishonored.
Provides that the obligation of the indorser is owed to a
person entitled to enforce the instrument or to a subsequent
indorser who paid the instrument.
(b) Provides that if an indorsement states that it was made
"without recourse" or otherwise disclaims liability of the
indorser, the indorser is not liable to pay the instrument.
(c) Provides that if notice of dishonor of an instrument is
required and notice is not given to an indorser, the
liability of the indorser is discharged.
(d) Provides that if a draft is accepted by a bank after an
indorsement is made, the liability of the indorser is
discharged.
(e) Provides that if an indorser of a check is liable and
the check is not presented for payment, or given to a
depository bank for collection, within 30 days after
indorsement was made, the liability of the indorser is
discharged.
Sec. 3.416. TRANSFER WARRANTIES. (a) Provides that a person
who transfers an instrument for consideration warrants to the
transferee, and if the transferee is by indorsement, to any
subsequent transferee certain information.
(b) Authorizes a person to whom the warranties are made and
who took the instrument in good faith to recover from the
warrantor a certain amount as damages for breach of
warranty.
(c) Provides that the warranties cannot be disclaimed with
respect to checks. Provides that unless notice of claim for
breach of warranty is given to the warrantor within a
certain time period, the liability of the warrantor is
discharged to the extent of any loss caused by delay in
giving notice of the claim.
(d) Provides that a cause of action for breach of warranty
accrues when the claimant has reason to know of the breach.
Sec. 3.417. PRESENTMENT WARRANTIES. (a) Provides that if an
unaccepted draft is presented to the drawee for payment or
acceptance and the drawee pays or accepts the draft, the
person obtaining payment or acceptance, at the time of
presentment, and a previous transferror of the draft, at the
time of transfer, warrant to that drawee making payment or
accepting the draft in good faith that certain criteria is
present.
(b) Authorizes a drawee making payment to recover from any
warrantor damages for breach of warrant equal to a certain
amount. Entitles the drawee to compensation for expenses
and loss of interest resulting from the breach. Provides
that the right of the drawee to recover damages is not
affected by any failure of the drawee to exercise care in
making payment. Provides that if the drawee accepts the
draft, breach of warranty is a defense to the obligation of
the acceptor. Entitles the acceptor to recover from any
warrantor for breach of warranty if the acceptor makes
payment with respect to the draft.
(c) Authorizes the warrantor to defend by proving that the
indorsement is effective or the drawer is precluded from
asserting against the drawee the unauthorized indorsement or
alteration if a drawee asserts a claim for breach of
warranty based on an unauthorized indorsement of the draft
or an alteration of the draft.
(d) Sets forth rules that apply if a dishonored draft is
presented for payment to the drawer or an indorser, or any
other instrument is presented for payment to a party obliged
to pay the instrument, and payment is received.
(e) Provides that the warranties stated in Subsections (a)
and (d) cannot be disclaimed with respect to checks.
Provides that unless notice of claim for breach of warranty
is given within a certain time period, the liability of the
warrantor is discharged to the extent of any loss caused by
the delay in giving notice of the claim.
(f) Provides that a cause of action for breach of warranty
accrues when the claimant has reason to know the breach.
Sec. 3.148. PAYMENT OR ACCEPTANCE BY MISTAKE. (a)
Authorizes the drawee to recover the amount of the draft from
the person to whom or for whose benefit payment was made or to
revoke acceptance under certain conditions. Provides that the
drawee's rights under this subsection are not affected by
failure of the drawee to exercise care in paying or accepting
the draft.
(b) Sets forth actions the person paying or accepting is
authorized to take to the extent permitted by law governing
mistake or restitution if an instrument has been paid or
accepted by mistake.
(c) Prohibits remedies provided Subsection (a) or (b) from
being 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. Provides
that this subsection does not limit remedies provided by
Section 3.417 or 4.407.
(d) Provides that if an instrument is paid or accepted by
mistake and the payor or acceptor recovers payment or
revokes payment or acceptance, the instrument is deemed to
not have been paid or accepted and is treated as dishonored,
and the person from whom the payment is recovered has rights
as a person entitled to enforced the dishonored instrument.
Sec. 3.419. INSTRUMENTS SIGNED FOR ACCOMMODATION. (a)
Provides that if an instrument is issued for value given for
the benefit of a party to the instrument and another party to
the instrument to incur liability on the instrument without
being direct beneficiary of the value given for the
instrument, the instrument is signed by the accommodation
party.
(b) Authorizes an accommodation party to sign the instrument
as maker, drawer, acceptor, or indorser. Provides that the
accommodation party is obliged to pay the instrument in the
capacity in which the accommodation party signs. Authorizes
an accommodation party to be enforced.
