By Montford S.B. No. 1406
74R8032 CLG-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to negotiable instruments and bank deposits and
1-3 collections, including a revision of Chapter 3 of the Uniform
1-4 Commercial Code.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Chapter 3, Business & Commerce Code, is amended
1-7 to read as follows:
1-8 CHAPTER 3. NEGOTIABLE INSTRUMENTS
1-9 SUBCHAPTER A. GENERAL PROVISIONS AND DEFINITIONS
1-10 Sec. 3.101. SHORT TITLE. This chapter may be cited as
1-11 Uniform Commercial Code--Negotiable Instruments.
1-12 Sec. 3.102. SUBJECT MATTER. (a) This chapter applies to
1-13 negotiable instruments. It does not apply to money, to payment
1-14 orders governed by Chapter 4A, or to securities governed by Chapter
1-15 8.
1-16 (b) If there is conflict between this chapter and Chapter 4
1-17 or 9, Chapters 4 and 9 govern.
1-18 (c) Regulations of the Board of Governors of the Federal
1-19 Reserve System and operating circulars of the Federal Reserve Banks
1-20 supersede any inconsistent provision of this chapter to the extent
1-21 of the inconsistency.
1-22 Sec. 3.103. DEFINITIONS. (a) In this chapter:
1-23 (1) "Acceptor" means a drawee who has accepted a
1-24 draft.
2-1 (2) "Drawee" means a person ordered in a draft to make
2-2 payment.
2-3 (3) "Drawer" means a person who signs or is identified
2-4 in a draft as a person ordering payment.
2-5 (4) "Good faith" means honesty in fact and the
2-6 observance of reasonable commercial standards of fair dealing.
2-7 (5) "Maker" means a person who signs or is identified
2-8 in a note as a person undertaking to pay.
2-9 (6) "Order" means a written instruction to pay money
2-10 signed by the person giving the instruction. The instruction may
2-11 be addressed to any person, including the person giving the
2-12 instruction, or to one or more persons jointly or in the
2-13 alternative but not in succession. An authorization to pay is not
2-14 an order unless the person authorized to pay is also instructed to
2-15 pay.
2-16 (7) "Ordinary care" in the case of a person engaged in
2-17 business means observance of reasonable commercial standards,
2-18 prevailing in the area in which the person is located, with respect
2-19 to the business in which the person is engaged. In the case of a
2-20 bank that takes an instrument for processing for collection or
2-21 payment by automated means, reasonable commercial standards do not
2-22 require the bank to examine the instrument if the failure to
2-23 examine does not violate the bank's prescribed procedures and the
2-24 bank's procedures do not vary unreasonably from general banking
2-25 usage not disapproved by this chapter or Chapter 4.
2-26 (8) "Party" means a party to an instrument.
2-27 (9) "Promise" means a written undertaking to pay money
3-1 signed by the person undertaking to pay. An acknowledgment of an
3-2 obligation by the obligor is not a promise unless the obligor also
3-3 undertakes to pay the obligation.
3-4 (10) "Prove" with respect to a fact means to meet the
3-5 burden of establishing the fact (Section 1.201(8)).
3-6 (11) "Remitter" means a person who purchases an
3-7 instrument from its issuer if the instrument is payable to an
3-8 identified person other than the purchaser.
3-9 (b) Other definitions applying to this chapter and the
3-10 sections in which they appear are:
3-11 "Acceptance" Section 3.409.
3-12 "Accommodated party" Section 3.419.
3-13 "Accommodation party" Section 3.419.
3-14 "Alteration" Section 3.407.
3-15 "Anomalous indorsement" Section 3.205.
3-16 "Blank indorsement" Section 3.205.
3-17 "Cashier's check" Section 3.104.
3-18 "Certificate of deposit" Section 3.104.
3-19 "Certified check" Section 3.409.
3-20 "Check" Section 3.104.
3-21 "Consideration" Section 3.303.
3-22 "Draft" Section 3.104.
3-23 "Holder in due course" Section 3.302.
3-24 "Incomplete instrument" Section 3.115.
3-25 "Indorsement" Section 3.204.
3-26 "Indorser" Section 3.204.
3-27 "Instrument" Section 3.104.
4-1 "Issue" Section 3.105.
4-2 "Issuer" Section 3.105.
4-3 "Negotiable instrument" Section 3.104.
4-4 "Negotiation" Section 3.201.
4-5 "Note" Section 3.104.
4-6 "Payable at a definite time" Section 3.108.
4-7 "Payable on demand" Section 3.108.
4-8 "Payable to bearer" Section 3.109.
4-9 "Payable to order" Section 3.109.
4-10 "Payment" Section 3.602.
4-11 "Person entitled to enforce" Section 3.301.
4-12 "Presentment" Section 3.501.
4-13 "Reacquisition" Section 3.207.
4-14 "Special indorsement" Section 3.205.
4-15 "Teller's check" Section 3.104.
4-16 "Transfer of instrument" Section 3.203.
4-17 "Traveler's check" Section 3.104.
4-18 "Value" Section 3.303.
4-19 (c) The following definitions in other chapters apply to
4-20 this chapter:
4-21 "Bank" Section 4.105.
4-22 "Banking day" Section 4.104.
4-23 "Clearing house" Section 4.104.
4-24 "Collecting bank" Section 4.105.
4-25 "Depositary bank" Section 4.105.
4-26 "Documentary draft" Section 4.104.
4-27 "Intermediary bank" Section 4.105.
5-1 "Item" Section 4.104.
5-2 "Payor bank" Section 4.105.
5-3 "Suspends payments" Section 4.104.
5-4 (d) In addition, Chapter 1 contains general definitions and
5-5 principles of construction and interpretation applicable throughout
5-6 this chapter.
5-7 Sec. 3.104. NEGOTIABLE INSTRUMENT. (a) Except as provided
5-8 in Subsections (c) and (d), "negotiable instrument" means an
5-9 unconditional promise or order to pay a fixed amount of money, with
5-10 or without interest or other charges described in the promise or
5-11 order, if it:
5-12 (1) is payable to bearer or to order at the time it is
5-13 issued or first comes into possession of a holder;
5-14 (2) is payable on demand or at a definite time; and
5-15 (3) does not state any other undertaking or
5-16 instruction by the person promising or ordering payment to do any
5-17 act in addition to the payment of money, but the promise or order
5-18 may contain:
5-19 (A) an undertaking or power to give, maintain,
5-20 or protect collateral to secure payment;
5-21 (B) an authorization or power to the holder to
5-22 confess judgment or realize on or dispose of collateral; or
5-23 (C) a waiver of the benefit of any law intended
5-24 for the advantage or protection of an obligor.
5-25 (b) "Instrument" means a negotiable instrument.
5-26 (c) An order that meets all of the requirements of
5-27 Subsection (a), except Subdivision (1), and otherwise falls within
6-1 the definition of "check" in Subsection (f) is a negotiable
6-2 instrument and a check.
6-3 (d) A promise or order other than a check is not an
6-4 instrument if, at the time it is issued or first comes into
6-5 possession of a holder, it contains a conspicuous statement,
6-6 however expressed, to the effect that the promise or order is not
6-7 negotiable or is not an instrument governed by this chapter.
6-8 (e) An instrument is a "note" if it is a promise and is a
6-9 "draft" if it is an order. If an instrument falls within the
6-10 definition of both "note" and "draft," a person entitled to enforce
6-11 the instrument may treat it as either.
6-12 (f) "Check" means (i) a draft, other than a documentary
6-13 draft, payable on demand and drawn on a bank or (ii) a cashier's
6-14 check or teller's check. An instrument may be a check even though
6-15 it is described on its face by another term, such as "money order."
6-16 (g) "Cashier's check" means a draft with respect to which
6-17 the drawer and drawee are the same bank or branches of the same
6-18 bank.
6-19 (h) "Teller's check" means a draft drawn by a bank:
6-20 (1) on another bank; or
6-21 (2) payable at or through a bank.
6-22 (i) "Traveler's check" means an instrument that:
6-23 (1) is payable on demand;
6-24 (2) is drawn on or payable at or through a bank;
6-25 (3) is designated by the term "traveler's check" or by
6-26 a substantially similar term; and
6-27 (4) requires, as a condition to payment, a
7-1 countersignature by a person whose specimen signature appears on
7-2 the instrument.
7-3 (j) "Certificate of deposit" means an instrument containing
7-4 an acknowledgment by a bank that a sum of money has been received
7-5 by the bank and a promise by the bank to repay the sum of money. A
7-6 certificate of deposit is a note of the bank.
7-7 Sec. 3.105. ISSUE OF INSTRUMENT. (a) "Issue" means the
7-8 first delivery of an instrument by the maker or drawer, whether to
7-9 a holder or nonholder, for the purpose of giving rights on the
7-10 instrument to any person.
7-11 (b) An unissued instrument, or an unissued incomplete
7-12 instrument that is completed, is binding on the maker or drawer,
7-13 but nonissuance is a defense. An instrument that is conditionally
7-14 issued or is issued for a special purpose is binding on the maker
7-15 or drawer, but failure of the condition or special purpose to be
7-16 fulfilled is a defense.
7-17 (c) "Issuer" applies to issued and unissued instruments and
7-18 means a maker or drawer of an instrument.
7-19 Sec. 3.106. UNCONDITIONAL PROMISE OR ORDER. (a) Except as
7-20 provided in this section, for the purposes of Section 3.104(a), a
7-21 promise or order is unconditional unless it states (i) an express
7-22 condition to payment, (ii) that the promise or order is subject to
7-23 or governed by another writing, or (iii) that rights or obligations
7-24 with respect to the promise or order are stated in another writing.
7-25 A reference to another writing does not of itself make the promise
7-26 or order conditional.
7-27 (b) A promise or order is not made conditional (i) by a
8-1 reference to another writing for a statement of rights with respect
8-2 to collateral, prepayment, or acceleration, or (ii) because payment
8-3 is limited to resort to a particular fund or source.
8-4 (c) If a promise or order requires, as a condition to
8-5 payment, a countersignature by a person whose specimen signature
8-6 appears on the promise or order, the condition does not make the
8-7 promise or order conditional for the purposes of Section 3.104(a).
8-8 If the person whose specimen signature appears on an instrument
8-9 fails to countersign the instrument, the failure to countersign is
8-10 a defense to the obligation of the issuer, but the failure does not
8-11 prevent a transferee of the instrument from becoming a holder of
8-12 the instrument.
8-13 (d) If a promise or order at the time it is issued or first
8-14 comes into possession of a holder contains a statement, required by
8-15 applicable statutory or administrative law, to the effect that the
8-16 rights of a holder or transferee are subject to claims or defenses
8-17 that the issuer could assert against the original payee, the
8-18 promise or order is not thereby made conditional for the purposes
8-19 of Section 3.104(a); but if the promise or order is an instrument,
8-20 there cannot be a holder in due course of the instrument.
8-21 Sec. 3.107. INSTRUMENT PAYABLE IN FOREIGN MONEY. Unless the
8-22 instrument otherwise provides, an instrument that states the amount
8-23 payable in foreign money may be paid in the foreign money or in an
8-24 equivalent amount in dollars calculated by using the current
8-25 bank-offered spot rate at the place of payment for the purchase of
8-26 dollars on the day on which the instrument is paid.
8-27 Sec. 3.108. PAYABLE ON DEMAND OR AT DEFINITE TIME. (a) A
9-1 promise or order is "payable on demand" if it:
9-2 (1) states that it is payable on demand or at sight,
9-3 or otherwise indicates that it is payable at the will of the
9-4 holder; or
9-5 (2) does not state any time of payment.
9-6 (b) A promise or order is "payable at a definite time" if it
9-7 is payable on elapse of a definite period of time after sight or
9-8 acceptance or at a fixed date or dates or at a time or times
9-9 readily ascertainable at the time the promise or order is issued,
9-10 subject to rights of:
9-11 (1) prepayment;
9-12 (2) acceleration;
9-13 (3) extension at the option of the holder; or
9-14 (4) extension to a further definite time at the option
9-15 of the maker or acceptor or automatically on or after a specified
9-16 act or event.
9-17 (c) If an instrument, payable at a fixed date, is also
9-18 payable on demand made before the fixed date, the instrument is
9-19 payable on demand until the fixed date and, if demand for payment
9-20 is not made before that date, becomes payable at a definite time on
9-21 the fixed date.
9-22 Sec. 3.109. PAYABLE TO BEARER OR TO ORDER. (a) A promise
9-23 or order is payable to bearer if it:
9-24 (1) states that it is payable to bearer or to the
9-25 order of bearer or otherwise indicates that the person in
9-26 possession of the promise or order is entitled to payment;
9-27 (2) does not state a payee; or
10-1 (3) states that it is payable to or to the order of
10-2 cash or otherwise indicates that it is not payable to an identified
10-3 person.
10-4 (b) A promise or order that is not payable to bearer is
10-5 payable to order if it is payable (i) to the order of an identified
10-6 person, or (ii) to an identified person or order. A promise or
10-7 order that is payable to order is payable to the identified person.
10-8 (c) An instrument payable to bearer may become payable to an
10-9 identified person if it is specially indorsed pursuant to Section
10-10 3.205(a). An instrument payable to an identified person may become
10-11 payable to bearer if it is indorsed in blank pursuant to Section
10-12 3.205(b).
10-13 Sec. 3.110. IDENTIFICATION OF PERSON TO WHOM INSTRUMENT IS
10-14 PAYABLE. (a) The person to whom an instrument is initially
10-15 payable is determined by the intent of the person, whether or not
10-16 authorized, signing as, or in the name or behalf of, the issuer of
10-17 the instrument. The instrument is payable to the person intended
10-18 by the signer even if that person is identified in the instrument
10-19 by a name or other identification that is not that of the intended
10-20 person. If more than one person signs in the name or behalf of the
10-21 issuer of an instrument and all the signers do not intend the same
10-22 person as payee, the instrument is payable to any person intended
10-23 by one or more of the signers.
10-24 (b) If the signature of the issuer of an instrument is made
10-25 by automated means, such as a check-writing machine, the payee of
10-26 the instrument is determined by the intent of the person who
10-27 supplied the name or identification of the payee, whether or not
11-1 authorized to do so.
11-2 (c) A person to whom an instrument is payable may be
11-3 identified in any way, including by name, identifying number,
11-4 office, or account number. For the purpose of determining the
11-5 holder of an instrument, the following rules apply:
11-6 (1) If an instrument is payable to an account and the
11-7 account is identified only by number, the instrument is payable to
11-8 the person to whom the account is payable. If an instrument is
11-9 payable to an account identified by number and by the name of a
11-10 person, the instrument is payable to the named person, whether or
11-11 not that person is the owner of the account identified by number.
11-12 (2) If an instrument is payable to:
11-13 (A) a trust, an estate, or a person described as
11-14 trustee or representative of a trust or estate, the instrument is
11-15 payable to the trustee, the representative, or a successor of
11-16 either, whether or not the beneficiary or estate is also named;
11-17 (B) a person described as agent or similar
11-18 representative of a named or identified person, the instrument is
11-19 payable to the represented person, the representative, or a
11-20 successor of the representative;
11-21 (C) a fund or organization that is not a legal
11-22 entity, the instrument is payable to a representative of the
11-23 members of the fund or organization; or
11-24 (D) an office or to a person described as
11-25 holding an office, the instrument is payable to the named person,
11-26 the incumbent of the office, or a successor to the incumbent.
11-27 (d) If an instrument is payable to two or more persons
12-1 alternatively, it is payable to any of them and may be negotiated,
12-2 discharged, or enforced by any or all of them in possession of the
12-3 instrument. If an instrument is payable to two or more persons not
12-4 alternatively, it is payable to all of them and may be negotiated,
12-5 discharged, or enforced only by all of them. If an instrument
12-6 payable to two or more persons is ambiguous as to whether it is
12-7 payable to the persons alternatively, the instrument is payable to
12-8 the persons alternatively.
12-9 Sec. 3.111. PLACE OF PAYMENT. Except as otherwise provided
12-10 for items in Chapter 4, an instrument is payable at the place of
12-11 payment stated in the instrument. If no place of payment is
12-12 stated, an instrument is payable at the address of the drawee or
12-13 maker stated in the instrument. If no address is stated, the place
12-14 of payment is the place of business of the drawee or maker. If a
12-15 drawee or maker has more than one place of business, the place of
12-16 payment is any place of business of the drawee or maker chosen by
12-17 the person entitled to enforce the instrument. If the drawee or
12-18 maker has no place of business, the place of payment is the
12-19 residence of the drawee or maker.
12-20 Sec. 3.112. INTEREST. (a) Unless otherwise provided in the
12-21 instrument:
12-22 (1) an instrument is not payable with interest; and
12-23 (2) interest on an interest-bearing instrument is
12-24 payable from the date of the instrument.
12-25 (b) Interest may be stated in an instrument as a fixed or
12-26 variable amount of money or it may be expressed as a fixed or
12-27 variable rate or rates. The amount or rate of interest may be
13-1 stated or described in the instrument in any manner and may require
13-2 reference to information not contained in the instrument. If an
13-3 instrument provides for interest, but the amount of interest
13-4 payable cannot be ascertained from the description, interest is
13-5 payable at the judgment rate in effect at the place of payment of
13-6 the instrument and at the time interest first accrues, and the
13-7 instrument shall not by virtue of this sentence be considered to
13-8 violate the provisions of Title 79, Revised Statutes (Article
13-9 5069-1.01 et seq., Vernon's Texas Civil Statutes).
13-10 Sec. 3.113. DATE OF INSTRUMENT. (a) An instrument may be
13-11 antedated or postdated. The date stated determines the time of
13-12 payment if the instrument is payable at a fixed period after date.
13-13 Except as provided in Section 4.401(c), an instrument payable on
13-14 demand is not payable before the date of the instrument.
13-15 (b) If an instrument is undated, its date is the date of its
13-16 issue or, in the case of an unissued instrument, the date it first
13-17 comes into possession of a holder.
13-18 Sec. 3.114. CONTRADICTORY TERMS OF INSTRUMENT. If an
13-19 instrument contains contradictory terms, typewritten terms prevail
13-20 over printed terms, handwritten terms prevail over both, and words
13-21 prevail over numbers.
