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.