(c) Provides that a person signing an instrument is presumed
to be an accommodation party and there is notice that the
instrument is signed for accommodation meets certain
requirements. Provides that the accommodation party's
obligation 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) Provides that if the signature of a party to an
instrument is accompanied by words making unambiguous
indications guaranteeing collection rather than payment of
the obligation of another party, the signer is obliged to
pay the amount due on the instrument to a person entitled to
enforce the instrument only under certain circumstances.
(e) Provides that an accommodation party who pays the
instrument is entitled to reimbursement from the
accommodated party to enforce the instrument against the
accommodated party. Provides that the instrument has no
right of recourse against, and is not entitled to
contribution from, an accommodation party.
Sec. 3.420. CONVERSION OF INSTRUMENT. (a) Makes the law
applicable to conversion of personal property applicable to
instruments. Provides that an instrument is converted if it
is taken by transfer, other than negotiation, from a person
not entitled to enforce the instrument or a bank makes or
obtains payments with respect to the instrument for a person
not entitled to enforce the instrument or receive payment.
Prohibits an action for conversion of an instrument from being
brought by certain means.
(b) Describes the measure of liability in an action under
Subsection (a). Prohibits the recovery from exceeding the
amount of the plaintiff's interest in the instrument.
(c) Provides that a representative who has dealt with an
instrument or its proceeds on behalf of one who was not
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.
SUBCHAPTER E. DISHONOR
Sec. 3.501. PRESENTMENT. (a) Defines "presentment."
(b) Sets forth rules that are subject to Chapter 4,
agreement of the parties, and clearing-house rules.
Sec. 3.502. DISHONOR. (a) Sets forth rules governing
dishonor of a note.
(b) Sets forth rules governing dishonor of an unaccepted
draft other than a documentary draft.
(c) Provides that dishonor of an unaccepted documentary
draft occurs according to the rules stated in Subsections
(b)(2)-(4), except that payment or acceptance may be delayed
without dishonor until not later than the close of the third
business day of the drawee following the day on which
payment or acceptance is required by those subdivisions.
(d) Sets forth the rules which govern dishonor of an
accepted draft.
(e) Provides that in any case in which presentment is
otherwise required for dishonor under this section and
presentment is excused under Section 3.504, dishonor occurs
without presentment if the instrument is not duly accepted
or paid.
(f) Provides that if a draft is dishonored because timely
acceptance of the draft was not made and the person entitled
to demand acceptance consents to a late acceptance, from the
time of acceptance the draft is treated as never having been
dishonored.
Sec. 3.503. NOTICE OF DISHONOR. (a) Prohibits the
obligation of an indorser stated in Section 3.415(a) and the
obligation of a drawer stated in Section 3.414(d) from being
enforced unless certain conditions apply.
(b) Authorizes notice of dishonor to be given by any
person; to be given by any commercially reasonable means,
including an oral, written, or electric communication; and
is sufficient if it reasonably identifies the instrument and
indicates that the instrument has been dishonored or has
been paid or accepted. Provides that return of an
instrument given to a bank for collection is sufficient
notice of dishonor.
(c) Requires notice of dishonor to be given (i) by the bank
before midnight of the next banking day following the
banking day on which the bank receives notice of dishonor of
the instrument, or (ii) by any other person within 30 days
following the day on which the person receives notice of
dishonor. Requires notice of dishonor to be given within 30
days following the day on which dishonor occurs.
Sec. 3.504. EXCUSED PRESENTMENT AND NOTICE OF DISHONOR. (a)
Sets forth the conditions under which presentment for payment
or acceptance of an instrument is excused.
(b) Sets forth the conditions under which notice of
dishonor is excused. Provides that a waiver of presentment
is also a waiver of notice of dishonor.
(c) Provides that delay in giving notice of dishonor is
excused if the delay was caused by circumstances beyond the
control of the person giving the notice and the person
giving the notice exercised reasonable diligence after the
cause of the delay ceased to operate.
Sec. 3.505. EVIDENCE OF DISHONOR. (a) Sets forth the
documents which are admissible as evidence and create a
presumption of dishonor and of any notice of dishonor.
(b) Provides that a protest is a certificate of dishonor
made by a U.S. consul or vice consul, or a notary public or
other person authorized to administer oaths by the law of
the place where dishonor occurs. Authorizes the protest to
be made on information satisfactory to that person.
Requires the protest to identify the instrument and certify
either that presentment has been made or, if not made, the
reason why it was not made, and that the instrument has been
dishonored by nonacceptance or nonpayment. Authorizes the
protest to also certify that notice of dishonor has been
given to some or all parties.
SUBCHAPTER F. DISCHARGE AND PAYMENT
Sec. 3.601. DISCHARGE AND EFFECT OF DISCHARGE. (a) Provides
that the obligation of a party to pay the instrument is
discharged as stated in this chapter or by an act or agreement
with the party that would discharge an obligation to pay money
under a simple contract.
(b) Provides that discharge of the obligation of a party is
not effective against a person acquiring rights of a holder
in due course of the instrument without notice of the
discharge.