13-22 Sec. 3.115. INCOMPLETE INSTRUMENT. (a) "Incomplete
13-23 instrument" means a signed writing, whether or not issued by the
13-24 signer, the contents of which show at the time of signing that it
13-25 is incomplete but that the signer intended it to be completed by
13-26 the addition of words or numbers.
13-27 (b) Subject to Subsection (c), if an incomplete instrument
14-1 is an instrument under Section 3.104, it may be enforced according
14-2 to its terms if it is not completed, or according to its terms as
14-3 augmented by completion. If an incomplete instrument is not an
14-4 instrument under Section 3.104, but, after completion, the
14-5 requirements of Section 3.104 are met, the instrument may be
14-6 enforced according to its terms as augmented by completion.
14-7 (c) If words or numbers are added to an incomplete
14-8 instrument without authority of the signer, there is an alteration
14-9 of the incomplete instrument under Section 3.407.
14-10 (d) The burden of establishing that words or numbers were
14-11 added to an incomplete instrument without authority of the signer
14-12 is on the person asserting the lack of authority.
14-13 Sec. 3.116. JOINT AND SEVERAL LIABILITY; CONTRIBUTION. (a)
14-14 Except as otherwise provided in the instrument, two or more persons
14-15 who have the same liability on an instrument as makers, drawers,
14-16 acceptors, indorsers who indorse as joint payees, or anomalous
14-17 indorsers are jointly and severally liable in the capacity in which
14-18 they sign.
14-19 (b) Except as provided in Section 3.419(e) or by agreement
14-20 of the affected parties, a party having joint and several liability
14-21 who pays the instrument is entitled to receive from any party
14-22 having the same joint and several liability contribution in
14-23 accordance with applicable law.
14-24 (c) Discharge of one party having joint and several
14-25 liability by a person entitled to enforce the instrument does not
14-26 affect the right under Subsection (b) of a party having the same
14-27 joint and several liability to receive contribution from the party
15-1 discharged.
15-2 Sec. 3.117. OTHER AGREEMENTS AFFECTING INSTRUMENT. Subject
15-3 to applicable law regarding exclusion of proof of contemporaneous
15-4 or previous agreements, the obligation of a party to an instrument
15-5 to pay the instrument may be modified, supplemented, or nullified
15-6 by a separate agreement of the obligor and a person entitled to
15-7 enforce the instrument, if the instrument is issued or the
15-8 obligation is incurred in reliance on the agreement or as part of
15-9 the same transaction giving rise to the agreement. To the extent
15-10 an obligation is modified, supplemented, or nullified by an
15-11 agreement under this section, the agreement is a defense to the
15-12 obligation.
15-13 Sec. 3.118. STATUTE OF LIMITATIONS. (a) Except as provided
15-14 in Subsection (e), an action to enforce the obligation of a party
15-15 to pay a note payable at a definite time must be commenced within
15-16 six years after the due date or dates stated in the note or, if a
15-17 due date is accelerated, within six years after the accelerated due
15-18 date.
15-19 (b) Except as provided in Subsection (d) or (e), if demand
15-20 for payment is made to the maker of a note payable on demand, an
15-21 action to enforce the obligation of a party to pay the note must be
15-22 commenced within six years after the demand. If no demand for
15-23 payment is made to the maker, an action to enforce the note is
15-24 barred if neither principal nor interest on the note has been paid
15-25 for a continuous period of 10 years.
15-26 (c) Except as provided in Subsection (d), an action to
15-27 enforce the obligation of a party to an unaccepted draft to pay the
16-1 draft must be commenced within three years after dishonor of the
16-2 draft or 10 years after the date of the draft, whichever period
16-3 expires first.
16-4 (d) An action to enforce the obligation of the acceptor of a
16-5 certified check or the issuer of a teller's check, cashier's check,
16-6 or traveler's check must be commenced within three years after
16-7 demand for payment is made to the acceptor or issuer, as the case
16-8 may be.
16-9 (e) An action to enforce the obligation of a party to a
16-10 certificate of deposit to pay the instrument must be commenced
16-11 within six years after demand for payment is made to the maker, but
16-12 if the instrument states a due date and the maker is not required
16-13 to pay before that date, the six-year period begins when a demand
16-14 for payment is in effect and the due date has passed.
16-15 (f) An action to enforce the obligation of a party to pay an
16-16 accepted draft, other than a certified check, must be commenced:
16-17 (1) within six years after the due date or dates
16-18 stated in the draft or acceptance if the obligation of the acceptor
16-19 is payable at a definite time; or
16-20 (2) within six years after the date of the acceptance
16-21 if the obligation of the acceptor is payable on demand.
16-22 (g) Unless governed by other law regarding claims for
16-23 indemnity or contribution, the following actions must be commenced
16-24 within three years after the cause of action accrues:
16-25 (1) an action for conversion of an instrument, an
16-26 action for money had and received, or like action based on
16-27 conversion;
17-1 (2) an action for breach of warranty; or
17-2 (3) an action to enforce an obligation, duty, or right
17-3 arising under this chapter and not governed by this section.
17-4 Sec. 3.119. NOTICE OF RIGHT TO DEFEND ACTION. In an action
17-5 for breach of an obligation for which a third person is answerable
17-6 over pursuant to this chapter or Chapter 4, the defendant may give
17-7 the third person written notice of the litigation, and the person
17-8 notified may then give similar notice to any other person who is
17-9 answerable over. If the notice states (i) that the person notified
17-10 may come in and defend, and (ii) that failure to do so will bind
17-11 the person notified in an action later brought by the person giving
17-12 the notice as to any determination of fact common to the two
17-13 litigations, the person notified is so bound unless after
17-14 seasonable receipt of the notice the person notified does come in
17-15 and defend.
17-16 SUBCHAPTER B. NEGOTIATION, TRANSFER, AND INDORSEMENT
17-17 Sec. 3.201. NEGOTIATION. (a) "Negotiation" means a
17-18 transfer of possession, whether voluntary or involuntary, of an
17-19 instrument by a person other than the issuer to a person who
17-20 thereby becomes its holder.
17-21 (b) Except for negotiation by a remitter, if an instrument
17-22 is payable to an identified person, negotiation requires transfer
17-23 of possession of the instrument and its indorsement by the holder.
17-24 If an instrument is payable to bearer, it may be negotiated by
17-25 transfer of possession alone.
17-26 Sec. 3.202. NEGOTIATION SUBJECT TO RESCISSION. (a)
17-27 Negotiation is effective even if obtained:
18-1 (1) from an infant, a corporation exceeding its
18-2 powers, or a person without capacity;
18-3 (2) by fraud, duress, or mistake; or
18-4 (3) in breach of duty or as part of an illegal
18-5 transaction.
18-6 (b) To the extent permitted by other law, negotiation may be
18-7 rescinded or may be subject to other remedies, but those remedies
18-8 may not be asserted against a subsequent holder in due course or a
18-9 person paying the instrument in good faith and without knowledge of
18-10 facts that are a basis for rescission or other remedy.
18-11 Sec. 3.203. TRANSFER OF INSTRUMENT; RIGHTS ACQUIRED BY
18-12 TRANSFER. (a) An instrument is transferred when it is delivered
18-13 by a person other than its issuer for the purpose of giving to the
18-14 person receiving delivery the right to enforce the instrument.
18-15 (b) Transfer of an instrument, whether or not the transfer
18-16 is a negotiation, vests in the transferee any right of the
18-17 transferor to enforce the instrument, including any right as a
18-18 holder in due course. The transferee cannot acquire rights of a
18-19 holder in due course by a transfer, directly or indirectly, from a
18-20 holder in due course if the transferee engaged in fraud or
18-21 illegality affecting the instrument.
18-22 (c) Unless otherwise agreed, if an instrument is transferred
18-23 for value and the transferee does not become a holder because of
18-24 lack of indorsement by the transferor, the transferee has a
18-25 specifically enforceable right to the unqualified indorsement of
18-26 the transferor, but negotiation of the instrument does not occur
18-27 until the indorsement is made.
19-1 (d) If a transferor purports to transfer less than the
19-2 entire instrument, negotiation of the instrument does not occur.
19-3 The transferee obtains no rights under this chapter and has only
19-4 the rights of a partial assignee.
19-5 Sec. 3.204. INDORSEMENT. (a) "Indorsement" means a
19-6 signature, other than that of a signer as maker, drawer, or
19-7 acceptor, that alone or accompanied by other words is made on an
19-8 instrument for the purpose of (i) negotiating the instrument, (ii)
19-9 restricting payment of the instrument, or (iii) incurring
19-10 indorser's liability on the instrument, but regardless of the
19-11 intent of the signer, a signature and its accompanying words is an
19-12 indorsement unless the accompanying words, terms of the instrument,
19-13 place of the signature, or other circumstances unambiguously
19-14 indicate that the signature was made for a purpose other than
19-15 indorsement. For the purpose of determining whether a signature is
19-16 made on an instrument, a paper affixed to the instrument is a part
19-17 of the instrument.
19-18 (b) "Indorser" means a person who makes an indorsement.
19-19 (c) For the purpose of determining whether the transferee of
19-20 an instrument is a holder, an indorsement that transfers a security
19-21 interest in the instrument is effective as an unqualified
19-22 indorsement of the instrument.
19-23 (d) If an instrument is payable to a holder under a name
19-24 that is not the name of the holder, indorsement may be made by the
19-25 holder in the name stated in the instrument or in the holder's name
19-26 or both, but signature in both names may be required by a person
19-27 paying or taking the instrument for value or collection.
20-1 Sec. 3.205. SPECIAL INDORSEMENT; BLANK INDORSEMENT;
20-2 ANOMALOUS INDORSEMENT. (a) If an indorsement is made by the
20-3 holder of an instrument, whether payable to an identified person or
20-4 payable to bearer, and the indorsement identifies a person to whom
20-5 it makes the instrument payable, it is a "special indorsement."
20-6 When specially indorsed, an instrument becomes payable to the
20-7 identified person and may be negotiated only by the indorsement of
20-8 that person. The principles stated in Section 3.110 apply to
20-9 special indorsements.
20-10 (b) If an indorsement is made by the holder of an instrument
20-11 and it is not a special indorsement, it is a "blank indorsement."
20-12 When indorsed in blank, an instrument becomes payable to bearer and
20-13 may be negotiated by transfer of possession alone until specially
20-14 indorsed.
20-15 (c) The holder may convert a blank indorsement that consists
20-16 only of a signature into a special indorsement by writing, above
20-17 the signature of the indorser, words identifying the person to whom
20-18 the instrument is made payable.
20-19 (d) "Anomalous indorsement" means an indorsement made by a
20-20 person who is not the holder of the instrument. An anomalous
20-21 indorsement does not affect the manner in which the instrument may
20-22 be negotiated.
20-23 Sec. 3.206. RESTRICTIVE INDORSEMENT. (a) An indorsement
20-24 limiting payment to a particular person or otherwise prohibiting
20-25 further transfer or negotiation of the instrument is not effective
20-26 to prevent further transfer or negotiation of the instrument.
20-27 (b) An indorsement stating a condition to the right of the
21-1 indorsee to receive payment does not affect the right of the
21-2 indorsee to enforce the instrument. A person paying the instrument
21-3 or taking it for value or collection may disregard the condition,
21-4 and the rights and liabilities of that person are not affected by
21-5 whether the condition has been fulfilled.
21-6 (c) If an instrument bears an indorsement (i) described in
21-7 Section 4.201(b), or (ii) in blank or to a particular bank using
21-8 the words "for deposit" or "for collection," or other words
21-9 indicating a purpose of having the instrument collected by a bank
21-10 for the indorser or for a particular account, the following rules
21-11 apply:
21-12 (1) a person, other than a bank, who purchases the
21-13 instrument when so indorsed converts the instrument unless the
21-14 amount paid for the instrument is received by the indorser or
21-15 applied consistently with the indorsement;
21-16 (2) a depositary bank that purchases the instrument or
21-17 takes it for collection when so indorsed converts the instrument
21-18 unless the amount paid by the bank with respect to the instrument
21-19 is received by the indorser or applied consistently with the
21-20 indorsement;
21-21 (3) a payor bank that is also the depositary bank or
21-22 that takes the instrument for immediate payment over the counter
21-23 from a person other than a collecting bank converts the instrument
21-24 unless the proceeds of the instrument are received by the indorser
21-25 or applied consistently with the indorsement; and
21-26 (4) except as otherwise provided in Subdivision (3), a
21-27 payor bank or intermediary bank may disregard the indorsement and
22-1 is not liable if the proceeds of the instrument are not received by
22-2 the indorser or applied consistently with the indorsement.
22-3 (d) Except for an indorsement covered by Subsection (c), if
22-4 an instrument bears an indorsement using words to the effect that
22-5 payment is to be made to the indorsee as agent, trustee, or other
22-6 fiduciary for the benefit of the indorser or another person, the
22-7 following rules apply:
22-8 (1) unless there is notice of breach of fiduciary duty
22-9 as provided in Section 3.307, a person who purchases the instrument
22-10 from the indorsee or takes the instrument from the indorsee for
22-11 collection or payment may pay the proceeds of payment or the value
22-12 given for the instrument to the indorsee without regard to whether
22-13 the indorsee violates a fiduciary duty to the indorser; and
22-14 (2) a subsequent transferee of the instrument or
22-15 person who pays the instrument is neither given notice nor
22-16 otherwise affected by the restriction in the indorsement unless the
22-17 transferee or payor knows that the fiduciary dealt with the
22-18 instrument or its proceeds in breach of fiduciary duty.
22-19 (e) The presence on an instrument of an indorsement to which
22-20 this section applies does not prevent a purchaser of the instrument
22-21 from becoming a holder in due course of the instrument unless the
22-22 purchaser is a converter under Subsection (c) or has notice or
22-23 knowledge of breach of fiduciary duty as stated in Subsection (d).
22-24 (f) In an action to enforce the obligation of a party to pay
22-25 the instrument, the obligor has a defense if payment would violate
22-26 an indorsement to which this section applies and the payment is not
22-27 permitted by this section.
23-1 Sec. 3.207. REACQUISITION. Reacquisition of an instrument
23-2 occurs if it is transferred to a former holder, by negotiation or
23-3 otherwise. A former holder who reacquires the instrument may
23-4 cancel indorsements made after the reacquirer first became a holder
23-5 of the instrument. If the cancellation causes the instrument to be
23-6 payable to the reacquirer or to bearer, the reacquirer may
23-7 negotiate the instrument. An indorser whose indorsement is
23-8 canceled is discharged, and the discharge is effective against any
23-9 subsequent holder.
23-10 SUBCHAPTER C. ENFORCEMENT OF INSTRUMENTS
23-11 Sec. 3.301. PERSON ENTITLED TO ENFORCE INSTRUMENT. "Person
23-12 entitled to enforce" an instrument means (i) the holder of the
23-13 instrument, (ii) a nonholder in possession of the instrument who
23-14 has the rights of a holder, or (iii) a person not in possession of
23-15 the instrument who is entitled to enforce the instrument pursuant
23-16 to Section 3.309 or 3.418(d). A person may be a person entitled to
23-17 enforce the instrument even though the person is not the owner of
23-18 the instrument or is in wrongful possession of the instrument.
23-19 Sec. 3.302. HOLDER IN DUE COURSE. (a) Subject to
23-20 Subsection (c) and Section 3.106(d), "holder in due course" means
23-21 the holder of an instrument if:
23-22 (1) the instrument when issued or negotiated to the
23-23 holder does not bear such apparent evidence of forgery or
23-24 alteration or is not otherwise so irregular or incomplete as to
23-25 call into question its authenticity; and
23-26 (2) the holder took the instrument:
23-27 (A) for value;
24-1 (B) in good faith;
24-2 (C) without notice that the instrument is
24-3 overdue or has been dishonored or that there is an uncured default
24-4 with respect to payment of another instrument issued as part of the
24-5 same series;
24-6 (D) without notice that the instrument contains
24-7 an unauthorized signature or has been altered;
24-8 (E) without notice of any claim to the
24-9 instrument described in Section 3.306; and
24-10 (F) without notice that any party has a defense
24-11 or claim in recoupment described in Section 3.305(a).
24-12 (b) Notice of discharge of a party, other than discharge in
24-13 an insolvency proceeding, is not notice of a defense under
24-14 Subsection (a), but discharge is effective against a person who
24-15 became a holder in due course with notice of the discharge. Public
24-16 filing or recording of a document does not of itself constitute
24-17 notice of a defense, claim in recoupment, or claim to the
24-18 instrument.
24-19 (c) Except to the extent a transferor or predecessor in
24-20 interest has rights as a holder in due course, a person does not
24-21 acquire rights of a holder in due course of an instrument taken:
24-22 (1) by legal process or by purchase in an execution,
24-23 bankruptcy, or creditor's sale or similar proceeding;
24-24 (2) by purchase as part of a bulk transaction not in
24-25 ordinary course of business of the transferor; or
24-26 (3) as the successor in interest to an estate or other
24-27 organization.
25-1 (d) If, under Section 3.303(a)(1), the promise of
25-2 performance that is the consideration for an instrument has been
25-3 partially performed, the holder may assert rights as a holder in
25-4 due course of the instrument only to the fraction of the amount
25-5 payable under the instrument equal to the value of the partial
25-6 performance divided by the value of the promised performance.
25-7 (e) If (i) the person entitled to enforce an instrument has
25-8 only a security interest in the instrument, and (ii) the person
25-9 obliged to pay the instrument has a defense, claim in recoupment,
25-10 or claim to the instrument that may be asserted against the person
25-11 who granted the security interest, the person entitled to enforce
25-12 the instrument may assert rights as a holder in due course only to
25-13 an amount payable under the instrument that, at the time of
25-14 enforcement of the instrument, does not exceed the amount of the
25-15 unpaid obligation secured.
25-16 (f) To be effective, notice must be received at a time and
25-17 in a manner that gives a reasonable opportunity to act on it.
25-18 (g) This section is subject to any law limiting status as a
25-19 holder in due course in particular classes of transactions.