Sec. 3.602. PAYMENT. (a) Provides that an instrument is
paid to the extent payment is made (i) by or on behalf of a
party obliged to pay the instrument, and (ii) to a person
entitled to enforce the instrument. Provides that to the
extent of the payment, the obligation of the party obliged to
pay the instrument is discharged even though payment is made
with knowledge of a claim to the instrument under Section
3.306 by another person.
(b) Provides that the obligation of a party to pay the
instrument is not discharged under Subsection (a) under
certain conditions.
Sec. 3.603. TENDER OF PAYMENT. (a) Provides that if tender
of payment of an obligation to pay an instrument is made to a
person entitled to enforce the instrument, the effect of
tender is governed by principles of law applicable to tender
of payment under a simple contract.
(b) Provides that if tender of payment of an obligation to
pay an instrument is made to a person entitled to enforce
the instrument and the tender is refused, there is
discharge, to the extent of the amount of the tender, of the
obligation of an indorser or accommodation party having a
right of recourse with respect to the obligation to which
the tender relates.
(c) Provides that if tender of payment of an amount due on
an instrument is made to a person entitled to enforce the
instrument, the obligation of the obligor to pay interest
after the due date on the amount tendered is discharged.
Provides that if presentation is required with respect to an
instrument and the obligor is able and ready to pay on the
due date at every place of payment stated in the instrument,
the obligor is deemed to have made tender of payment on the
due date to the person entitled to enforce the instrument.
Sec. 3.604. DISCHARGE BY CANCELLATION OR RENUNCIATION. (a)
Authorizes a person entitled to enforce an instrument to
discharge the obligation of a party to pay the instrument
under certain conditions.
(b) Provides that cancellation or striking out of an
indorsement pursuant to Subsection (a) does not affect
status and rights of a party derived from the indorsement.
Sec. 3.605. DISCHARGE OF INDORSERS AND ACCOMMODATION PARTIES.
(a) Defines "indorser."
(b) Provides that discharge of the obligation of a party to
pay an instrument under Section 3.604 does not discharge the
obligation of an indorser or accommodation party having a
right of recourse against the discharged party.
(c) Provides that if a person entitled to enforce an
instrument agrees, with or without consideration, to an
extension of the due date of the obligation of a party to
pay the instrument, the extension discharges an indorser or
accommodation party having a right of recourse against the
party whose obligation is extended to the extent the
indorser or accommodation party proves that the extension
caused loss to the indorser or accommodation party with
respect to the right of recourse.
(d) Provides that if a person entitled to enforce an
instrument agrees to a material modification of the
obligation party other than an extension of the due date,
the modification discharges the obligation of an indorser or
accommodation discharges the obligation of an indorser or
accommodation party having a right of recourse against the
person whose obligation is modified to the extent the
modification causes loss to the indorser or accommodation
party with respect to the right of recourse unless the
person enforcing the instrument proves that no loss was
caused by the modification or that the loss caused by the
modification was an amount less than the amount of the right
of recourse.
(e) Sets forth the method of calculation of the value of
interest if the obligation of a party to pay an instrument
is secured by an interest in collateral and a person
entitled to enforce the instrument impairs the value of the
interest in collateral.
(f) Provides that if the obligation of a party is secured
by an interest in collateral not provided by an
accommodation party and person entitled to enforce the
instrument impairs the value of the interest in collateral,
the obligation of any party who is jointly and severally
liable with respect to the secured obligation is discharged
to the extent the impairment causes the party asserting
discharge to pay more than that party would have been
obliged to pay, taking into account rights of contribution,
if impairment had not occurred. Provides that if the party
asserting discharge is an accommodation party not entitled
to discharge under Subsection (e), the party is deemed to
have a right to contribution based on joint and several
liability rather than a right to reimbursement. Provides
that the burden of proving impairment is on the party
asserting discharge.
(g) Sets forth the conditions which constitute impairing
value of an interest in collateral.
(h) Provides that an accommodation party is not discharged
under Subsections (c)-(e) unless the person entitled to
enforce the instrument knows of the accommodation or has
notice under Section 3.419(c) that the instrument was signed
for accommodation.
(i) Provides that a party is not discharged under this
section under certain conditions. Deletes existing Chapter
3A, Business and Commerce Code (Uniform Commercial Code-
Commercial Paper), regarding the short title, form, and
interpretation of the Uniform Commercial Code-Commercial
Paper. Deletes existing Chapter 3B, Business and Commerce
Code, regarding transfer and negotiation of an indorsement.
Deletes existing Chapter 3C, Business and Commerce Code,
regarding the rights of the holder of an instrument.
Deletes existing Chapter 3D, Business and Commerce Code,
regarding liability of a party concerning signatures,
alterations, drafts, checks, contracts and representatives.
Deletes existing Chapter 3E, Business and Commerce Code,
regarding presentment, notice of dishonor and protest
relating to the charging of an indorser and a drawer.