25-20 Sec. 3.303. VALUE AND CONSIDERATION. (a) An instrument is
25-21 issued or transferred for value if:
25-22 (1) the instrument is issued or transferred for a
25-23 promise of performance, to the extent the promise has been
25-24 performed;
25-25 (2) the transferee acquires a security interest or
25-26 other lien in the instrument other than a lien obtained by judicial
25-27 proceeding;
26-1 (3) the instrument is issued or transferred as payment
26-2 of, or as security for, an antecedent claim against any person,
26-3 whether or not the claim is due;
26-4 (4) the instrument is issued or transferred in
26-5 exchange for a negotiable instrument; or
26-6 (5) the instrument is issued or transferred in
26-7 exchange for the incurring of an irrevocable obligation to a third
26-8 party by the person taking the instrument.
26-9 (b) "Consideration" means any consideration sufficient to
26-10 support a simple contract. The drawer or maker of an instrument
26-11 has a defense if the instrument is issued without consideration.
26-12 If an instrument is issued for a promise of performance, the issuer
26-13 has a defense to the extent performance of the promise is due and
26-14 the promise has not been performed. If an instrument is issued for
26-15 value as stated in Subsection (a), the instrument is also issued
26-16 for consideration.
26-17 Sec. 3.304. OVERDUE INSTRUMENT. (a) An instrument payable
26-18 on demand becomes overdue at the earliest of the following times:
26-19 (1) on the day after the day demand for payment is
26-20 duly made;
26-21 (2) if the instrument is a check, 90 days after its
26-22 date; or
26-23 (3) if the instrument is not a check, when the
26-24 instrument has been outstanding for a period of time after its date
26-25 that is unreasonably long under the circumstances of the particular
26-26 case in light of the nature of the instrument and usage of the
26-27 trade.
27-1 (b) With respect to an instrument payable at a definite time
27-2 the following rules apply:
27-3 (1) if the principal is payable in installments and a
27-4 due date has not been accelerated, the instrument becomes overdue
27-5 on default under the instrument for nonpayment of an installment,
27-6 and the instrument remains overdue until the default is cured;
27-7 (2) if the principal is not payable in installments
27-8 and the due date has not been accelerated, the instrument becomes
27-9 overdue on the day after the due date; and
27-10 (3) if a due date with respect to principal has been
27-11 accelerated, the instrument becomes overdue on the day after the
27-12 accelerated due date.
27-13 (c) Unless the due date of principal has been accelerated,
27-14 an instrument does not become overdue if there is default in
27-15 payment of interest but no default in payment of principal.
27-16 Sec. 3.305. DEFENSES AND CLAIMS IN RECOUPMENT. (a) Except
27-17 as provided in Subsection (b), the right to enforce the obligation
27-18 of a party to pay an instrument is subject to the following:
27-19 (1) a defense of the obligor based on:
27-20 (A) infancy of the obligor to the extent it is a
27-21 defense to a simple contract;
27-22 (B) duress, lack of legal capacity, or
27-23 illegality of the transaction that, under other law, nullifies the
27-24 obligation of the obligor;
27-25 (C) fraud that induced the obligor to sign the
27-26 instrument with neither knowledge nor reasonable opportunity to
27-27 learn of its character or its essential terms; or
28-1 (D) discharge of the obligor in insolvency
28-2 proceedings;
28-3 (2) a defense of the obligor stated in another section
28-4 of this chapter or a defense of the obligor that would be available
28-5 if the person entitled to enforce the instrument were enforcing a
28-6 right to payment under a simple contract; and
28-7 (3) a claim in recoupment of the obligor against the
28-8 original payee of the instrument if the claim arose from the
28-9 transaction that gave rise to the instrument; but the claim of the
28-10 obligor may be asserted against a transferee of the instrument only
28-11 to reduce the amount owing on the instrument at the time the action
28-12 is brought.
28-13 (b) The right of a holder in due course to enforce the
28-14 obligation of a party to pay the instrument is subject to defenses
28-15 of the obligor stated in Subsection (a)(1), but is not subject to
28-16 defenses of the obligor stated in Subsection (a)(2) or claims in
28-17 recoupment stated in Subsection (a)(3) against a person other than
28-18 the holder.
28-19 (c) Except as provided in Subsection (d), in an action to
28-20 enforce the obligation of a party to pay the instrument, the
28-21 obligor may not assert against the person entitled to enforce the
28-22 instrument a defense, claim in recoupment, or claim to the
28-23 instrument (Section 3.306) of another person, but the other
28-24 person's claim to the instrument may be asserted by the obligor if
28-25 the other person is joined in the action and personally asserts the
28-26 claim against the person entitled to enforce the instrument. An
28-27 obligor is not obliged to pay the instrument if the person seeking
29-1 enforcement of the instrument does not have rights of a holder in
29-2 due course and the obligor proves that the instrument is a lost or
29-3 stolen instrument.
29-4 (d) In an action to enforce the obligation of an
29-5 accommodation party to pay an instrument, the accommodation party
29-6 may assert against the person entitled to enforce the instrument
29-7 any defense or claim in recoupment under Subsection (a) that the
29-8 accommodated party could assert against the person entitled to
29-9 enforce the instrument, except the defenses of discharge in
29-10 insolvency proceedings, infancy, and lack of legal capacity.
29-11 Sec. 3.306. CLAIMS TO AN INSTRUMENT. A person taking an
29-12 instrument, other than a person having rights of a holder in due
29-13 course, is subject to a claim of a property or possessory right in
29-14 the instrument or its proceeds, including a claim to rescind a
29-15 negotiation and to recover the instrument or its proceeds. A
29-16 person having rights of a holder in due course takes free of the
29-17 claim to the instrument.
29-18 Sec. 3.307. NOTICE OF BREACH OF FIDUCIARY DUTY. (a) In
29-19 this section:
29-20 (1) "Fiduciary" means an agent, trustee, partner,
29-21 corporate officer or director, or other representative owing a
29-22 fiduciary duty with respect to an instrument.
29-23 (2) "Represented person" means the principal,
29-24 beneficiary, partnership, corporation, or other person to whom the
29-25 duty stated in Subdivision (1) is owed.
29-26 (b) If (i) an instrument is taken from a fiduciary for
29-27 payment or collection or for value, (ii) the taker has knowledge of
30-1 the fiduciary status of the fiduciary, and (iii) the represented
30-2 person makes a claim to the instrument or its proceeds on the basis
30-3 that the transaction of the fiduciary is a breach of fiduciary
30-4 duty, the following rules apply:
30-5 (1) notice of breach of fiduciary duty by the
30-6 fiduciary is notice of the claim of the represented person;
30-7 (2) in the case of an instrument payable to the
30-8 represented person or the fiduciary as such, the taker has notice
30-9 of the breach of fiduciary duty if the instrument is:
30-10 (A) taken in payment of or as security for a
30-11 debt known by the taker to be the personal debt of the fiduciary;
30-12 (B) taken in a transaction known by the taker to
30-13 be for the personal benefit of the fiduciary; or
30-14 (C) deposited to an account other than an
30-15 account of the fiduciary, as such, or an account of the represented
30-16 person;
30-17 (3) if an instrument is issued by the represented
30-18 person or the fiduciary as such, and made payable to the fiduciary
30-19 personally, the taker does not have notice of the breach of
30-20 fiduciary duty unless the taker knows of the breach of fiduciary
30-21 duty; and
30-22 (4) if an instrument is issued by the represented
30-23 person or the fiduciary as such, to the taker as payee, the taker
30-24 has notice of the breach of fiduciary duty if the instrument is:
30-25 (A) taken in payment of or as security for a
30-26 debt known by the taker to be the personal debt of the fiduciary;
30-27 (B) taken in a transaction known by the taker to
31-1 be for the personal benefit of the fiduciary; or
31-2 (C) deposited to an account other than an
31-3 account of the fiduciary, as such, or an account of the represented
31-4 person.
31-5 Sec. 3.308. PROOF OF SIGNATURES AND STATUS AS HOLDER IN DUE
31-6 COURSE. (a) In an action with respect to an instrument, the
31-7 authenticity of, and authority to make, each signature on the
31-8 instrument are admitted unless specifically denied in the
31-9 pleadings. If the validity of a signature is denied in the
31-10 pleadings, the burden of establishing validity is on the person
31-11 claiming validity, but the signature is presumed to be authentic
31-12 and authorized unless the action is to enforce the liability of the
31-13 purported signer and the signer is dead or incompetent at the time
31-14 of trial of the issue of validity of the signature. If an action
31-15 to enforce the instrument is brought against a person as the
31-16 undisclosed principal of a person who signed the instrument as a
31-17 party to the instrument, the plaintiff has the burden of
31-18 establishing that the defendant is liable on the instrument as a
31-19 represented person under Section 3.402(a).
31-20 (b) If the validity of signatures is admitted or proved and
31-21 there is compliance with Subsection (a), a plaintiff producing the
31-22 instrument is entitled to payment if the plaintiff proves
31-23 entitlement to enforce the instrument under Section 3.301, unless
31-24 the defendant proves a defense or claim in recoupment. If a
31-25 defense or claim in recoupment is proved, the right to payment of
31-26 the plaintiff is subject to the defense or claim, except to the
31-27 extent the plaintiff proves that the plaintiff has rights of a
32-1 holder in due course that are not subject to the defense or claim.
32-2 Sec. 3.309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN
32-3 INSTRUMENT. (a) A person who is not in possession of an
32-4 instrument is entitled to enforce the instrument if:
32-5 (1) the person was in possession of the instrument and
32-6 entitled to enforce it when loss of possession occurred;
32-7 (2) the loss of possession was not the result of a
32-8 transfer by the person or a lawful seizure; and
32-9 (3) the person cannot reasonably obtain possession of
32-10 the instrument because the instrument was destroyed, its
32-11 whereabouts cannot be determined, or it is in the wrongful
32-12 possession of an unknown person or a person that cannot be found or
32-13 is not amenable to service of process.
32-14 (b) A person seeking enforcement of an instrument under
32-15 Subsection (a) must prove the terms of the instrument and the
32-16 person's right to enforce the instrument. If that proof is made,
32-17 Section 3.308 applies to the case as if the person seeking
32-18 enforcement had produced the instrument. The court may not enter
32-19 judgment in favor of the person seeking enforcement unless it finds
32-20 that the person required to pay the instrument is adequately
32-21 protected against loss that might occur by reason of a claim by
32-22 another person to enforce the instrument. Adequate protection may
32-23 be provided by any reasonable means.
32-24 Sec. 3.310. EFFECT OF INSTRUMENT ON OBLIGATION FOR WHICH
32-25 TAKEN. (a) Unless otherwise agreed, if a certified check,
32-26 cashier's check, or teller's check is taken for an obligation, the
32-27 obligation is discharged to the same extent discharge would result
33-1 if an amount of money equal to the amount of the instrument were
33-2 taken in payment of the obligation. Discharge of the obligation
33-3 does not affect any liability that the obligor may have as an
33-4 indorser of the instrument.
33-5 (b) Unless otherwise agreed and except as provided in
33-6 Subsection (a), if a note or an uncertified check is taken for an
33-7 obligation, the obligation is suspended to the same extent the
33-8 obligation would be discharged if an amount of money equal to the
33-9 amount of the instrument were taken, and the following rules apply:
33-10 (1) In the case of an uncertified check, suspension of
33-11 the obligation continues until dishonor of the check or until it is
33-12 paid or certified. Payment or certification of the check results
33-13 in discharge of the obligation to the extent of the amount of the
33-14 check.
33-15 (2) In the case of a note, suspension of the
33-16 obligation continues until dishonor of the note or until it is
33-17 paid. Payment of the note results in discharge of the obligation
33-18 to the extent of the payment.
33-19 (3) Except as provided in Subdivision (4), if the
33-20 check or note is dishonored and the obligee of the obligation for
33-21 which the instrument was taken is the person entitled to enforce
33-22 the instrument, the obligee may enforce either the instrument or
33-23 the obligation. In the case of an instrument of a third person
33-24 that is negotiated to the obligee by the obligor, discharge of the
33-25 obligor on the instrument also discharges the obligation.
33-26 (4) If the person entitled to enforce the instrument
33-27 taken for an obligation is a person other than the obligee, the
34-1 obligee may not enforce the obligation to the extent the obligation
34-2 is suspended. If the obligee is the person entitled to enforce the
34-3 instrument but no longer has possession of it because it was lost,
34-4 stolen, or destroyed, the obligation may not be enforced to the
34-5 extent of the amount payable on the instrument, and to that extent
34-6 the obligee's rights against the obligor are limited to enforcement
34-7 of the instrument.
34-8 (c) If an instrument other than one described in Subsection
34-9 (a) or (b) is taken for an obligation, the effect is:
34-10 (1) that stated in Subsection (a) if the instrument is
34-11 one for which a bank is liable as maker or acceptor; or
34-12 (2) that stated in Subsection (b) in any other case.
34-13 Sec. 3.311. ACCORD AND SATISFACTION BY USE OF INSTRUMENT.
34-14 (a) Subsections (b)-(d) apply if a person against whom a claim is
34-15 asserted proves that:
34-16 (1) that person in good faith tendered an instrument
34-17 to the claimant as full satisfaction of the claim;
34-18 (2) the amount of the claim was unliquidated or
34-19 subject to a bona fide dispute; and
34-20 (3) the claimant obtained payment of the instrument.
34-21 (b) Unless Subsection (c) applies, the claim is discharged
34-22 if the person against whom the claim is asserted proves that the
34-23 instrument or an accompanying written communication contained a
34-24 conspicuous statement to the effect that the instrument was
34-25 tendered as full satisfaction of the claim.
34-26 (c) Subject to Subsection (d), a claim is not discharged
34-27 under Subsection (b) if either of the following applies:
35-1 (1) The claimant, if an organization, proves that:
35-2 (A) within a reasonable time before the tender,
35-3 the claimant sent a conspicuous statement to the person against
35-4 whom the claim is asserted that communications concerning disputed
35-5 debts, including an instrument tendered as full satisfaction of a
35-6 debt, are to be sent to a designated person, office, or place; and
35-7 (B) the instrument or accompanying communication
35-8 was not received by that designated person, office, or place.
35-9 (2) The claimant, whether or not an organization,
35-10 proves that within 90 days after payment of the instrument, the
35-11 claimant tendered repayment of the amount of the instrument to the
35-12 person against whom the claim is asserted. This subdivision does
35-13 not apply if the claimant is an organization that sent a statement
35-14 complying with Subdivision (1)(A).
35-15 (d) A claim is discharged if the person against whom the
35-16 claim is asserted proves that within a reasonable time before
35-17 collection of the instrument was initiated, the claimant, or an
35-18 agent of the claimant having direct responsibility with respect to
35-19 the disputed obligation, knew that the instrument was tendered in
35-20 full satisfaction of the claim.
35-21 Sec. 3.312. LOST, DESTROYED, OR STOLEN CASHIER'S CHECK,
35-22 TELLER'S CHECK, OR CERTIFIED CHECK. (a) In this section:
35-23 (1) "Check" means a cashier's check, teller's check,
35-24 or certified check.
35-25 (2) "Claimant" means a person who claims the right to
35-26 receive the amount of a cashier's check, teller's check, or
35-27 certified check that was lost, destroyed, or stolen.
36-1 (3) "Declaration of loss" means a written statement,
36-2 made under penalty of perjury, to the effect that:
36-3 (A) the declarer lost possession of a check;
36-4 (B) the declarer is the drawer or payee of the
36-5 check, in the case of a certified check, or the remitter or payee
36-6 of the check, in the case of a cashier's check or teller's check;
36-7 (C) the loss of possession was not the result of
36-8 a transfer by the declarer or a lawful seizure; and
36-9 (D) the declarer cannot reasonably obtain
36-10 possession of the check because the check was destroyed, its
36-11 whereabouts cannot be determined, or it is in the wrongful
36-12 possession of an unknown person or a person that cannot be found or
36-13 is not amenable to service of process.
36-14 (4) "Obligated bank" means the issuer of a cashier's
36-15 check or teller's check or the acceptor of a certified check.
36-16 (b) A claimant may assert a claim to the amount of a check
36-17 by a communication to the obligated bank describing the check with
36-18 reasonable certainty and requesting payment of the amount of the
36-19 check, if (i) the claimant is the drawer or payee of a certified
36-20 check or the remitter or payee of a cashier's check or teller's
36-21 check, (ii) the communication contains or is accompanied by a
36-22 declaration of loss of the claimant with respect to the check,
36-23 (iii) the communication is received at a time and in a manner
36-24 affording the bank a reasonable time to act on it before the check
36-25 is paid, and (iv) the claimant provides reasonable identification
36-26 if requested by the obligated bank. Delivery of a declaration of
36-27 loss is a warranty of the truth of the statements made in the
37-1 declaration. If a claim is asserted in compliance with this
37-2 subsection, the following rules apply:
37-3 (1) The claim becomes enforceable at the later of (i)
37-4 the time the claim is asserted, or (ii) the 90th day following the
37-5 date of the check, in the case of a cashier's check or teller's
37-6 check, or the 90th day following the date of the acceptance, in the
37-7 case of a certified check.
37-8 (2) Until the claim becomes enforceable, it has no
37-9 legal effect and the obligated bank may pay the check or, in the
37-10 case of a teller's check, may permit the drawee to pay the check.
37-11 Payment to a person entitled to enforce the check discharges all
37-12 liability of the obligated bank with respect to the check.
37-13 (3) If the claim becomes enforceable before the check
37-14 is presented for payment, the obligated bank is not obliged to pay
37-15 the check.
37-16 (4) When the claim becomes enforceable, the obligated
37-17 bank becomes obliged to pay the amount of the check to the claimant
37-18 if payment of the check has not been made to a person entitled to
37-19 enforce the check. Subject to Section 4.302(a)(1), payment to the
37-20 claimant discharges all liability of the obligated bank with
37-21 respect to the check.
37-22 (c) If the obligated bank pays the amount of a check to a
37-23 claimant under Subsection (b)(4) and the check is presented for
37-24 payment by a person having rights of a holder in due course, the
37-25 claimant is obliged to:
37-26 (1) refund the payment to the obligated bank if the
37-27 check is paid; or
38-1 (2) pay the amount of the check to the person having
38-2 rights of a holder in due course if the check is dishonored.
38-3 (d) If a claimant has the right to assert a claim under
38-4 Subsection (b) and is also a person who is entitled to enforce a
38-5 cashier's check, teller's check, or certified check that is lost,
38-6 destroyed, or stolen, the claimant may assert rights with respect
38-7 to the check under either this section or Section 3.309.