Deletes existing Chapter 3F, Business and Commerce Code,
regarding discharge of parties and holders. Deletes
existing Chapter 3G, Business and Commerce Code, regarding
letter of advice of international sight draft. Deletes
existing Chapter 3H, Business and Commerce Code, regarding
miscellaneous provisions of the Uniform Commercial Code-Commercial Paper Act.
Deletes existing Sections 3.802-3.805.
SECTION 2. Amends Sections 1.201(20), (24), (43), and (44),
Business and Commerce Code, to redefine "holder," "money," and
"unauthorized." Makes nonsubstantive and conforming changes.
SECTION 3. Amends Section 1.207, Business and Commerce Code, to
provide that Subsection (a) does not apply to an accord and
satisfaction.
SECTION 4. Amends Chapter 4, Business and Commerce Code, as
follows:
CHAPTER 4. BANK DEPOSITS AND COLLECTIONS
SUBCHAPTER A. GENERAL PROVISIONS AND DEFINITIONS
Sec. 4.101. SHORT TITLE. Makes no change.
Sec. 4.102. APPLICABILITY. Makes nonsubstantive changes.
Sec. 4.103. New heading: VARIATION BY AGREEMENT; MEASURE OF
DAMAGES; ACTION CONSTITUTING ORDINARY CARE. Makes
nonsubstantive and conforming changes.
Sec. 4.104. DEFINITIONS AND INDEX OF DEFINITIONS. (a)
Redefines "account," "documentary draft," "item," and
"settle." Defines "draft" and "drawee." Deletes the definition
for "properly payable." Makes nonsubstantive and conforming
changes.
(b) Adds to the definitions applying to this chapter and
the sections in which they appear, the definitions for
"agreement for electronic presentment," "bank," and
"presentment notice." Deletes from the definitions applying
to this chapter and the sections in which they appear, the
definition for "remitting bank." Makes nonsubstantive and
conforming changes.
(c) Adds to the definitions in other chapters that apply to
this chapter, the definitions for "alteration," "cashier's
check," "certified check," "good faith," "instrument,"
"order," "ordinary care," "person entitled to enforce,"
"promise," "prove," "teller's check," and "unauthorized
signature." Deletes from the definitions in other chapters
that apply to this chapter "certification," "draft,"
"protest," and "secondary party." Makes nonsubstantive and
conforming changes.
(d) Makes no change.
Sec. 4.105. New heading: "BANK"; "DEPOSITORY BANK"; "
INTERMEDIARY BANK"; "COLLECTING BANK"; "PAYOR BANK";
"PRESENTING BANK." Defines "bank." Redefines "depository bank"
and "payor bank." Deletes the definition for "remitting bank."
Sec. 4.106. PAYABLE THROUGH OR PAYABLE AT BANK; COLLECTING
BANK. (a) Defines an item that is "payable through" a bank.
(b) Provides that if an item states that it is "payable at"
a bank identified in the item, the item is equivalent to a
draft drawn on the bank.
(c) Provides that if a draft names a nonbank drawee and it
is unclear whether a bank named in the draft is a co-drawee
or a collecting bank, the bank is a collecting bank.
Sec. 4.107. SEPARATE OFFICE OF A BANK. Redesignates existing
Section 4.106. Makes a nonsubstantive change.
Sec. 4.108. TIME OF RECEIPT OF ITEMS. Redesignates existing
Section 4.107. Makes a nonsubstantive change.
Sec. 4.109. DELAYS. Redesignates existing Section 4.108.
Authorizes a collecting bank in good faith effort to secure
payment of a specific item drawn on a payor other than a bank,
to waive, modify, or extend time limits imposed or permitted
by this title for a period not exceeding two, rather than one,
additional banking days without discharge of drawers or
indorsers, rather than secondary parties, or liability or to
its transferor or a prior party. Makes nonsubstantive and
conforming changes.
Sec. 4.110. ELECTRONIC PRESENTMENT. (a) Defines "agreement for
electronic presentment." Authorizes the agreement to provide
for procedures governing retention, presentment, payment,
dishonor, and other matters concerning items subject to the
agreement.
(b) Provides that presentment of an item under an agreement
for presentment is made when the presentment notice is
received.
(c) Provides that if presentment is made by presentment
notice, a reference to "item" or "check" in this chapter
means the presentment notice unless the context otherwise
indicates.
Sec. 4.111. STATUTE OF LIMITATIONS. Requires an action to
enforce an obligation, duty, or right arising under this
chapter to be commenced within three years after the cause of
action accrues.