38-8 SUBCHAPTER D. LIABILITY OF PARTIES
38-9 Sec. 3.401. SIGNATURE. (a) A person is not liable on an
38-10 instrument unless the person:
38-11 (1) signed the instrument; or
38-12 (2) is represented by an agent or representative who
38-13 signed the instrument and the signature is binding on the
38-14 represented person under Section 3.402.
38-15 (b) A signature may be made (i) manually or by means of a
38-16 device or machine, and (ii) by the use of any name, including a
38-17 trade or assumed name, or by a word, mark, or symbol executed or
38-18 adopted by a person with present intention to authenticate a
38-19 writing.
38-20 Sec. 3.402. SIGNATURE BY REPRESENTATIVE. (a) If a person
38-21 acting, or purporting to act, as a representative signs an
38-22 instrument by signing either the name of the represented person or
38-23 the name of the signer, the represented person is bound by the
38-24 signature to the same extent the represented person would be bound
38-25 if the signature were on a simple contract. If the represented
38-26 person is bound, the signature of the representative is the
38-27 "authorized signature of the represented person" and the
39-1 represented person is liable on the instrument, whether or not
39-2 identified in the instrument.
39-3 (b) If a representative signs the name of the representative
39-4 to an instrument and the signature is an authorized signature of
39-5 the represented person, the following rules apply:
39-6 (1) If the form of the signature shows unambiguously
39-7 that the signature is made on behalf of the represented person who
39-8 is identified in the instrument, the representative is not liable
39-9 on the instrument.
39-10 (2) Subject to Subsection (c), the representative is
39-11 liable on the instrument to a holder in due course that took the
39-12 instrument without notice that the representative was not intended
39-13 to be liable on the instrument if (i) the form of the signature
39-14 does not show unambiguously that the signature is made in a
39-15 representative capacity, or (ii) the represented person is not
39-16 identified in the instrument. With respect to any other person,
39-17 the representative is liable on the instrument unless the
39-18 representative proves that the original parties did not intend the
39-19 representative to be liable on the instrument.
39-20 (c) If a representative signs the name of the representative
39-21 as drawer of a check without indication of the representative
39-22 status and the check is payable from an account of the represented
39-23 person who is identified on the check, the signer is not liable on
39-24 the check if the signature is an authorized signature of the
39-25 represented person.
39-26 Sec. 3.403. UNAUTHORIZED SIGNATURE. (a) Unless otherwise
39-27 provided in this chapter or Chapter 4, an unauthorized signature is
40-1 ineffective except as the signature of the unauthorized signer in
40-2 favor of a person who in good faith pays the instrument or takes it
40-3 for value. An unauthorized signature may be ratified for all
40-4 purposes of this chapter.
40-5 (b) If the signature of more than one person is required to
40-6 constitute the authorized signature of an organization, the
40-7 signature of the organization is unauthorized if one of the
40-8 required signatures is lacking.
40-9 (c) The civil or criminal liability of a person who makes an
40-10 unauthorized signature is not affected by any provision of this
40-11 chapter that makes the unauthorized signature effective for the
40-12 purposes of this chapter.
40-13 Sec. 3.404. IMPOSTORS; FICTITIOUS PAYEES. (a) If an
40-14 impostor, by use of the mails or otherwise, induces the issuer of
40-15 an instrument to issue the instrument to the impostor, or to a
40-16 person acting in concert with the impostor, by impersonating the
40-17 payee of the instrument or a person authorized to act for the
40-18 payee, an indorsement of the instrument by any person in the name
40-19 of the payee is effective as the indorsement of the payee in favor
40-20 of a person who, in good faith, pays the instrument or takes it for
40-21 value or for collection.
40-22 (b) If (i) a person whose intent determines to whom an
40-23 instrument is payable (Section 3.110(a) or (b)) does not intend the
40-24 person identified as payee to have any interest in the instrument,
40-25 or (ii) the person identified as payee of an instrument is a
40-26 fictitious person, the following rules apply until the instrument
40-27 is negotiated by special indorsement:
41-1 (1) Any person in possession of the instrument is its
41-2 holder.
41-3 (2) An indorsement by any person in the name of the
41-4 payee stated in the instrument is effective as the indorsement of
41-5 the payee in favor of a person who, in good faith, pays the
41-6 instrument or takes it for value or for collection.
41-7 (c) Under Subsection (a) or (b), an indorsement is made in
41-8 the name of a payee if:
41-9 (1) it is made in a name substantially similar to that
41-10 of the payee; or
41-11 (2) the instrument, whether or not indorsed, is
41-12 deposited in a depositary bank to an account in a name
41-13 substantially similar to that of the payee.
41-14 (d) With respect to an instrument to which Subsection (a) or
41-15 (b) applies, if a person paying the instrument or taking it for
41-16 value or for collection fails to exercise ordinary care in paying
41-17 or taking the instrument and that failure contributes to loss
41-18 resulting from payment of the instrument, the person bearing the
41-19 loss may recover from the person failing to exercise ordinary care
41-20 to the extent the failure to exercise ordinary care contributed to
41-21 the loss.
41-22 Sec. 3.405. EMPLOYER'S RESPONSIBILITY FOR FRAUDULENT
41-23 INDORSEMENT BY EMPLOYEE. (a) In this section:
41-24 (1) "Employee" includes an independent contractor and
41-25 employee of an independent contractor retained by the employer.
41-26 (2) "Fraudulent indorsement" means:
41-27 (A) in the case of an instrument payable to the
42-1 employer, a forged indorsement purporting to be that of the
42-2 employer; or
42-3 (B) in the case of an instrument with respect to
42-4 which the employer is the issuer, a forged indorsement purporting
42-5 to be that of the person identified as payee.
42-6 (3) "Responsibility" with respect to instruments means
42-7 authority (i) to sign or indorse instruments on behalf of the
42-8 employer, (ii) to process instruments received by the employer for
42-9 bookkeeping purposes, for deposit to an account, or for other
42-10 disposition, (iii) to prepare or process instruments for issue in
42-11 the name of the employer, (iv) to supply information determining
42-12 the names or addresses of payees of instruments to be issued in the
42-13 name of the employer, (v) to control the disposition of instruments
42-14 to be issued in the name of the employer, or (vi) to act otherwise
42-15 with respect to instruments in a responsible capacity.
42-16 "Responsibility" does not include authority that merely allows an
42-17 employee to have access to instruments or blank or incomplete
42-18 instrument forms that are being stored or transported or are part
42-19 of incoming or outgoing mail, or similar access.
42-20 (b) For the purpose of determining the rights and
42-21 liabilities of a person who, in good faith, pays an instrument or
42-22 takes it for value or for collection, if an employer entrusted an
42-23 employee with responsibility with respect to the instrument and the
42-24 employee or a person acting in concert with the employee makes a
42-25 fraudulent indorsement of the instrument, the indorsement is
42-26 effective as the indorsement of the person to whom the instrument
42-27 is payable if it is made in the name of that person. If the person
43-1 paying the instrument or taking it for value or for collection
43-2 fails to exercise ordinary care in paying or taking the instrument
43-3 and that failure contributes to loss resulting from the fraud, the
43-4 person bearing the loss may recover from the person failing to
43-5 exercise ordinary care to the extent the failure to exercise
43-6 ordinary care contributed to the loss.
43-7 (c) Under Subsection (b), an indorsement is made in the name
43-8 of the person to whom an instrument is payable if:
43-9 (1) it is made in a name substantially similar to the
43-10 name of that person; or
43-11 (2) the instrument, whether or not indorsed, is
43-12 deposited in a depositary bank to an account in a name
43-13 substantially similar to the name of that person.
43-14 Sec. 3.406. NEGLIGENCE CONTRIBUTING TO FORGED SIGNATURE OR
43-15 ALTERATION OF INSTRUMENT. (a) A person whose failure to exercise
43-16 ordinary care substantially contributes to an alteration of an
43-17 instrument or to the making of a forged signature on an instrument
43-18 is precluded from asserting the alteration or the forgery against a
43-19 person who, in good faith, pays the instrument or takes it for
43-20 value or for collection.
43-21 (b) Under Subsection (a), if the person asserting the
43-22 preclusion fails to exercise ordinary care in paying or taking the
43-23 instrument and that failure contributes to loss, the loss is
43-24 allocated between the person precluded and the person asserting the
43-25 preclusion according to the extent to which the failure of each to
43-26 exercise ordinary care contributed to the loss.
43-27 (c) Under Subsection (a), the burden of proving failure to
44-1 exercise ordinary care is on the person asserting the preclusion.
44-2 Under Subsection (b), the burden of proving failure to exercise
44-3 ordinary care is on the person precluded.
44-4 Sec. 3.407. ALTERATION. (a) "Alteration" means:
44-5 (1) an unauthorized change in an instrument that
44-6 purports to modify in any respect the obligation of a party; or
44-7 (2) an unauthorized addition of words or numbers or
44-8 other change to an incomplete instrument relating to the obligation
44-9 of a party.
44-10 (b) Except as provided in Subsection (c), an alteration
44-11 fraudulently made discharges a party whose obligation is affected
44-12 by the alteration unless that party assents or is precluded from
44-13 asserting the alteration. No other alteration discharges a party,
44-14 and the instrument may be enforced according to its original terms.
44-15 (c) A payor bank or drawee paying a fraudulently altered
44-16 instrument or a person taking it for value, in good faith and
44-17 without notice of the alteration, may enforce rights with respect
44-18 to the instrument:
44-19 (1) according to its original terms; or
44-20 (2) in the case of an incomplete instrument altered by
44-21 unauthorized completion, according to its terms as completed.
44-22 Sec. 3.408. DRAWEE NOT LIABLE ON UNACCEPTED DRAFT. A check
44-23 or other draft does not of itself operate as an assignment of funds
44-24 in the hands of the drawee available for its payment, and the
44-25 drawee is not liable on the instrument until the drawee accepts it.
44-26 Sec. 3.409. ACCEPTANCE OF DRAFT; CERTIFIED CHECK. (a)
44-27 "Acceptance" means the drawee's signed agreement to pay a draft as
45-1 presented. It must be written on the draft and may consist of the
45-2 drawee's signature alone. Acceptance may be made at any time and
45-3 becomes effective when notification pursuant to instructions is
45-4 given or the accepted draft is delivered for the purpose of giving
45-5 rights on the acceptance to any person.
45-6 (b) A draft may be accepted although it has not been signed
45-7 by the drawer, is otherwise incomplete, is overdue, or has been
45-8 dishonored.
45-9 (c) If a draft is payable at a fixed period after sight and
45-10 the acceptor fails to date the acceptance, the holder may complete
45-11 the acceptance by supplying a date in good faith.
45-12 (d) "Certified check" means a check accepted by the bank on
45-13 which it is drawn. Acceptance may be made as stated in Subsection
45-14 (a) or by a writing on the check that indicates that the check is
45-15 certified. The drawee of a check has no obligation to certify the
45-16 check, and refusal to certify is not dishonor of the check.
45-17 Sec. 3.410. ACCEPTANCE VARYING DRAFT. (a) If the terms of
45-18 a drawee's acceptance vary from the terms of the draft as
45-19 presented, the holder may refuse the acceptance and treat the draft
45-20 as dishonored. In that case, the drawee may cancel the acceptance.
45-21 (b) The terms of a draft are not varied by an acceptance to
45-22 pay at a particular bank or place in the United States, unless the
45-23 acceptance states that the draft is to be paid only at that bank or
45-24 place.
45-25 (c) If the holder assents to an acceptance varying the terms
45-26 of a draft, the obligation of each drawer and indorser that does
45-27 not expressly assent to the acceptance is discharged.
46-1 Sec. 3.411. REFUSAL TO PAY CASHIER'S CHECKS, TELLER'S
46-2 CHECKS, AND CERTIFIED CHECKS. (a) In this section, "obligated
46-3 bank" means the acceptor of a certified check or the issuer of a
46-4 cashier's check or teller's check bought from the issuer.
46-5 (b) If the obligated bank wrongfully (i) refuses to pay a
46-6 cashier's check or certified check, (ii) stops payment of a
46-7 teller's check, or (iii) refuses to pay a dishonored teller's
46-8 check, the person asserting the right to enforce the check is
46-9 entitled to compensation for expenses and loss of interest
46-10 resulting from the nonpayment and may recover consequential damages
46-11 if the obligated bank refuses to pay after receiving notice of
46-12 particular circumstances giving rise to the damages.
46-13 (c) Expenses or consequential damages under Subsection (b)
46-14 are not recoverable if the refusal of the obligated bank to pay
46-15 occurs because:
46-16 (1) the obligated bank suspends payments;
46-17 (2) the obligated bank asserts a claim or defense of
46-18 the bank that it has reasonable grounds to believe is available
46-19 against the person entitled to enforce the instrument;
46-20 (3) the obligated bank has a reasonable doubt whether
46-21 the person demanding payment is the person entitled to enforce the
46-22 instrument; or
46-23 (4) payment is prohibited by law.
46-24 Sec. 3.412. OBLIGATION OF ISSUER OF NOTE OR CASHIER'S CHECK.
46-25 The issuer of a note or cashier's check or other draft drawn on the
46-26 drawer is obliged to pay the instrument (i) according to its terms
46-27 at the time it was issued or, if not issued, at the time it first
47-1 came into possession of a holder, or (ii) if the issuer signed an
47-2 incomplete instrument, according to its terms when completed, to
47-3 the extent stated in Sections 3.115 and 3.407. The obligation is
47-4 owed to a person entitled to enforce the instrument or to an
47-5 indorser who paid the instrument under Section 3.415.
47-6 Sec. 3.413. OBLIGATION OF ACCEPTOR. (a) The acceptor of a
47-7 draft is obliged to pay the draft (i) according to its terms at the
47-8 time it was accepted, even though the acceptance states that the
47-9 draft is payable "as originally drawn" or equivalent terms, (ii) if
47-10 the acceptance varies the terms of the draft, according to the
47-11 terms of the draft as varied, or (iii) if the acceptance is of a
47-12 draft that is an incomplete instrument, according to its terms when
47-13 completed, to the extent stated in Sections 3.115 and 3.407. The
47-14 obligation is owed to a person entitled to enforce the draft or to
47-15 the drawer or an indorser who paid the draft under Section 3.414 or
47-16 3.415.
47-17 (b) If the certification of a check or other acceptance of a
47-18 draft states the amount certified or accepted, the obligation of
47-19 the acceptor is that amount. The obligation of the acceptor is the
47-20 amount of the instrument at the time it was taken by the holder in
47-21 due course if:
47-22 (1) the certification or acceptance does not state an
47-23 amount;
47-24 (2) the amount of the instrument is subsequently
47-25 raised; and
47-26 (3) the instrument is then negotiated to a holder in
47-27 due course.
48-1 Sec. 3.414. OBLIGATION OF DRAWER. (a) This section does
48-2 not apply to cashier's checks or other drafts drawn on the drawer.
48-3 (b) If an unaccepted draft is dishonored, the drawer is
48-4 obliged to pay the draft (i) according to its terms at the time it
48-5 was issued or, if not issued, at the time it first came into
48-6 possession of a holder, or (ii) if the drawer signed an incomplete
48-7 instrument, according to its terms when completed, to the extent
48-8 stated in Sections 3.115 and 3.407. The obligation is owed to a
48-9 person entitled to enforce the draft or to an indorser who paid the
48-10 draft under Section 3.415.
48-11 (c) If a draft is accepted by a bank, the drawer is
48-12 discharged, regardless of when or by whom acceptance was obtained.
48-13 (d) If a draft is accepted and the acceptor is not a bank,
48-14 the obligation of the drawer to pay the draft if the draft is
48-15 dishonored by the acceptor is the same as the obligation of an
48-16 indorser under Sections 3.415(a) and (c).
48-17 (e) If a draft states that it is drawn "without recourse" or
48-18 otherwise disclaims liability of the drawer to pay the draft, the
48-19 drawer is not liable under Subsection (b) to pay the draft if the
48-20 draft is not a check. A disclaimer of the liability stated in
48-21 Subsection (b) is not effective if the draft is a check.
48-22 (f) If (i) a check is not presented for payment or given to
48-23 a depositary bank for collection within 30 days after its date,
48-24 (ii) the drawee suspends payments after expiration of the 30-day
48-25 period without paying the check, and (iii) because of the
48-26 suspension of payments, the drawer is deprived of funds maintained
48-27 with the drawee to cover payment of the check, the drawer to the
49-1 extent deprived of funds may discharge its obligation to pay the
49-2 check by assigning to the person entitled to enforce the check the
49-3 rights of the drawer against the drawee with respect to the funds.
49-4 Sec. 3.415. OBLIGATION OF INDORSER. (a) Subject to
49-5 Subsections (b), (c), (d), and (e) and to Section 3.419(d), if an
49-6 instrument is dishonored, an indorser is obliged to pay the amount
49-7 due on the instrument (i) according to the terms of the instrument
49-8 at the time it was indorsed, or (ii) if the indorser indorsed an
49-9 incomplete instrument, according to its terms when completed, to
49-10 the extent stated in Sections 3.115 and 3.407. The obligation of
49-11 the indorser is owed to a person entitled to enforce the instrument
49-12 or to a subsequent indorser who paid the instrument under this
49-13 section.
49-14 (b) If an indorsement states that it is made "without
49-15 recourse" or otherwise disclaims liability of the indorser, the
49-16 indorser is not liable under Subsection (a) to pay the instrument.
49-17 (c) If notice of dishonor of an instrument is required by
49-18 Section 3.503 and notice of dishonor complying with that section is
49-19 not given to an indorser, the liability of the indorser under
49-20 Subsection (a) is discharged.
49-21 (d) If a draft is accepted by a bank after an indorsement is
49-22 made, the liability of the indorser under Subsection (a) is
49-23 discharged.
49-24 (e) If an indorser of a check is liable under Subsection (a)
49-25 and the check is not presented for payment, or given to a
49-26 depositary bank for collection, within 30 days after the day the
49-27 indorsement was made, the liability of the indorser under
50-1 Subsection (a) is discharged.
50-2 Sec. 3.416. TRANSFER WARRANTIES. (a) A person who
50-3 transfers an instrument for consideration warrants to the
50-4 transferee and, if the transfer is by indorsement, to any
50-5 subsequent transferee that:
50-6 (1) the warrantor is a person entitled to enforce the
50-7 instrument;
50-8 (2) all signatures on the instrument are authentic and
50-9 authorized;
50-10 (3) the instrument has not been altered;
50-11 (4) the instrument is not subject to a defense or
50-12 claim in recoupment of any party that can be asserted against the
50-13 warrantor; and
50-14 (5) the warrantor has no knowledge of any insolvency
50-15 proceeding commenced with respect to the maker or acceptor or, in
50-16 the case of an unaccepted draft, the drawer.
50-17 (b) A person to whom the warranties under Subsection (a) are
50-18 made and who took the instrument in good faith may recover from the
50-19 warrantor as damages for breach of warranty an amount equal to the
50-20 loss suffered as a result of the breach, but not more than the
50-21 amount of the instrument plus expenses and loss of interest
50-22 incurred as a result of the breach.
50-23 (c) The warranties stated in Subsection (a) cannot be
50-24 disclaimed with respect to checks. Unless notice of a claim for
50-25 breach of warranty is given to the warrantor within 30 days after
50-26 the claimant has reason to know of the breach and the identity of
50-27 the warrantor, the liability of the warrantor under Subsection (b)
51-1 is discharged to the extent of any loss caused by the delay in
51-2 giving notice of the claim.
51-3 (d) A cause of action for breach of warranty under this
51-4 section accrues when the claimant has reason to know of the breach.
51-5 Sec. 3.417. PRESENTMENT WARRANTIES. (a) If an unaccepted
51-6 draft is presented to the drawee for payment or acceptance and the
51-7 drawee pays or accepts the draft, (i) the person obtaining payment
51-8 or acceptance, at the time of presentment, and (ii) a previous
51-9 transferor of the draft, at the time of transfer, warrant to the
51-10 drawee making payment or accepting the draft in good faith that:
51-11 (1) the warrantor is, or was, at the time the
51-12 warrantor transferred the draft, a person entitled to enforce the
51-13 draft or authorized to obtain payment or acceptance of the draft on
51-14 behalf of a person entitled to enforce the draft;
51-15 (2) the draft has not been altered; and
51-16 (3) the warrantor has no knowledge that the signature
51-17 of the drawer of the draft is unauthorized.
51-18 (b) A drawee making payment may recover from any warrantor
51-19 damages for breach of warranty equal to the amount paid by the
51-20 drawee less the amount the drawee received or is entitled to
51-21 receive from the drawer because of the payment. In addition, the
51-22 drawee is entitled to compensation for expenses and loss of
51-23 interest resulting from the breach. The right of the drawee to
51-24 recover damages under this subsection is not affected by any
51-25 failure of the drawee to exercise ordinary care in making payment.
51-26 If the drawee accepts the draft, breach of warranty is a defense to
51-27 the obligation of the acceptor. If the acceptor makes payment with
52-1 respect to the draft, the acceptor is entitled to recover from any
52-2 warrantor for breach of warranty the amounts stated in this
52-3 subsection.
52-4 (c) If a drawee asserts a claim for breach of warranty under
52-5 Subsection (a) based on an unauthorized indorsement of the draft or
52-6 an alteration of the draft, the warrantor may defend by proving
52-7 that the indorsement is effective under Section 3.404 or 3.405 or
52-8 the drawer is precluded under Section 3.406 or 4.406 from asserting
52-9 against the drawee the unauthorized indorsement or alteration.
52-10 (d) If (i) a dishonored draft is presented for payment to
52-11 the drawer or an indorser, or (ii) any other instrument is
52-12 presented for payment to a party obliged to pay the instrument, and
52-13 (iii) payment is received, the following rules apply:
52-14 (1) The person obtaining payment and a prior
52-15 transferor of the instrument warrant to the person making payment
52-16 in good faith that the warrantor is, or was, at the time the
52-17 warrantor transferred the instrument, a person entitled to enforce
52-18 the instrument or authorized to obtain payment on behalf of a
52-19 person entitled to enforce the instrument.
52-20 (2) The person making payment may recover from any
52-21 warrantor for breach of warranty an amount equal to the amount paid
52-22 plus expenses and loss of interest resulting from the breach.
52-23 (e) The warranties stated in Subsections (a) and (d) cannot
52-24 be disclaimed with respect to checks. Unless notice of a claim for
52-25 breach of warranty is given to the warrantor within 30 days after
52-26 the claimant has reason to know of the breach and the identity of
52-27 the warrantor, the liability of the warrantor under Subsection (b)
53-1 or (d) is discharged to the extent of any loss caused by the delay
53-2 in giving notice of the claim.
53-3 (f) A cause of action for breach of warranty under this
53-4 section accrues when the claimant has reason to know of the breach.
53-5 Sec. 3.418. PAYMENT OR ACCEPTANCE BY MISTAKE. (a) Except
53-6 as provided in Subsection (c), if the drawee of a draft pays or
53-7 accepts the draft and the drawee acted on the mistaken belief that
53-8 (i) payment of the draft had not been stopped pursuant to Section
53-9 4.403, or (ii) the signature of the drawer of the draft was
53-10 authorized, the drawee may recover the amount of the draft from the
53-11 person to whom or for whose benefit payment was made or, in the
53-12 case of acceptance, may revoke the acceptance. Rights of the
53-13 drawee under this subsection are not affected by failure of the
53-14 drawee to exercise ordinary care in paying or accepting the draft.
53-15 (b) Except as provided in Subsection (c), if an instrument
53-16 has been paid or accepted by mistake and the case is not covered by
53-17 Subsection (a), the person paying or accepting may, to the extent
53-18 permitted by the law governing mistake and restitution:
53-19 (1) recover the payment from the person to whom or for
53-20 whose benefit payment was made; or
53-21 (2) in the case of acceptance, revoke the acceptance.
53-22 (c) The remedies provided by Subsection (a) or (b) may not
53-23 be asserted against a person who took the instrument in good faith
53-24 and for value or who in good faith changed position in reliance on
53-25 the payment or acceptance. This subsection does not limit remedies
53-26 provided by Section 3.417 or 4.407.
53-27 (d) Notwithstanding Section 4.215, if an instrument is paid
54-1 or accepted by mistake and the payor or acceptor recovers payment
54-2 or revokes acceptance under Subsection (a) or (b), the instrument
54-3 is deemed not to have been paid or accepted and is treated as
54-4 dishonored, and the person from whom payment is recovered has
54-5 rights as a person entitled to enforce the dishonored instrument.
54-6 Sec. 3.419. INSTRUMENTS SIGNED FOR ACCOMMODATION. (a) If
54-7 an instrument is issued for value given for the benefit of a party
54-8 to the instrument ("accommodated party") and another party to the
54-9 instrument ("accommodation party") signs the instrument for the
54-10 purpose of incurring liability on the instrument without being a
54-11 direct beneficiary of the value given for the instrument, the
54-12 instrument is signed by the accommodation party "for
54-13 accommodation."
54-14 (b) An accommodation party may sign the instrument as maker,
54-15 drawer, acceptor, or indorser. Subject to Subsection (d), the
54-16 accommodation party is obliged to pay the instrument in the
54-17 capacity in which the accommodation party signs. The obligation of
54-18 an accommodation party may be enforced notwithstanding any statute
54-19 of frauds and whether or not the accommodation party receives
54-20 consideration for the accommodation.
54-21 (c) A person signing an instrument is presumed to be an
54-22 accommodation party and there is notice that the instrument is
54-23 signed for accommodation if the signature is an anomalous
54-24 indorsement or is accompanied by words indicating that the signer
54-25 is acting as surety or guarantor with respect to the obligation of
54-26 another party to the instrument. Except as provided in Section
54-27 3.605, the obligation of an accommodation party to pay the
55-1 instrument is not affected by the fact that the person enforcing
55-2 the obligation had notice when the instrument was taken by that
55-3 person that the accommodation party signed the instrument for
55-4 accommodation.
55-5 (d) If the signature of a party to an instrument is
55-6 accompanied by words indicating unambiguously that the party is
55-7 guaranteeing collection rather than payment of the obligation of
55-8 another party to the instrument, the signer is obliged to pay the
55-9 amount due on the instrument to a person entitled to enforce the
55-10 instrument only if:
55-11 (1) execution of judgment against the other party has
55-12 been returned unsatisfied;
55-13 (2) the other party is insolvent or in an insolvency
55-14 proceeding;
55-15 (3) the other party cannot be served with process; or
55-16 (4) it is otherwise apparent that payment cannot be
55-17 obtained from the other party.
55-18 (e) An accommodation party who pays the instrument is
55-19 entitled to reimbursement from the accommodated party and is
55-20 entitled to enforce the instrument against the accommodated party.
55-21 An accommodated party who pays the instrument has no right of
55-22 recourse against, and is not entitled to contribution from, an
55-23 accommodation party.
55-24 Sec. 3.420. CONVERSION OF INSTRUMENT. (a) The law
55-25 applicable to conversion of personal property applies to
55-26 instruments. An instrument is also converted if it is taken by
55-27 transfer, other than a negotiation, from a person not entitled to
56-1 enforce the instrument or a bank makes or obtains payment with
56-2 respect to the instrument for a person not entitled to enforce the
56-3 instrument or receive payment. An action for conversion of an
56-4 instrument may not be brought by:
56-5 (1) the issuer or acceptor of the instrument; or
56-6 (2) a payee or indorsee who did not receive delivery
56-7 of the instrument either directly or through delivery to an agent
56-8 or a co-payee.
56-9 (b) In an action under Subsection (a), the measure of
56-10 liability is presumed to be the amount payable on the instrument,
56-11 but recovery may not exceed the amount of the plaintiff's interest
56-12 in the instrument.
56-13 (c) A representative, other than a depositary bank, who has
56-14 in good faith dealt with an instrument or its proceeds on behalf of
56-15 one who was not the person entitled to enforce the instrument is
56-16 not liable in conversion to that person beyond the amount of any
56-17 proceeds that it has not paid out.
56-18 SUBCHAPTER E. DISHONOR
56-19 Sec. 3.501. PRESENTMENT. (a) "Presentment" means a demand
56-20 made by or on behalf of a person entitled to enforce an instrument
56-21 to:
56-22 (1) pay the instrument made to the drawee or a party
56-23 obliged to pay the instrument or, in the case of a note or accepted
56-24 draft payable at a bank, to the bank; or
56-25 (2) accept a draft made to the drawee.
56-26 (b) The following rules are subject to Chapter 4, agreement
56-27 of the parties, and clearing-house rules and the like:
57-1 (1) Presentment may be made at the place of payment of
57-2 the instrument and must be made at the place of payment if the
57-3 instrument is payable at a bank in the United States. Presentment
57-4 may be made by any commercially reasonable means, including an
57-5 oral, written, or electronic communication. Presentment is
57-6 effective:
57-7 (A) when the demand for payment or acceptance is
57-8 received by the person to whom presentment is made; and
57-9 (B) if made to any one of two or more makers,
57-10 acceptors, drawees, or other payors.
57-11 (2) On demand of the person to whom presentment is
57-12 made, the person making presentment must:
57-13 (A) exhibit the instrument;
57-14 (B) give reasonable identification and, if
57-15 presentment is made on behalf of another person, reasonable
57-16 evidence of authority to do so; and
57-17 (C) sign a receipt on the instrument for any
57-18 payment made or surrender the instrument if full payment is made.
57-19 (3) Without dishonoring the instrument, the party to
57-20 whom presentment is made may:
57-21 (A) return the instrument for lack of a
57-22 necessary indorsement; or
57-23 (B) refuse payment or acceptance for failure of
57-24 the presentment to comply with the terms of the instrument, an
57-25 agreement of the parties, or other applicable law or rule.
57-26 (4) The party to whom presentment is made may treat
57-27 presentment as occurring on the next business day after the day of
58-1 presentment if the party to whom presentment is made has
58-2 established a cutoff hour not earlier than 2 p.m. for the receipt
58-3 and processing of instruments presented for payment or acceptance
58-4 and presentment is made after the cutoff hour.
58-5 Sec. 3.502. DISHONOR. (a) Dishonor of a note is governed
58-6 by the following rules:
58-7 (1) If the note is payable on demand, the note is
58-8 dishonored if presentment is duly made to the maker and the note is
58-9 not paid on the day of presentment.
58-10 (2) If the note is not payable on demand and is
58-11 payable at or through a bank or the terms of the note require
58-12 presentment, the note is dishonored if presentment is duly made and
58-13 the note is not paid on the day it becomes payable or the day of
58-14 presentment, whichever is later.
58-15 (3) If the note is not payable on demand and
58-16 Subdivision (2) does not apply, the note is dishonored if it is not
58-17 paid on the day it becomes payable.
58-18 (b) Dishonor of an unaccepted draft other than a documentary
58-19 draft is governed by the following rules:
58-20 (1) If a check is duly presented for payment to the
58-21 payor bank otherwise than for immediate payment over the counter,
58-22 the check is dishonored if the payor bank makes timely return of
58-23 the check or sends timely notice of dishonor or nonpayment under
58-24 Section 4.301 or 4.302, or becomes accountable for the amount of
58-25 the check under Section 4.302.
58-26 (2) If a draft is payable on demand and Subdivision
58-27 (1) does not apply, the draft is dishonored if presentment for
59-1 payment is duly made to the drawee and the draft is not paid on the
59-2 day of presentment.
59-3 (3) If a draft is payable on a date stated in the
59-4 draft, the draft is dishonored if:
59-5 (A) presentment for payment is duly made to the
59-6 drawee and payment is not made on the day the draft becomes payable
59-7 or the day of presentment, whichever is later; or
59-8 (B) presentment for acceptance is duly made
59-9 before the day the draft becomes payable and the draft is not
59-10 accepted on the day of presentment.
59-11 (4) If a draft is payable on elapse of a period of
59-12 time after sight or acceptance, the draft is dishonored if
59-13 presentment for acceptance is duly made and the draft is not
59-14 accepted on the day of presentment.
59-15 (c) Dishonor of an unaccepted documentary draft occurs
59-16 according to the rules stated in Subsections (b)(2), (3), and (4),
59-17 except that payment or acceptance may be delayed without dishonor
59-18 until not later than the close of the third business day of the
59-19 drawee following the day on which payment or acceptance is required
59-20 by those subdivisions.
59-21 (d) Dishonor of an accepted draft is governed by the
59-22 following rules:
59-23 (1) If the draft is payable on demand, the draft is
59-24 dishonored if presentment for payment is duly made to the acceptor
59-25 and the draft is not paid on the day of presentment.
59-26 (2) If the draft is not payable on demand, the draft
59-27 is dishonored if presentment for payment is duly made to the
60-1 acceptor and payment is not made on the day it becomes payable or
60-2 the day of presentment, whichever is later.
60-3 (e) In any case in which presentment is otherwise required
60-4 for dishonor under this section and presentment is excused under
60-5 Section 3.504, dishonor occurs without presentment if the
60-6 instrument is not duly accepted or paid.
60-7 (f) If a draft is dishonored because timely acceptance of
60-8 the draft was not made and the person entitled to demand acceptance
60-9 consents to a late acceptance, from the time of acceptance the
60-10 draft is treated as never having been dishonored.
60-11 Sec. 3.503. NOTICE OF DISHONOR. (a) The obligation of an
60-12 indorser stated in Section 3.415(a) and the obligation of a drawer
60-13 stated in Section 3.414(d) may not be enforced unless:
60-14 (1) the indorser or drawer is given notice of dishonor
60-15 of the instrument complying with this section; or
60-16 (2) notice of dishonor is excused under Section
60-17 3.504(b).
60-18 (b) Notice of dishonor may be given by any person; may be
60-19 given by any commercially reasonable means, including an oral,
60-20 written, or electronic communication; and is sufficient if it
60-21 reasonably identifies the instrument and indicates that the
60-22 instrument has been dishonored or has not been paid or accepted.
60-23 Return of an instrument given to a bank for collection is
60-24 sufficient notice of dishonor.
60-25 (c) Subject to Section 3.504(c), with respect to an
60-26 instrument taken for collection by a collecting bank, notice of
60-27 dishonor must be given (i) by the bank before midnight of the next
61-1 banking day following the banking day on which the bank receives
61-2 notice of dishonor of the instrument, or (ii) by any other person
61-3 within 30 days following the day on which the person receives
61-4 notice of dishonor. With respect to any other instrument, notice
61-5 of dishonor must be given within 30 days following the day on which
61-6 dishonor occurs.
61-7 Sec. 3.504. EXCUSED PRESENTMENT AND NOTICE OF DISHONOR. (a)
61-8 Presentment for payment or acceptance of an instrument is excused
61-9 if:
61-10 (1) the person entitled to present the instrument
61-11 cannot with reasonable diligence make presentment;
61-12 (2) the maker or acceptor has repudiated an obligation
61-13 to pay the instrument or is dead or in insolvency proceedings;
61-14 (3) by the terms of the instrument presentment is not
61-15 necessary to enforce the obligation of indorsers or the drawer;
61-16 (4) the drawer or indorser whose obligation is being
61-17 enforced has waived presentment or otherwise has no reason to
61-18 expect or right to require that the instrument be paid or accepted;
61-19 or
61-20 (5) the drawer instructed the drawee not to pay or
61-21 accept the draft or the drawee was not obligated to the drawer to
61-22 pay the draft.
61-23 (b) Notice of dishonor is excused if (i) by the terms of the
61-24 instrument notice of dishonor is not necessary to enforce the
61-25 obligation of a party to pay the instrument, or (ii) the party
61-26 whose obligation is being enforced waived notice of dishonor. A
61-27 waiver of presentment is also a waiver of notice of dishonor.
62-1 (c) Delay in giving notice of dishonor is excused if the
62-2 delay was caused by circumstances beyond the control of the person
62-3 giving the notice and the person giving the notice exercised
62-4 reasonable diligence after the cause of the delay ceased to
62-5 operate.