SUBCHAPTER B. COLLECTION OF ITEMS; DEPOSITARY AND COLLECTING
BANKS
Sec. 4.201. New heading: STATUS OF COLLECTING BANK AS AGENT
AND PROVISIONAL STATUS OF CREDITS; APPLICABILITY OF CHAPTER;
ITEM INDORSED "PAY AND BANK." (a) Subjects the continuance of
ownership of an item by its owner and any rights of the owner
to proceeds of the item to rights of a collecting bank, such
as those resulting from outstanding advances on the item and
rights of recoupment or setoff. Provides that if an item is
handled by banks for purposes of presentment, payment,
collection, or return, the relevant provisions of this chapter
apply even though action of the parties clearly establishes
that a particular bank has purchased the item and is the owner
of it. Makes nonsubstantive and conforming changes.
Sec. 4.202. New heading: RESPONSIBILITY FOR COLLECTION OR
RETURN; WHEN ACTION TIMELY. Deletes from the provisions a
collecting bank must exercise ordinary care in, sending notice
of dishonor or nonpayment or returning an item to the
depositary bank under Section 4.212(b); and making or
providing for any necessary protest. Makes nonsubstantive and
conforming changes.
Sec. 4.203. EFFECT OF INSTRUCTIONS. Makes nonsubstantive and
conforming changes.
Sec. 4.204. New heading: METHODS OF SENDING AND PRESENTING;
SENDING DIRECTLY TO PAYOR BANK. Authorizes presentment to be
made by a presenting bank at a place where the payor bank or
other payor has requested that presentment be made. Makes
nonsubstantive and conforming changes.
Sec. 4.205. New heading: DEPOSITARY BANK HOLDER OF UNINDORSED
ITEM. Sets forth provisions for the depositary bank if a
customer delivers an item to a depositary bank for collection.
Deletes existing Section 4.205.
Sec. 4.206. TRANSFER BETWEEN BANKS. Makes a nonsubstantive
change.
Sec. 4.207. TRANSFER WARRANTIES. (a) Sets forth provisions a
customer or collecting bank that transfers an item and
receives a settlement or other consideration warrants to the
transferee and to any subsequent collecting bank.
(b) Provides that if an item is dishonored, a customer or
collecting bank transferring the item and receiving
settlement or other consideration is obliged to pay the
amount due on the item (i) according to the terms of the
item at the time it was transferred, or (ii) if the transfer
was of an incomplete item, according to its terms when
completed as stated in Sections 3.115 and 3.407. Provides
that the obligation of a transferor is owed to the
transferee and to any subsequent collecting bank that takes
the item in good faith. Provides that a transferor cannot
disclaim its obligation under this subsection by an
indorsement stating that it is made "without recourse" or
otherwise disclaiming liability.
(c) Authorizes a person to whom the warranties under
Subsection (a) are made and who took the item in good faith
to recover from the warrantor as damages for breach of
warranty an amount equal to the loss suffered as a result of
the breach, but not more than the amount of the item plus
expenses and loss of interest incurred as a result of the
breach.
(d) Provides that the warranties stated in Subsection (a)
cannot be disclaimed with respect to checks. Provides that
unless notice of a claim for breach of warranty is given to
the warrantor within 30 days after the claimant has reason
to know of the breach and the identity of the warrantor, the
warrantor is discharged to the extent of any loss caused by
the delay in giving notice of the claim.
(e) Provides that a cause of action for breach of warranty
under this section accrues when the claimant has reason to
know of the breach. Deletes existing Section 4.207.
Sec. 4.208. PRESENTMENT WARRANTIES. (a) Sets forth provisions
for (i) the person obtaining payment or acceptance and (ii) a
previous transferor of the draft warrant to the drawee that
pays or accepts the draft, if an unaccepted draft is presented
to the drawee for payment or acceptance and the drawee pays or
accepts the draft.
(b) Authorizes a drawee making payment to recover from a
warrantor damages for breach of warranty equal to the amount
paid by the drawee less the amount the drawee received or is
entitled to receive from the drawer because of the payment.
Entitles the drawee, in addition, to compensation for
expenses and loss of interest resulting from the breach.
Provides that the right of the drawee to recover damages
under this subsection is not affected by any failure of the
drawee to exercise care in making payment. Provides that if
the drawee accepts the draft, breach of warranty is a
defense to the obligation of the acceptor. Entitles the
acceptor, if the acceptor makes payment with respect to the
draft, to recover from a warrantor for breach of warranty
the amounts stated in this subsection.
(c) Authorizes the warrantor, 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, to 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) Provides that if (i) a dishonored draft is presented for
payment to the drawer or an indorser, or (ii) any other item
is presented for payment to a party obliged to pay the item,
and the item is paid, the person obtaining payment and a
prior transferor of the item warrant to the person making
payment in good faith that the warrantor is, or was, at the
time the warrantor transferred the item, a person entitled
to enforce the item or authorized to obtain payment on
behalf of a person entitled to enforce the item. Authorizes
the person making payment to recover from any warrantor for
breach of warranty an amount equal to the amount paid plus
expenses and loss of interest resulting from the breach.
(e) Provides that the warranties stated in Subsections (a)
and (d) cannot be disclaimed with respect to checks.
Provides that unless notice of a claim for breach of
warranty is given to the warrantor within 30 days after the
claimant has reason to know of the breach and the identity
of the warrantor, the warrantor is discharged to the extent
of any loss caused by the delay in giving notice of the
claim.
(f) Provides that a cause of action for breach of warranty
under this section accrues when the claimant has reason to
know of the breach.
Sec. 4.209. ENCODING AND RETENTION WARRANTIES. (a) Provides
that a person who encodes information on or with respect to an
item after issue warrants to any subsequent collecting bank
and to the payor bank or other payor that the information is
correctly encoded. Provides that if the customer of a
depositary bank encodes, that bank also makes the warranty.
(b) Provides that a person who undertakes to retain an item
pursuant to an agreement for electronic presentment warrants
to any subsequent collecting bank and to the payor bank or
other payor that retention and presentment of the item
comply with the agreement. Provides that if a customer of a
depositary bank undertakes to retain an item, that bank also
makes this warranty.
(c) Authorizes a person to whom warranties are made under
this section and who took the item in good faith to recover
from the warrantor as damages for breach of warranty an
amount equal to the loss suffered as a result of the breach,
plus expenses and loss of interest incurred as a result of
the breach.
Sec. 4.210. SECURITY INTEREST OF COLLECTING BANK IN ITEM,
ACCOMPANYING DOCUMENTS AND PROCEEDS. Redesignates existing
Section 4.208. Sets forth conditions under which a collecting
bank, rather than a bank, has a security interest in items and
accompanying documents or the proceeds of either. Makes
nonsubstantive and conforming changes.
Sec. 4.211. WHEN BANK GIVES VALUE FOR PURPOSES OF HOLDER IN
DUE COURSE. Redesignates existing Section 4.209. Makes
nonsubstantive and conforming changes.
Sec. 4.212. New heading: PRESENTMENT BY NOTICE OF ITEM NOT
PAYABLE BY, THROUGH, OR AT A BANK; LIABILITY OF DRAWER OR
INDORSER. (a) Authorizes a presenting bank, if presentment is
made by notice and payment, acceptance, or request, rather
than honor, for compliance with a requirement under Section
3.501 is not received by the close of business on the day
after maturity, to treat the item as dishonored and charge any
drawer or indorser by sending it notice of the facts.
Sec. 4.213. New heading: MEDIUM AND TIME OF SETTLEMENT BY
BANK. (a) Authorizes the medium and time of settlement to be
prescribed by Federal Reserve regulations or circulars,
clearing-house rules, and the like or by agreement. Sets forth
provisions for the settlement in the absence of such a
prescription.
(b) Provides that if the tender of settlement is not by a
medium authorized by Subsection (a) or the time of
settlement is not fixed by Subsection (a), a settlement does
not occur until the tender of settlement is accepted by the
person receiving settlement.
(c) Sets forth conditions for a person receiving settlement
if the person presents and forwards the check or fails to
present or forward the check before its midnight deadline,
if settlement for an item is made by cashier's check or
teller's check.
(d) Provides that if settlement for an item is made by
giving authority to charge the account of the bank giving
settlement in the bank receiving settlement, settlement is
final when the charge is made by the bank receiving
settlement if there are funds available in the account for
the amount of the item. Deletes existing Section 4.211.
Sec. 4.214. New heading: RIGHT OF CHARGE-BACK OR REFUND;
LIABILITY OF COLLECTING BANK; RETURN OF ITEM. Redesignates
existing Section 4.212. (a) Provides that a bank, if the
return of notice is delayed beyond the bank's midnight
deadline or longer time after it learns the facts, shall
revoke the settlement, charge back the credit, or obtain
refund from its customers, but it is liable for any loss
resulting from the delay. Makes nonsubstantive and conforming
changes.
(b) Provides that a collecting bank returns an item when it
is sent or delivered to the bank's customer or transferor or
pursuant to its instructions. Deletes existing Subsection
(b).
(c)-(f) Make nonsubstantive and conforming changes.
Sec. 4.215. FINAL PAYMENT OF ITEM BY PAYOR BANK; WHEN
PROVISIONAL DEBITS AND CREDITS BECOME FINAL; WHEN CERTAIN
CREDITS BECOME AVAILABLE FOR WITHDRAWAL. Redesignates existing
Section 4.213. (a) Makes nonsubstantive and conforming
changes.
(b) Provides that if provisional settlement for an item does
not become final, the item is not finally paid.
(c) Redesignates existing Subsection (b).
(d) Redesignates existing Subsection (c). Makes
nonsubstantive and conforming changes.
(e) Redesignates existing Subsection (d). Subjects credit
given by a bank for an item in a customer's account to
applicable law stating a time for availability of funds.
Makes nonsubstantive and conforming changes.