62-6 Sec. 3.505. EVIDENCE OF DISHONOR. (a) The following are
62-7 admissible as evidence and create a presumption of dishonor and of
62-8 any notice of dishonor stated:
62-9 (1) a document regular in form as provided in
62-10 Subsection (b) that purports to be a protest;
62-11 (2) a purported stamp or writing of the drawee, payor
62-12 bank, or presenting bank on or accompanying the instrument stating
62-13 that acceptance or payment has been refused unless reasons for the
62-14 refusal are stated and the reasons are not consistent with
62-15 dishonor;
62-16 (3) a book or record of the drawee, payor bank, or
62-17 collecting bank that is kept in the usual course of business and
62-18 that shows dishonor, even if there is no evidence of who made the
62-19 entry.
62-20 (b) A protest is a certificate of dishonor made by a United
62-21 States consul or vice consul, or a notary public or other person
62-22 authorized to administer oaths by the law of the place where
62-23 dishonor occurs. It may be made on information satisfactory to
62-24 that person. The protest must identify the instrument and certify
62-25 either that presentment has been made or, if not made, the reason
62-26 why it was not made, and that the instrument has been dishonored by
62-27 nonacceptance or nonpayment. The protest may also certify that
63-1 notice of dishonor has been given to some or all parties.
63-2 SUBCHAPTER F. DISCHARGE AND PAYMENT
63-3 Sec. 3.601. DISCHARGE AND EFFECT OF DISCHARGE. (a) The
63-4 obligation of a party to pay the instrument is discharged as stated
63-5 in this chapter or by an act or agreement with the party that would
63-6 discharge an obligation to pay money under a simple contract.
63-7 (b) Discharge of the obligation of a party is not effective
63-8 against a person acquiring rights of a holder in due course of the
63-9 instrument without notice of the discharge.
63-10 Sec. 3.602. PAYMENT. (a) Subject to Subsection (b), an
63-11 instrument is paid to the extent payment is made (i) by or on
63-12 behalf of a party obliged to pay the instrument, and (ii) to a
63-13 person entitled to enforce the instrument. To the extent of the
63-14 payment, the obligation of the party obliged to pay the instrument
63-15 is discharged even though payment is made with knowledge of a claim
63-16 to the instrument under Section 3.306 by another person.
63-17 (b) The obligation of a party to pay the instrument is not
63-18 discharged under Subsection (a) if:
63-19 (1) a claim to the instrument under Section 3.306 is
63-20 enforceable against the party receiving payment and:
63-21 (A) payment is made with knowledge by the payor
63-22 that payment is prohibited by injunction or similar process of a
63-23 court of competent jurisdiction; or
63-24 (B) in the case of an instrument other than a
63-25 cashier's check, teller's check, or certified check, the party
63-26 making payment accepted, from the person having a claim to the
63-27 instrument, indemnity against loss resulting from refusal to pay
64-1 the person entitled to enforce the instrument; or
64-2 (2) the person making payment knows that the
64-3 instrument is a stolen instrument and pays a person it knows is in
64-4 wrongful possession of the instrument.
64-5 Sec. 3.603. TENDER OF PAYMENT. (a) If tender of payment of
64-6 an obligation to pay an instrument is made to a person entitled to
64-7 enforce the instrument, the effect of tender is governed by
64-8 principles of law applicable to tender of payment under a simple
64-9 contract.
64-10 (b) If tender of payment of an obligation to pay an
64-11 instrument is made to a person entitled to enforce the instrument
64-12 and the tender is refused, there is discharge, to the extent of the
64-13 amount of the tender, of the obligation of an indorser or
64-14 accommodation party having a right of recourse with respect to the
64-15 obligation to which the tender relates.
64-16 (c) If tender of payment of an amount due on an instrument
64-17 is made to a person entitled to enforce the instrument, the
64-18 obligation of the obligor to pay interest after the due date on the
64-19 amount tendered is discharged. If presentment is required with
64-20 respect to an instrument and the obligor is able and ready to pay
64-21 on the due date at every place of payment stated in the instrument,
64-22 the obligor is deemed to have made tender of payment on the due
64-23 date to the person entitled to enforce the instrument.
64-24 Sec. 3.604. DISCHARGE BY CANCELLATION OR RENUNCIATION. (a)
64-25 A person entitled to enforce an instrument, with or without
64-26 consideration, may discharge the obligation of a party to pay the
64-27 instrument:
65-1 (1) by an intentional voluntary act, such as surrender
65-2 of the instrument to the party, destruction, mutilation, or
65-3 cancellation of the instrument, cancellation or striking out of the
65-4 party's signature, or the addition of words to the instrument
65-5 indicating discharge; or
65-6 (2) by agreeing not to sue or otherwise renouncing
65-7 rights against the party by a signed writing.
65-8 (b) Cancellation or striking out of an indorsement pursuant
65-9 to Subsection (a) does not affect the status and rights of a party
65-10 derived from the indorsement.
65-11 Sec. 3.605. DISCHARGE OF INDORSERS AND ACCOMMODATION
65-12 PARTIES. (a) In this section, the term "indorser" includes a
65-13 drawer having the obligation described in Section 3.414(d).
65-14 (b) Discharge of the obligation of a party to pay an
65-15 instrument under Section 3.604 does not discharge the obligation of
65-16 an indorser or accommodation party having a right of recourse
65-17 against the discharged party.
65-18 (c) If a person entitled to enforce an instrument agrees,
65-19 with or without consideration, to an extension of the due date of
65-20 the obligation of a party to pay the instrument, the extension
65-21 discharges an indorser or accommodation party having a right of
65-22 recourse against the party whose obligation is extended to the
65-23 extent the indorser or accommodation party proves that the
65-24 extension caused loss to the indorser or accommodation party with
65-25 respect to the right of recourse.
65-26 (d) If a person entitled to enforce an instrument agrees,
65-27 with or without consideration, to a material modification of the
66-1 obligation of a party other than an extension of the due date, the
66-2 modification discharges the obligation of an indorser or
66-3 accommodation party having a right of recourse against the person
66-4 whose obligation is modified to the extent the modification causes
66-5 loss to the indorser or accommodation party with respect to the
66-6 right of recourse. The loss suffered by the indorser or
66-7 accommodation party as a result of the modification is equal to the
66-8 amount of the right of recourse unless the person enforcing the
66-9 instrument proves that no loss was caused by the modification or
66-10 that the loss caused by the modification was an amount less than
66-11 the amount of the right of recourse.
66-12 (e) If the obligation of a party to pay an instrument is
66-13 secured by an interest in collateral and a person entitled to
66-14 enforce the instrument impairs the value of the interest in
66-15 collateral, the obligation of an indorser or accommodation party
66-16 having a right of recourse against the obligor is discharged to the
66-17 extent of the impairment. The value of an interest in collateral
66-18 is impaired to the extent (i) the value of the interest is reduced
66-19 to an amount less than the amount of the right of recourse of the
66-20 party asserting discharge, or (ii) the reduction in value of the
66-21 interest causes an increase in the amount by which the amount of
66-22 the right of recourse exceeds the value of the interest. The
66-23 burden of proving impairment is on the party asserting discharge.
66-24 (f) If the obligation of a party is secured by an interest
66-25 in collateral not provided by an accommodation party and a person
66-26 entitled to enforce the instrument impairs the value of the
66-27 interest in collateral, the obligation of any party who is jointly
67-1 and severally liable with respect to the secured obligation is
67-2 discharged to the extent the impairment causes the party asserting
67-3 discharge to pay more than that party would have been obliged to
67-4 pay, taking into account rights of contribution, if impairment had
67-5 not occurred. If the party asserting discharge is an accommodation
67-6 party not entitled to discharge under Subsection (e), the party is
67-7 deemed to have a right to contribution based on joint and several
67-8 liability rather than a right to reimbursement. The burden of
67-9 proving impairment is on the party asserting discharge.
67-10 (g) Under Subsection (e) or (f), impairing value of an
67-11 interest in collateral includes:
67-12 (1) failure to obtain or maintain perfection or
67-13 recordation of the interest in collateral;
67-14 (2) release of collateral without substitution of
67-15 collateral of equal value;
67-16 (3) failure to perform a duty to preserve the value of
67-17 collateral owed, under Chapter 9 or other law, to a debtor or
67-18 surety or other person secondarily liable; or
67-19 (4) failure to comply with applicable law in disposing
67-20 of collateral.
67-21 (h) An accommodation party is not discharged under
67-22 Subsection (c), (d), or (e) unless the person entitled to enforce
67-23 the instrument knows of the accommodation or has notice under
67-24 Section 3.419(c) that the instrument was signed for accommodation.
67-25 (i) A party is not discharged under this section if:
67-26 (1) the party asserting discharge consents to the
67-27 event or conduct that is the basis of the discharge; or
68-1 (2) the instrument or a separate agreement of the
68-2 party provides for waiver of discharge under this section.
68-3 <SUBCHAPTER A. SHORT TITLE, FORM AND INTERPRETATION>
68-4 <Sec. 3.101. ><Short Title><. This chapter may be cited as
68-5 Uniform Commercial Code--Commercial Paper.>
68-6 <Sec. 3.102. ><Definitions and Index of Definitions><. (a) In
68-7 this chapter unless the context otherwise requires>
68-8 <(1) "Issue" means the first delivery of an instrument
68-9 to a holder or a remitter.>
68-10 <(2) An "order" is a direction to pay and must be more
68-11 than an authorization or request. It must identify the person to
68-12 pay with reasonable certainty. It may be addressed to one or more
68-13 such persons jointly or in the alternative but not in succession.>
68-14 <(3) A "promise" is an undertaking to pay and must be
68-15 more than an acknowledgment of an obligation.>
68-16 <(4) "Secondary party" means a drawer or indorser.>
68-17 <(5) "Instrument" means a negotiable instrument.>
68-18 <(b) Other definitions applying to this chapter and the
68-19 sections in which they appear are:>
68-20 <"Acceptance". Section 3.410.>
68-21 <"Accommodation party". Section 3.415.>
68-22 <"Alteration". Section 3.407.>
68-23 <"Certificate of deposit". Section 3.104.>
68-24 <"Certification". Section 3.411.>
68-25 <"Check". Section 3.104.>
68-26 <"Definite time". Section 3.109.>
68-27 <"Dishonor". Section 3.507.>
69-1 <"Draft". Section 3.104.>
69-2 <"Holder in due course". Section 3.302.>
69-3 <"Negotiation". Section 3.202.>
69-4 <"Note". Section 3.104.>
69-5 <"Notice of dishonor". Section 3.508.>
69-6 <"On demand". Section 3.108.>
69-7 <"Presentment". Section 3.504.>
69-8 <"Protest". Section 3.509.>
69-9 <"Restrictive Indorsement". Section 3.205.>
69-10 <"Signature". Section 3.401.>
69-11 <(c) The following definitions in other chapters apply to
69-12 this chapter:>
69-13 <"Account". Section 4.104.>
69-14 <"Banking Day". Section 4.104.>
69-15 <"Clearing house". Section 4.104.>
69-16 <"Collecting bank". Section 4.105.>
69-17 <"Customer". Section 4.104.>
69-18 <"Depositary Bank". Section 4.105.>
69-19 <"Documentary Draft". Section 4.104.>
69-20 <"Intermediary Bank". Section 4.105.>
69-21 <"Item". Section 4.104.>
69-22 <"Midnight deadline". Section 4.104.>
69-23 <"Payor bank". Section 4.105.>
69-24 <(d) In addition Chapter 1 contains general definitions and
69-25 principles of construction and interpretation applicable throughout
69-26 this chapter.>
69-27 <Sec. 3.103. ><Limitations on Scope of Chapter><. (a) This
70-1 chapter does not apply to money, documents of title or investment
70-2 securities.>
70-3 <(b) The provisions of this chapter are subject to the
70-4 provisions of the chapter on Bank Deposits and Collections (Chapter
70-5 4) and Secured Transactions (Chapter 9).>
70-6 <Sec. 3.104. ><Form of Negotiable Instruments; "Draft";
70-7 "Check"; "Certificate of Deposit"; "Note"><. (a) Any writing to be
70-8 a negotiable instrument within this chapter must>
70-9 <(1) be signed by the maker or drawer; and>
70-10 <(2) contain an unconditional promise or order to pay
70-11 a sum certain in money and no other promise, order, obligation or
70-12 power given by the maker or drawer except as authorized by this
70-13 chapter; and>
70-14 <(3) be payable on demand or at a definite time; and>
70-15 <(4) be payable to order or to bearer.>
70-16 <(b) A writing which complies with the requirements of this
70-17 section is>
70-18 <(1) a "draft" ("bill of exchange") if it is an order;>
70-19 <(2) a "check" if it is a draft drawn on a bank and
70-20 payable on demand;>
70-21 <(3) a "certificate of deposit" if it is an
70-22 acknowledgment by a bank of receipt of money with an engagement to
70-23 repay it;>
70-24 <(4) a "note" if it is a promise other than a
70-25 certificate of deposit.>
70-26 <(c) As used in other chapters of this title, and as the
70-27 context may require, the terms "draft", "check", "certificate of
71-1 deposit" and "note" may refer to instruments which are not
71-2 negotiable within this chapter as well as to instruments which are
71-3 so negotiable.>
71-4 <Sec. 3.105. ><When Promise or Order Unconditional><. (a) A
71-5 promise or order otherwise unconditional is not made conditional by
71-6 the fact that the instrument>
71-7 <(1) is subject to implied or constructive conditions;
71-8 or>
71-9 <(2) states its consideration, whether performed or
71-10 promised, or the transaction which gave rise to the instrument, or
71-11 that the promise or order is made or the instrument matures in
71-12 accordance with or "as per" such transaction; or>
71-13 <(3) refers to or states that it arises out of a
71-14 separate agreement or refers to a separate agreement for rights as
71-15 to prepayment or acceleration; or>
71-16 <(4) states that it is drawn under a letter of credit;
71-17 or>
71-18 <(5) states that it is secured, whether by mortgage,
71-19 reservation of title or otherwise; or>
71-20 <(6) indicates a particular account to be debited or
71-21 any other fund or source from which reimbursement is expected; or>
71-22 <(7) is limited to payment out of a particular fund or
71-23 the proceeds of a particular source, if the instrument is issued by
71-24 a government or governmental agency or unit; or>
71-25 <(8) is limited to payment out of the entire assets of
71-26 a partnership, unincorporated association, trust or estate by or on
71-27 behalf of which the instrument is issued.>
72-1 <(b) A promise or order is not unconditional if the
72-2 instrument>
72-3 <(1) states that it is subject to or governed by any
72-4 other agreement; or>
72-5 <(2) states that it is to be paid only out of a
72-6 particular fund or source except as provided in this section.>
72-7 <Sec. 3.106. ><Sum Certain><. (a) The sum payable is a sum
72-8 certain even though it is to be paid>
72-9 <(1) with stated interest or by stated installments;
72-10 or>
72-11 <(2) with stated different rates of interest before
72-12 and after default or a specified date; or>
72-13 <(3) with a stated discount or addition if paid before
72-14 or after the date fixed for payment; or>
72-15 <(4) with exchange or less exchange, whether at a
72-16 fixed rate or at the current rate; or>
72-17 <(5) with costs of collection or an attorney's fee or
72-18 both upon default.>
72-19 <(b) Nothing in this section shall validate any term which
72-20 is otherwise illegal.>
72-21 <Sec. 3.107. ><Money><. (a) An instrument is payable in money
72-22 if the medium of exchange in which it is payable is money at the
72-23 time the instrument is made. An instrument payable in "currency"
72-24 or "current funds" is payable in money.>
72-25 <(b) A promise or order to pay a sum stated in a foreign
72-26 currency is for a sum certain in money and, unless a different
72-27 medium of payment is specified in the instrument, may be satisfied
73-1 by payment of that number of dollars which the stated foreign
73-2 currency will purchase at the buying sight rate for that currency
73-3 on the day on which the instrument is payable or, if payable on
73-4 demand, on the day of demand. If such an instrument specifies a
73-5 foreign currency as the medium of payment the instrument is payable
73-6 in that currency.>
73-7 <Sec. 3.108. ><Payable on Demand><. Instruments payable on
73-8 demand include those payable at sight or on presentation and those
73-9 in which no time for payment is stated.>
73-10 <Sec. 3.109. ><Definite Time><. (a) An instrument is payable
73-11 at a definite time if by its terms it is payable>
73-12 <(1) on or before a stated date or at a fixed period
73-13 after a stated date; or>
73-14 <(2) at a fixed period after sight; or>
73-15 <(3) at a definite time subject to any acceleration;
73-16 or>
73-17 <(4) at a definite time subject to extension at the
73-18 option of the holder, or to extension to a further definite time at
73-19 the option of the maker or acceptor or automatically upon or after
73-20 a specified act or event.>
73-21 <(b) An instrument which by its terms is otherwise payable
73-22 only upon an act or event uncertain as to time of occurrence is not
73-23 payable at a definite time even though the act or event has
73-24 occurred.>
73-25 <Sec. 3.110. ><Payable to Order><. (a) An instrument is
73-26 payable to order when by its terms it is payable to the order or
73-27 assigns of any person therein specified with reasonable certainty,
74-1 or to him or his order, or when it is conspicuously designated on
74-2 its face as "exchange" or the like and names a payee. It may be
74-3 payable to the order of>
74-4 <(1) the maker or drawer; or>
74-5 <(2) the drawee; or>
74-6 <(3) a payee who is not maker, drawer or drawee; or>
74-7 <(4) two or more payees together or in the
74-8 alternative; or>
74-9 <(5) an estate, trust or fund, in which case it is
74-10 payable to the order of the representative of such estate, trust or
74-11 fund or his successors; or>
74-12 <(6) an office, or an officer by his title as such in
74-13 which case it is payable to the principal but the incumbent of the
74-14 office or his successors may act as if he or they were the holder;
74-15 or>
74-16 <(7) a partnership or unincorporated association, in
74-17 which case it is payable to the partnership or association and may
74-18 be indorsed or transferred by any person thereto authorized.>
74-19 <(b) An instrument not payable to order is not made so
74-20 payable by such words as "payable upon return of this instrument
74-21 properly indorsed.">
74-22 <(c) An instrument made payable both to order and to bearer
74-23 is payable to order unless the bearer words are handwritten or
74-24 typewritten.>
74-25 <Sec. 3.111. ><Payable to Bearer><. An instrument is payable to
74-26 bearer when by its terms it is payable to>
74-27 <(1) bearer or the order of bearer; or>
75-1 <(2) a specified person or bearer; or>
75-2 <(3) "cash" or the order of "cash", or any other
75-3 indication which does not purport to designate a specific payee.>
75-4 <Sec. 3.112. ><Terms and Omissions Not Affecting
75-5 Negotiability><. (a) The negotiability of an instrument is not
75-6 affected by>
75-7 <(1) the omission of a statement of any consideration
75-8 or of the place where the instrument is drawn or payable; or>
75-9 <(2) a statement that collateral has been given to
75-10 secure obligations either on the instrument or otherwise of an
75-11 obligor on the instrument or that in case of default on those
75-12 obligations the holder may realize on or dispose of the collateral;
75-13 or>
75-14 <(3) a promise or power to maintain or protect
75-15 collateral or to give additional collateral; or>
75-16 <(4) a term authorizing a confession of judgment on
75-17 the instrument if it is not paid when due; or>
75-18 <(5) a term purporting to waive the benefit of any law
75-19 intended for the advantage or protection of any obligor; or>
75-20 <(6) a term in a draft providing that the payee by
75-21 indorsing or cashing it acknowledges full satisfaction of an
75-22 obligation of the drawer; or>
75-23 <(7) a statement in a draft drawn in a set of parts
75-24 (Section 3.801) to the effect that the order is effective only if
75-25 no other part has been honored.>
75-26 <(b) Nothing in this section shall validate any term which
75-27 is otherwise illegal.>
76-1 <Sec. 3.113. ><Seal><. An instrument otherwise negotiable is
76-2 within this chapter even though it is under a seal.>
76-3 <Sec. 3.114. ><Date, Antedating, Postdating><. (a) The
76-4 negotiability of an instrument is not affected by the fact that it
76-5 is undated, antedated or postdated.>
76-6 <(b) Where an instrument is antedated or postdated the time
76-7 when it is payable is determined by the stated date if the
76-8 instrument is payable on demand or at a fixed period after date.>
76-9 <(c) Where the instrument or any signature thereon is dated,
76-10 the date is presumed to be correct.>
76-11 <Sec. 3.115. ><Incomplete Instruments><. (a) When a paper
76-12 whose contents at the time of signing show that it is intended to
76-13 become an instrument is signed while still incomplete in any
76-14 necessary respect it cannot be enforced until completed, but when
76-15 it is completed in accordance with authority given it is effective
76-16 as completed.>
76-17 <(b) If the completion is unauthorized the rules as to
76-18 material alteration apply (Section 3.407), even though the paper
76-19 was not delivered by the maker or drawer; but the burden of
76-20 establishing that any completion is unauthorized is on the party so
76-21 asserting.>
76-22 <Sec. 3.116. ><Instruments Payable to Two or More Persons><. An
76-23 instrument payable to the order of two or more persons>
76-24 <(1) if in the alternative is payable to any one of
76-25 them and may be negotiated, discharged or enforced by any of them
76-26 who has possession of it;>
76-27 <(2) if not in the alternative is payable to all of
77-1 them and may be negotiated, discharged or enforced only by all of
77-2 them.>
77-3 <Sec. 3.117. ><Instruments Payable With Words of Description><.