(f) Makes nonsubstantive and conforming changes.
Sec. 4.216. INSOLVENCY AND PREFERENCE. Redesignates existing
Section 4.214. Makes nonsubstantive and conforming changes.
SUBCHAPTER C. COLLECTION OF ITEMS; PAYOR BANKS
Sec. 4.301. New heading: DEFERRED POSTING; RECOVERY OF PAYMENT
BY RETURN OF ITEMS; TIME OF DISHONOR; RETURN OF ITEMS BY PAYOR
BANK. Makes nonsubstantive and conforming changes.
Sec. 4.302. PAYOR BANK'S RESPONSIBILITY FOR LATE RETURN OF
ITEM. (a) Sets forth amounts for which a bank is accountable,
if an item is presented to and received by a payor bank.
Deletes the provision that this is in the absence of a valid
defense, such as breach of a presentment warranty. Makes
nonsubstantive and conforming changes.
(b) Subjects the liability of a payor bank to pay an item
pursuant to Subsection (a) to defenses based on breach of a
presentment warranty or proof that the person seeking
enforcement of the liability presented or transferred the
item for the purpose of defrauding the payor bank.
Sec. 4.303. New heading: WHEN ITEMS SUBJECT TO NOTICE, STOP-PAYMENT ORDER, LEGAL PROCESS, OR SETOFF; ORDER IN WHICH ITEMS
MAY BE CHARGED OR CERTIFIED. (a) Adds to the provisions under
which knowledge, notice, or stop-payment order received by,
legal process served upon, or setoff exercised by a payor bank
comes too late to terminate, suspend, or modify the bank's
right or duty to pay an item, the time limit of a cutoff hour
not earlier than one hour after the opening of the next
banking day after the banking day on which the bank received
the check and not later than the close of that next banking
day or, if no cutoff hour is fixed, the close of the next
banking day after the banking day on which the bank received
the check.
(b) Makes nonsubstantive and conforming changes.
SUBCHAPTER D. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER
Sec. 4.401. WHEN BANK MAY CHARGE CUSTOMER'S ACCOUNT. (a)
Provides that an item is properly payable if it is authorized
by the customer and is in accordance with any agreement
between the customer and the bank.
(b) Provides that a customer is not liable for the amount of
an overdraft if the customer neither signed the item nor
benefited from the proceeds of the item.
(c) Authorizes a bank to charge against the account of a
customer a check that is otherwise properly payable from the
account, even though payment was made before the date of the
check, unless the customer has given notice to the bank of
the postdating describing the check with certainty. Provides
that the notice is effective for the period stated in
Section 4.403(b) for stop-payment orders and must be
received at such time and in such manner as to afford the
bank an opportunity to act on it before the bank takes any
action with respect to the check described in Section 4.303.
Provides that if a bank charges against the account of a
customer a check before the date stated in the notice of
postdating, the bank is liable for damages for the loss
resulting from its act. Authorizes the loss to include
damages for dishonor of subsequent items under Section
4.402.
(d) Makes nonsubstantive and conforming changes.
Sec. 4.402. New heading: BANK'S LIABILITY TO CUSTOMER FOR
WRONGFUL DISHONOR; TIME OF DETERMINING INSUFFICIENCY OF
ACCOUNT. Provides that a payor bank wrongfully dishonors an
item if it dishonors an item that is properly payable, but a
bank may dishonor an item that would create an overdraft
unless it has agreed to pay the overdraft.
(b) Makes nonsubstantive and conforming changes.
(c) Authorizes a payor bank's determination of the
customer's account balance on which a decision to dishonor
for insufficiency of available funds is based to be made at
any time between the time the item is received by the payor
bank and the time that the payor bank returns the item or
gives notice in lieu of return, and no more than one
determination need be made. Provides that if at the election
of the payor bank, a subsequent balance determination is
made for the purpose of reevaluating the bank's decision to
dishonor the item, the account balance at that time is
determinative of whether a dishonor for insufficiency of
available funds is wrongful.
Sec. 4.403. CUSTOMER'S RIGHT TO STOP PAYMENT; BURDEN OF PROOF
OF LOSS. (a) Provides that a customer or any person authorized
to draw on the account if there is more than one person may
stop payment of any item drawn on the customer's account or
close the account by an order to the bank describing the item
or account with certainty. Authorizes, if the signature of
more than one person is required to draw on an account, any of
those persons to stop payment or close the account. Makes
nonsubstantive and conforming changes.
(b) Provides that a stop-payment order is effective for six
months and is binding on the bank only if it is in writing,
dated, and signed and describes the item with certainty.
Authorizes a stop-payment order to be renewed for additional
six-month periods by a writing given to the bank within a
period during which the stop-payment order is effective.
Makes nonsubstantive and conforming changes.
(c) Authorizes the loss from payment of an item contrary to
a stop-payment order to include damages for dishonor of
subsequent items under Section 4.402.
Sec. 4.404. BANK NOT OBLIGATED TO PAY CHECK MORE THAN SIX
MONTHS OLD. Makes nonsubstantive and conforming changes.
Sec. 4.405. DEATH OR INCOMPETENCE OF CUSTOMER. Makes
nonsubstantive and conforming changes.
Sec. 4.405. CUSTOMER'S DUTY TO DISCOVER AND REPORT
UNAUTHORIZED SIGNATURE OR ALTERATION. (a) Requires a bank that
sends or makes available to a customer a statement of account
showing payment of items for the account to either return or
make available to the customer the items paid or provide
information in the statement of account sufficient to allow
the customer to identify the items paid. Provides that the
statement of account provides sufficient information if the
item is described by item number, amount, and date of payment.
Requires a bank, if the bank does not return the items, to
provide in the statement of account the telephone number that
the customer may call to request an item or a legible copy of
the items pursuant to Subsection (b).
(b) Requires the person retaining the items, if the items
are not returned to the customer, to either retain the items
or, if the items are destroyed, maintain the capacity to
furnish legible copies of the items until the expiration of
seven years after receipt of the items. Provides that a
customer may request an item from the bank that paid the
item, and that bank must provide in a time either the item
or, if the item has been destroyed or is not otherwise
obtainable, a legible copy of the item. Requires a bank to
provide, on request and without charge to the customer, at
least two items or a legible copy of the items with respect
to each statement of account sent to the customer.
(c) Requires the customer, if a bank sends or makes
available a statement of account or items pursuant to
Subsection (a), to exercise promptness in examining the
statement or the items to determine whether any payment was
not authorized because of an alteration of an item or
because a purported signature by or on behalf of the
customer was not authorized. Requires the customer, if the
customer should have discovered the unauthorized payment, to
notify the bank of the relevant facts. Deletes existing
Subsection (a).
(d) Provides that if the bank proves that the customer
failed, with respect to an item, to comply with the duties
imposed on the customer by Subsection (c), the customer is
precluded from asserting against the bank, the customer's
unauthorized signature or alteration by the same wrongdoer
on any other item paid in good faith by the bank if the
payment was made before the bank received notice from the
customer of the unauthorized signature or alteration and
after the customer had been afforded a reasonable period of
time, not exceeding 30, rather than 14, days in which to
examine the item or statement of account and notify the
bank. Deletes existing Subsection (c).
(e) Provides that if Subsection (d) applies and the customer
proves that the bank failed to exercise care in paying the
item and that the failure contributed to loss, the loss is
allocated between the customer precluded and the bank
asserting the preclusion according to the extent to which
the failure of the customer to comply with Subsection (c)
and the failure of the bank to exercise care contributing to
the loss. Provides that if the customer proves that the bank
did not pay the item in good faith, the preclusion under
Subsection (d) does not apply.
(f) Prohibits the payor bank, if there is a preclusion under
this subsection, from recovering for breach of warranty
under Section 4.208 with respect to the unauthorized
signature or alteration to which the preclusion applies.
Deletes existing Subsection (e).
Sec. 4.407. PAYOR BANK'S RIGHT TO SUBROGATION ON IMPROPER
PAYMENT. Adds to the circumstances that give a basis for
objection, if a payor bank has paid an item over the order of
the drawer or maker to stop payment, or after an account has
been closed. Makes nonsubstantive and conforming changes.
SUBCHAPTER E. COLLECTION OF DOCUMENTARY DRAFTS
Sec. 4.501. HANDLING OF DOCUMENTARY DRAFTS; DUTY TO SEND FOR
PRESENTMENT AND TO NOTIFY CUSTOMER OF DISHONOR. Makes
nonsubstantive and conforming changes.
Sec. 4.502. PRESENTMENT OF "ON ARRIVAL" DRAFTS. Makes
nonsubstantive and conforming changes.
Sec. 4.503. RESPONSIBILITY OF PRESENTING BANK FOR DOCUMENTS
AND GOODS; REPORT OF REASONS FOR DISHONOR; REFEREE IN CASE OF
NEED. Makes nonsubstantive and conforming changes.
Sec. 4.504. PRIVILEGE OF PRESENTING BANK TO DEAL WITH GOODS;
SECURITY INTEREST FOR EXPENSES. Makes nonsubstantive and
conforming changes.
SECTION 5. Amends Section 5.103(c), Business and Commerce Code, to
make conforming changes.
SECTION 6. Amends Section 9.203(a), Business and Commerce Code, to
make a conforming change.
SECTION 7. Amends Section 9.302(a), Business and Commerce Code, to
make nonsubstantive and conforming changes.
SECTION 8. Amends Section 9.312(a), Business and Commerce Code, to
make a conforming change.
SECTION 9. Makes application of this Act prospective.
SECTION 10. Effective date: September 1, 1995.
SECTION 11. Emergency clause.