77-4 An instrument made payable to a named person with the addition of
77-5 words describing him>
77-6 <(1) as agent or officer of a specified person is
77-7 payable to his principal but the agent or officer may act as if he
77-8 were the holder;>
77-9 <(2) as any other fiduciary for a specified person or
77-10 purpose is payable to the payee and may be negotiated, discharged
77-11 or enforced by him;>
77-12 <(3) in any other manner is payable to the payee
77-13 unconditionally and the additional words are without effect on
77-14 subsequent parties.>
77-15 <Sec. 3.118. ><Ambiguous Terms and Rules of Construction><. The
77-16 following rules apply to every instrument:>
77-17 <(1) Where there is doubt whether the instrument is a
77-18 draft or a note the holder may treat it as either. A draft drawn
77-19 on the drawer is effective as a note.>
77-20 <(2) Handwritten terms control typewritten and printed
77-21 terms, and typewritten control printed.>
77-22 <(3) Words control figures except that if the words
77-23 are ambiguous figures control.>
77-24 <(4) Unless otherwise specified a provision for
77-25 interest means interest at the judgment rate at the place of
77-26 payment from the date of the instrument, or if it is undated from
77-27 the date of issue.>
78-1 <(5) Unless the instrument otherwise specifies two or
78-2 more persons who sign as maker, acceptor or drawer or indorser and
78-3 as a part of the same transaction are jointly and severally liable
78-4 even though the instrument contains such words as "I promise to
78-5 pay.">
78-6 <(6) Unless otherwise specified consent to extension
78-7 authorizes a single extension for not longer than the original
78-8 period. A consent to extension, expressed in the instrument, is
78-9 binding on secondary parties and accommodation makers. A holder
78-10 may not exercise his option to extend an instrument over the
78-11 objection of a maker or acceptor or other party who in accordance
78-12 with Section 3.604 tenders full payment when the instrument is due.>
78-13 <Sec. 3.119. ><Other Writings Affecting Instrument><. (a) As
78-14 between the obligor and his immediate obligee or any transferee the
78-15 terms of an instrument may be modified or affected by any other
78-16 written agreement executed as a part of the same transaction,
78-17 except that a holder in due course is not affected by any
78-18 limitation of his rights arising out of the separate written
78-19 agreement if he had no notice of the limitation when he took the
78-20 instrument.>
78-21 <(b) A separate agreement does not affect the negotiability
78-22 of an instrument.>
78-23 <Sec. 3.120. ><Instruments "Payable Through" Bank><. An
78-24 instrument which states that it is "payable through" a bank or the
78-25 like designates that bank as a collecting bank to make presentment
78-26 but does not of itself authorize the bank to pay the instrument.>
78-27 <Sec. 3.121. ><Instruments Payable at Bank><. A note or
79-1 acceptance which states that it is payable at a bank is the
79-2 equivalent of a draft drawn on the bank payable when it falls due
79-3 out of any funds of the maker or acceptor in current account or
79-4 otherwise available for such payment.>
79-5 <Sec. 3.122. ><Accrual of Cause of Action><. (a) A cause of
79-6 action against a maker or an acceptor accrues>
79-7 <(1) in the case of a time instrument on the day after
79-8 maturity;>
79-9 <(2) in the case of a demand instrument upon its date
79-10 or, if no date is stated, on the date of issue.>
79-11 <(b) A cause of action against the obligor of a demand or
79-12 time certificate of deposit accrues upon demand, but demand on a
79-13 time certificate may not be made until on or after the date of
79-14 maturity.>
79-15 <(c) A cause of action against a drawer of a draft or an
79-16 indorser of any instrument accrues upon demand following dishonor
79-17 of the instrument. Notice of dishonor is a demand.>
79-18 <(d) Unless an instrument provides otherwise, interest runs
79-19 at the rate provided by law for a judgment>
79-20 <(1) in the case of a maker, acceptor or other primary
79-21 obligor of a demand instrument, from the date of demand;>
79-22 <(2) in all other cases from the date of accrual of
79-23 the cause of action.>
79-24 <SUBCHAPTER B. TRANSFER AND NEGOTIATION>
79-25 <Sec. 3.201. ><Transfer: Right to Indorsement><. (a) Transfer
79-26 of an instrument vests in the transferee such rights as the
79-27 transferor has therein, except that a transferee who has himself
80-1 been a party to any fraud or illegality affecting the instrument or
80-2 who as a prior holder had notice of a defense or claim against it
80-3 cannot improve his position by taking from a later holder in due
80-4 course.>
80-5 <(b) A transfer of a security interest in an instrument
80-6 vests the foregoing rights in the transferee to the extent of the
80-7 interest transferred.>
80-8 <(c) Unless otherwise agreed any transfer for value of an
80-9 instrument not then payable to bearer gives the transferee the
80-10 specifically enforceable right to have the unqualified indorsement
80-11 of the transferor. Negotiation takes effect only when the
80-12 indorsement is made and until that time there is no presumption
80-13 that the transferee is the owner.>
80-14 <Sec. 3.202. ><Negotiation><. (a) Negotiation is the transfer
80-15 of an instrument in such form that the transferee becomes a holder.
80-16 If the instrument is payable to order it is negotiated by delivery
80-17 with any necessary indorsement; if payable to bearer it is
80-18 negotiated by delivery.>
80-19 <(b) An indorsement must be written by or on behalf of the
80-20 holder and on the instrument or on a paper so firmly affixed
80-21 thereto as to become a part thereof.>
80-22 <(c) An indorsement is effective for negotiation only when
80-23 it conveys the entire instrument or any unpaid residue. If it
80-24 purports to be of less it operates only as a partial assignment.>
80-25 <(d) Words of assignment, condition, waiver, guaranty,
80-26 limitation or disclaimer of liability and the like accompanying an
80-27 indorsement do not affect its character as an indorsement.>
81-1 <Sec. 3.203. ><Wrong or Misspelled Name><. Where an instrument
81-2 is made payable to a person under a misspelled name or one other
81-3 than his own he may indorse in that name or his own or both; but
81-4 signature in both names may be required by a person paying or
81-5 giving value for the instrument.>
81-6 <Sec. 3.204. ><Special Indorsement; Blank Indorsement><. (a) A
81-7 special indorsement specifies the person to whom or to whose order
81-8 it makes the instrument payable. Any instrument specially indorsed
81-9 becomes payable to the order of the special indorsee and may be
81-10 further negotiated only by his indorsement.>
81-11 <(b) An indorsement in blank specifies no particular
81-12 indorsee and may consist of a mere signature. An instrument
81-13 payable to order and indorsed in blank becomes payable to bearer
81-14 and may be negotiated by delivery alone until specially indorsed.>
81-15 <(c) The holder may convert a blank indorsement into a
81-16 special indorsement by writing over the signature of the indorser
81-17 in blank any contract consistent with the character of the
81-18 indorsement.>
81-19 <Sec. 3.205. ><Restrictive Indorsements><. An indorsement is
81-20 restrictive which either>
81-21 <(1) is conditional; or>
81-22 <(2) purports to prohibit further transfer of the
81-23 instrument; or>
81-24 <(3) includes the words "for collection", "for
81-25 deposit", "pay any bank", or like terms signifying a purpose of
81-26 deposit or collection; or>
81-27 <(4) otherwise states that it is for the benefit or
82-1 use of the indorser or of another person.>
82-2 <Sec. 3.206. ><Effect of Restrictive Indorsement><. (a) No
82-3 restrictive indorsement prevents further transfer or negotiation of
82-4 the instrument.>
82-5 <(b) An intermediary bank, or a payor bank which is not the
82-6 depositary bank, is neither given notice nor otherwise affected by
82-7 a restrictive indorsement of any person except the bank's immediate
82-8 transferor or the person presenting for payment.>
82-9 <(c) Except for an intermediary bank, any transferee under
82-10 an indorsement which is conditional or includes the words "for
82-11 collection", "for deposit", "pay any bank", or like terms
82-12 (Subdivisions (1) and (3) of Section 3.205) must pay or apply any
82-13 value given by him for or on the security of the instrument
82-14 consistently with the indorsement and to the extent that he does so
82-15 he becomes a holder for value. In addition such transferee is a
82-16 holder in due course if he otherwise complies with the requirements
82-17 of Section 3.302 on what constitutes a holder in due course.>
82-18 <(d) The first taker under an indorsement for the benefit of
82-19 the indorser or another person (Subdivision (4) of Section 3.205)
82-20 must pay or apply any value given by him for or on the security of
82-21 the instrument consistently with the indorsement and to the extent
82-22 that he does so he becomes a holder for value. In addition such
82-23 taker is a holder in due course if he otherwise complies with the
82-24 requirements of Section 3.302 on what constitutes a holder in due
82-25 course. A later holder for value is neither given notice nor
82-26 otherwise affected by such restrictive indorsement unless he has
82-27 knowledge that a fiduciary or other person has negotiated the
83-1 instrument in any transaction for his own benefit or otherwise in
83-2 breach of duty (Subsection (b) of Section 3.304).>
83-3 <Sec. 3.207. ><Negotiation Effective Although It May Be
83-4 Rescinded><. (a) Negotiation is effective to transfer the
83-5 instrument although the negotiation is>
83-6 <(1) made by an infant, a corporation exceeding its
83-7 powers, or any other person without capacity; or>
83-8 <(2) obtained by fraud, duress or mistake of any kind;
83-9 or>
83-10 <(3) part of an illegal transaction; or>
83-11 <(4) made in breach of duty.>
83-12 <(b) Except as against a subsequent holder in due course
83-13 such negotiation is in an appropriate case subject to rescission,
83-14 the declaration of a constructive trust or any other remedy
83-15 permitted by law.>
83-16 <Sec. 3.208. ><Reacquisition><. Where an instrument is returned
83-17 to or reacquired by a prior party he may cancel any indorsement
83-18 which is not necessary to his title and reissue or further
83-19 negotiate the instrument, but any intervening party is discharged
83-20 as against the reacquiring party and subsequent holders not in due
83-21 course and if his indorsement has been cancelled is discharged as
83-22 against subsequent holders in due course as well.>
83-23 <SUBCHAPTER C. RIGHTS OF A HOLDER>
83-24 <Sec. 3.301. ><Rights of a Holder><. The holder of an
83-25 instrument whether or not he is the owner may transfer or negotiate
83-26 it and, except as otherwise provided in Section 3.603 on payment or
83-27 satisfaction, discharge it or enforce payment in his own name.>
84-1 <Sec. 3.302. ><Holder in Due Course><. (a) A holder in due
84-2 course is a holder who takes the instrument>
84-3 <(1) for value; and>
84-4 <(2) in good faith; and>
84-5 <(3) without notice that it is overdue or has been
84-6 dishonored or of any defense against or claim to it on the part of
84-7 any person.>
84-8 <(b) A payee may be a holder in due course.>
84-9 <(c) A holder does not become a holder in due course of an
84-10 instrument:>
84-11 <(1) by purchase of it at judicial sale or by taking
84-12 it under legal process; or>
84-13 <(2) by acquiring it in taking over an estate; or>
84-14 <(3) by purchasing it as part of a bulk transaction
84-15 not in regular course of business of the transferor.>
84-16 <(d) A purchaser of a limited interest can be a holder in
84-17 due course only to the extent of the interest purchased.>
84-18 <Sec. 3.303. ><Taking for Value><. A holder takes the
84-19 instrument for value>
84-20 <(1) to the extent that the agreed consideration has
84-21 been performed or that he acquires a security interest in or a lien
84-22 on the instrument otherwise than by legal process; or>
84-23 <(2) when he takes the instrument in payment of or as
84-24 security for an antecedent claim against any person whether or not
84-25 the claim is due; or>
84-26 <(3) when he gives a negotiable instrument for it or
84-27 makes an irrevocable commitment to a third person.>
85-1 <Sec. 3.304. ><Notice to Purchaser><. (a) The purchaser has
85-2 notice of a claim or defense if>
85-3 <(1) the instrument is so incomplete, bears such
85-4 visible evidence of forgery or alteration, or is otherwise so
85-5 irregular as to call into question its validity, terms or ownership
85-6 or to create an ambiguity as to the party to pay; or>
85-7 <(2) the purchaser has notice that the obligation of
85-8 any party is voidable in whole or in part, or that all parties have
85-9 been discharged.>
85-10 <(b) The purchaser has notice of a claim against the
85-11 instrument when he has knowledge that a fiduciary has negotiated
85-12 the instrument in payment of or as security for his own debt or in
85-13 any transaction for his own benefit or otherwise in breach of duty.>
85-14 <(c) The purchaser has notice that an instrument is overdue
85-15 if he has reason to know>
85-16 <(1) that any part of the principal amount is overdue
85-17 or that there is an uncured default in payment of another
85-18 instrument of the same series; or>
85-19 <(2) that acceleration of the instrument has been
85-20 made; or>
85-21 <(3) that he is taking a demand instrument after
85-22 demand has been made or more than a reasonable length of time after
85-23 its issue. A reasonable time for a check drawn and payable within
85-24 the states and territories of the United States and the District of
85-25 Columbia is presumed to be thirty days.>
85-26 <(d) Knowledge of the following facts does not of itself
85-27 give the purchaser notice of a defense or claim>
86-1 <(1) that the instrument is antedated or postdated;>
86-2 <(2) that it was issued or negotiated in return for an
86-3 executory promise or accompanied by a separate agreement, unless
86-4 the purchaser has notice that a defense or claim has arisen from
86-5 the terms thereof;>
86-6 <(3) that any party has signed for accommodation;>
86-7 <(4) that an incomplete instrument has been completed,
86-8 unless the purchaser has notice of any improper completion;>
86-9 <(5) that any person negotiating the instrument is or
86-10 was a fiduciary;>
86-11 <(6) that there has been default in payment of
86-12 interest on the instrument or in payment of any other instrument,
86-13 except one of the same series.>
86-14 <(e) The filing or recording of a document does not of
86-15 itself constitute notice within the provisions of this chapter to a
86-16 person who would otherwise be a holder in due course.>
86-17 <(f) To be effective notice must be received at such time
86-18 and in such manner as to give a reasonable opportunity to act on
86-19 it.>
86-20 <Sec. 3.305. ><Rights of a Holder in Due Course><. To the
86-21 extent that a holder is a holder in due course he takes the
86-22 instrument free from>
86-23 <(a) all claims to it on the part of any person; and>
86-24 <(b) all defenses of any party to the instrument with
86-25 whom the holder has not dealt except>
86-26 <(1) infancy, to the extent that it is a defense
86-27 to a simple contract; and>
87-1 <(2) such other incapacity, or duress, or
87-2 illegality of the transaction, as renders the obligation of the
87-3 party a nullity; and>
87-4 <(3) such misrepresentation as has induced the
87-5 party to sign the instrument with neither knowledge nor reasonable
87-6 opportunity to obtain knowledge of its character or its essential
87-7 terms; and>
87-8 <(4) discharge in insolvency proceedings; and>
87-9 <(5) any other discharge of which the holder has
87-10 notice when he takes the instrument.>
87-11 <Sec. 3.306. ><Rights of One Not Holder in Due Course><. Unless
87-12 he has the rights of a holder in due course any person takes the
87-13 instrument subject to>
87-14 <(1) all valid claims to it on the part of any person;
87-15 and>
87-16 <(2) all defenses of any party which would be
87-17 available in an action on a simple contract; and>
87-18 <(3) the defenses of want or failure of consideration,
87-19 non-performance of any condition precedent, non-delivery, or
87-20 delivery for a special purpose (Section 3.408); and>
87-21 <(4) the defense that he or a person through whom he
87-22 holds the instrument acquired it by theft, or that payment or
87-23 satisfaction to such holder would be inconsistent with the terms of
87-24 a restrictive indorsement. The claim of any third person to the
87-25 instrument is not otherwise available as a defense to any party
87-26 liable thereon unless the third person himself defends the action
87-27 for such party.>
88-1 <Sec. 3.307. ><Burden of Establishing Signatures, Defenses and
88-2 Due Course><. (a) Unless specifically denied in the pleadings each
88-3 signature on an instrument is admitted. When the effectiveness of
88-4 a signature is put in issue>
88-5 <(1) the burden of establishing it is on the party
88-6 claiming under the signature; but>
88-7 <(2) the signature is presumed to be genuine or
88-8 authorized except where the action is to enforce the obligation of
88-9 a purported signer who has died or become incompetent before proof
88-10 is required.>
88-11 <(b) When signatures are admitted or established, production
88-12 of the instrument entitles a holder to recover on it unless the
88-13 defendant establishes a defense.>
88-14 <(c) After it is shown that a defense exists a person
88-15 claiming the rights of a holder in due course has the burden of
88-16 establishing that he or some person under whom he claims is in all
88-17 respects a holder in due course.>
88-18 <SUBCHAPTER D. LIABILITY OF PARTIES>
88-19 <Sec. 3.401. ><Signature><. (a) No person is liable on an
88-20 instrument unless his signature appears thereon.>
88-21 <(b) A signature is made by use of any name, including any
88-22 trade or assumed name, upon an instrument, or by any word or mark
88-23 used in lieu of a written signature.>
88-24 <Sec. 3.402. ><Signature in Ambiguous Capacity><. Unless the
88-25 instrument clearly indicates that a signature is made in some other
88-26 capacity it is an indorsement.>
88-27 <Sec. 3.403. ><Signature by Authorized Representative><. (a) A
89-1 signature may be made by an agent or other representative, and his
89-2 authority to make it may be established as in other cases of
89-3 representation. No particular form of appointment is necessary to
89-4 establish such authority.>
89-5 <(b) An authorized representative who signs his own name to
89-6 an instrument>
89-7 <(1) is personally obligated if the instrument neither
89-8 names the person represented nor shows that the representative
89-9 signed in a representative capacity;>
89-10 <(2) except as otherwise established between the
89-11 immediate parties, is personally obligated if the instrument names
89-12 the person represented but does not show that the representative
89-13 signed in a representative capacity, or if the instrument does not
89-14 name the person represented but does show that the representative
89-15 signed in a representative capacity.>
89-16 <(c) Except as otherwise established the name of an
89-17 organization preceded or followed by the name and office of an
89-18 authorized individual is a signature made in a representative
89-19 capacity.>
89-20 <Sec. 3.404. ><Unauthorized Signatures><. (a) Any unauthorized
89-21 signature is wholly inoperative as that of the person whose name is
89-22 signed unless he ratifies it or is precluded from denying it; but
89-23 it operates as the signature of the unauthorized signer in favor of
89-24 any person who in good faith pays the instrument or takes it for
89-25 value.>
89-26 <(b) Any unauthorized signature may be ratified for all
89-27 purposes of this chapter. Such ratification does not of itself
90-1 affect any rights of the person ratifying against the actual
90-2 signer.>
90-3 <Sec. 3.405. ><Imposters; Signature in Name of Payee><. (a) An
90-4 indorsement by any person in the name of a named payee is effective
90-5 if>
90-6 <(1) an imposter by use of the mails or otherwise has
90-7 induced the maker or drawer to issue the instrument to him or his
90-8 confederate in the name of the payee; or>
90-9 <(2) a person signing as or on behalf of a maker or
90-10 drawer intends the payee to have no interest in the instrument; or>
90-11 <(3) an agent or employee of the maker or drawer has
90-12 supplied him with the name of the payee intending the latter to
90-13 have no such interest.>
90-14 <(b) Nothing in this section shall affect the criminal or
90-15 civil liability of the person so indorsing.>
90-16 <Sec. 3.406. ><Negligence Contributing to Alteration or
90-17 Unauthorized Signature><. Any person who by his negligence
90-18 substantially contributes to a material alteration of the
90-19 instrument or to the making of an unauthorized signature is
90-20 precluded from asserting the alteration or lack of authority
90-21 against a holder in due course or against a drawee or other payor
90-22 who pays the instrument in good faith and in accordance with the
90-23 reasonable commercial standards of the drawee's or payor's
90-24 business.>
90-25 <Sec. 3.407. ><Alteration><. (a) Any alteration of an
90-26 instrument is material which changes the contract of any party
90-27 thereto in any respect, including any such change in>
91-1 <(1) the number or relations of the parties; or>
91-2 <(2) an incomplete instrument, by completing it
91-3 otherwise than as authorized; or>
91-4 <(3) the writing as signed, by adding to it or by
91-5 removing any part of it.>
91-6 <(b) As against any person other than a subsequent holder in
91-7 due course>
91-8 <(1) alteration by the holder which is both fraudulent
91-9 and material discharges any party whose contract is thereby changed
91-10 unless that party assents or is precluded from asserting the
91-11 defense;>
91-12 <(2) no other alteration discharges any party and the
91-13 instrument may be enforced according to its original tenor, or as
91-14 to incomplete instruments according to the authority given.>
91-15 <(c) A subsequent holder in due course may in all cases
91-16 enforce the instrument according to its original tenor, and when an
91-17 incomplete instrument has been completed, he may enforce it as
91-18 completed.>
91-19 <Sec. 3.408. ><Consideration><. Want or failure of
91-20 consideration is a defense as against any person not having the
91-21 rights of a holder in due course (Section 3.305), except that no
91-22 consideration is necessary for an instrument or obligation thereon
91-23 given in payment of or as security for an antecedent obligation of
91-24 any kind. Nothing in this section shall be taken to displace any
91-25 statute outside this title under which a promise is enforceable
91-26 notwithstanding lack or failure of consideration. Partial failure
91-27 of consideration is a defense pro tanto whether or not the failure
92-1 is in an ascertained or liquidated amount.>
92-2 <Sec. 3.409. ><Draft Not an Assignment><. (a) A check or other
92-3 draft does not of itself operate as an assignment of any funds in
92-4 the hands of the drawee available for its payment, and the drawee
92-5 is not liable on the instrument until he accepts it.>
92-6 <(b) Nothing in this section shall affect any liability in
92-7 contract, tort or otherwise arising from any letter of credit or
92-8 other obligation or representation which is not an acceptance.>
92-9 <Sec. 3.410. ><Definition and Operation of Acceptance><.
92-10 (a) Acceptance is the drawee's signed engagement to honor the
92-11 draft as presented. It must be written on the draft, and may
92-12 consist of his signature alone. It becomes operative when
92-13 completed by delivery or notification.>
92-14 <(b) A draft may be accepted although it has not been signed
92-15 by the drawer or is otherwise incomplete or is overdue or has been
92-16 dishonored.>
92-17 <(c) Where the draft is payable at a fixed period after
92-18 sight and the acceptor fails to date his acceptance the holder may
92-19 complete it by supplying a date in good faith.>
92-20 <Sec. 3.411. ><Certification of a Check><. (a) Certification
92-21 of a check is acceptance. Where a holder procures certification
92-22 the drawer and all prior indorsers are discharged.>
92-23 <(b) Unless otherwise agreed a bank has no obligation to
92-24 certify a check.>
92-25 <(c) A bank may certify a check before returning it for lack
92-26 of proper indorsement. If it does so the drawer is discharged.>
92-27 <Sec. 3.412. ><Acceptance Varying Draft><. (a) Where the
93-1 drawee's proffered acceptance in any manner varies the draft as
93-2 presented the holder may refuse the acceptance and treat the draft
93-3 as dishonored in which case the drawee is entitled to have his
93-4 acceptance cancelled.>
93-5 <(b) The terms of the draft are not varied by an acceptance
93-6 to pay at any particular bank or place in the United States, unless
93-7 the acceptance states that the draft is to be paid only at such
93-8 bank or place.>
93-9 <(c) Where the holder assents to an acceptance varying the
93-10 terms of the draft each drawer and indorser who does not
93-11 affirmatively assent is discharged.>
93-12 <Sec. 3.413. ><Contract of Maker, Drawer and Acceptor><.
93-13 (a) The maker or acceptor engages that he will pay the instrument
93-14 according to its tenor at the time of his engagement or as
93-15 completed pursuant to Section 3.115 on incomplete instruments.>
93-16 <(b) The drawer engages that upon dishonor of the draft and
93-17 any necessary notice of dishonor or protest he will pay the amount
93-18 of the draft to the holder or to any indorser who takes it up. The
93-19 drawer may disclaim this liability by drawing without recourse.>
93-20 <(c) By making, drawing or accepting the party admits as
93-21 against all subsequent parties including the drawee the existence
93-22 of the payee and his then capacity to indorse.>
93-23 <Sec. 3.414. ><Contract of Indorser; Order of Liability><.
93-24 (a) Unless the indorsement otherwise specifies (as by such words
93-25 as "without recourse") every indorser engages that upon dishonor
93-26 and any necessary notice of dishonor and protest he will pay the
93-27 instrument according to its tenor at the time of his indorsement to
94-1 the holder or to any subsequent indorser who takes it up, even
94-2 though the indorser who takes it up was not obligated to do so.>
94-3 <(b) Unless they otherwise agree indorsers are liable to one
94-4 another in the order in which they indorse, which is presumed to be
94-5 the order in which their signatures appear on the instrument.>
94-6 <Sec. 3.415. ><Contract of Accommodation Party><. (a) An
94-7 accommodation party is one who signs the instrument in any capacity
94-8 for the purpose of lending his name to another party to it.>
94-9 <(b) When the instrument has been taken for value before it
94-10 is due the accommodation party is liable in the capacity in which
94-11 he has signed even though the taker knows of the accommodation.>
94-12 <(c) As against a holder in due course and without notice of
94-13 the accommodation oral proof of the accommodation is not admissible
94-14 to give the accommodation party the benefit of discharges dependent
94-15 on his character as such. In other cases the accommodation
94-16 character may be shown by oral proof.>
94-17 <(d) An indorsement which shows that it is not in the chain
94-18 of title is notice of its accommodation character.>
94-19 <(e) An accommodation party is not liable to the party
94-20 accommodated, and if he pays the instrument has a right of recourse
94-21 on the instrument against such party.>
94-22 <Sec. 3.416. ><Contract of Guarantor><. (a) "Payment
94-23 guaranteed" or equivalent words added to a signature mean that the
94-24 signer engages that if the instrument is not paid when due he will
94-25 pay it according to its tenor without resort by the holder to any
94-26 other party.>
94-27 <(b) "Collection guaranteed" or equivalent words added to a
95-1 signature mean that the signer engages that if the instrument is
95-2 not paid when due he will pay it according to its tenor, but only
95-3 after the holder has reduced his claim against the maker or
95-4 acceptor to judgment and execution has been returned unsatisfied,
95-5 or after the maker or acceptor has become insolvent or it is
95-6 otherwise apparent that it is useless to proceed against him.>
95-7 <(c) Words of guaranty which do not otherwise specify
95-8 guarantee payment.>
95-9 <(d) No words of guaranty added to the signature of a sole
95-10 maker or acceptor affect his liability on the instrument. Such
95-11 words added to the signature of one of two or more makers or
95-12 acceptors create a presumption that the signature is for the
95-13 accommodation of the others.>
95-14 <(e) When words of guaranty are used presentment, notice of
95-15 dishonor and protest are not necessary to charge the user.>
95-16 <(f) Any guaranty written on the instrument is enforceable
95-17 notwithstanding any statute of frauds.>
95-18 <Sec. 3.417. ><Warranties on Presentment and Transfer><.
95-19 (a) Any person who obtains payment or acceptance and any prior
95-20 transferor warrants to a person who in good faith pays or accepts
95-21 that>
95-22 <(1) he has a good title to the instrument or is
95-23 authorized to obtain payment or acceptance on behalf of one who has
95-24 a good title; and>
95-25 <(2) he has no knowledge that the signature of the
95-26 maker or drawer is unauthorized, except that this warranty is not
95-27 given by a holder in due course acting in good faith>
96-1 <(A) to a maker with respect to the maker's own
96-2 signature; or>
96-3 <(B) to a drawer with respect to the drawer's
96-4 own signature, whether or not the drawer is also the drawee; or>
96-5 <(C) to an acceptor of a draft if the holder in
96-6 due course took the draft after the acceptance or obtained the
96-7 acceptance without knowledge that the drawer's signature was
96-8 unauthorized; and>
96-9 <(3) the instrument has not been materially altered,
96-10 except that this warranty is not given by a holder in due course
96-11 acting in good faith>
96-12 <(A) to the maker of a note; or>
96-13 <(B) to the drawer of a draft whether or not the
96-14 drawer is also the drawee; or>
96-15 <(C) to the acceptor of a draft with respect to
96-16 an alteration made prior to the acceptance if the holder in due
96-17 course took the draft after the acceptance, even though the
96-18 acceptance provided "payable as originally drawn" or equivalent
96-19 terms; or>
96-20 <(D) to the acceptor of a draft with respect to
96-21 an alteration made after the acceptance.>
96-22 <(b) Any person who transfers an instrument and receives
96-23 consideration warrants to his transferee and if the transfer is by
96-24 indorsement to any subsequent holder who takes the instrument in
96-25 good faith that>
96-26 <(1) he has a good title to the instrument or is
96-27 authorized to obtain payment or acceptance on behalf of one who has
97-1 a good title and the transfer is otherwise rightful; and>
97-2 <(2) all signatures are genuine or authorized; and>
97-3 <(3) the instrument has not been materially altered;
97-4 and>
97-5 <(4) no defense of any party is good against him; and>
97-6 <(5) he has no knowledge of any insolvency proceeding
97-7 instituted with respect to the maker or acceptor or the drawer of
97-8 an unaccepted instrument.>
97-9 <(c) By transferring "without recourse" the transferor
97-10 limits the obligation stated in Subsection (b)(4) to a warranty
97-11 that he has no knowledge of such a defense.>
97-12 <(d) A selling agent or broker who does not disclose the
97-13 fact that he is acting only as such gives the warranties provided
97-14 in this section, but if he makes such disclosure warrants only his
97-15 good faith and authority.>
97-16 <Sec. 3.418. ><Finality of Payment or Acceptance><. Except for
97-17 recovery of bank payments as provided in the chapter on Bank
97-18 Deposits and Collections (Chapter 4) and except for liability for
97-19 breach of warranty on presentment under the preceding section,
97-20 payment or acceptance of any instrument is final in favor of a
97-21 holder in due course, or a person who has in good faith changed his
97-22 position in reliance on the payment.>
97-23 <Sec. 3.419. ><Conversion of Instrument; Innocent
97-24 Representative><. (a) An instrument is converted when>
97-25 <(1) a drawee to whom it is delivered for acceptance
97-26 refuses to return it on demand; or>
97-27 <(2) any person to whom it is delivered for payment
98-1 refuses on demand either to pay or to return it; or>
98-2 <(3) it is paid on a forged indorsement.>
98-3 <(b) In an action against a drawee under Subsection (a) the
98-4 measure of the drawee's liability is the face amount of the
98-5 instrument. In any other action under Subsection (a) the measure
98-6 of liability is presumed to be the face amount of the instrument.>
98-7 <(c) Subject to the provisions of this title concerning
98-8 restrictive indorsements a representative, including a depositary
98-9 or collecting bank, who has in good faith and in accordance with
98-10 the reasonable commercial standards applicable to the business of
98-11 such representative dealt with an instrument or its proceeds on
98-12 behalf of one who was not the true owner is not liable in
98-13 conversion or otherwise to the true owner beyond the amount of any
98-14 proceeds remaining in his hands.>
98-15 <(d) An intermediary bank or payor bank which is not a
98-16 depositary bank is not liable in conversion solely by reason of the
98-17 fact that proceeds of an item indorsed restrictively (Sections
98-18 3.205 and 3.206) are not paid or applied consistently with the
98-19 restrictive indorsement of an indorser other than its immediate
98-20 transferor.>
98-21 <SUBCHAPTER E. PRESENTMENT, NOTICE OF DISHONOR AND PROTEST>
98-22 <Sec. 3.501. ><When Presentment, Notice of Dishonor, and
98-23 Protest Necessary or Permissible><. (a) Unless excused (Section
98-24 3.511) presentment is necessary to charge secondary parties as
98-25 follows:>
98-26 <(1) presentment for acceptance is necessary to charge
98-27 the drawer and indorsers of a draft where the draft so provides, or
99-1 is payable elsewhere than at the residence or place of business of
99-2 the drawee, or its date of payment depends upon such presentment.
99-3 The holder may at his option present for acceptance any other draft
99-4 payable at a stated date;>
99-5 <(2) presentment for payment is necessary to charge
99-6 any indorser;>
99-7 <(3) in the case of any drawer, the acceptor of a
99-8 draft payable at a bank or the maker of a note payable at a bank,
99-9 presentment for payment is necessary, but failure to make
99-10 presentment discharges such drawer, acceptor or maker only as
99-11 stated in Section 3.502(a)(2).>
99-12 <(b) Unless excused (Section 3.511)>
99-13 <(1) notice of any dishonor is necessary to charge any
99-14 indorser;>
99-15 <(2) in the case of any drawer, the acceptor of a
99-16 draft payable at a bank or the maker of a note payable at a bank,
99-17 notice of any dishonor is necessary, but failure to give such
99-18 notice discharges such drawer, acceptor or maker only as stated in
99-19 Section 3.502(a)(2).>
99-20 <(c) Unless excused (Section 3.511) protest of any dishonor
99-21 is necessary to charge the drawer and indorsers of any draft which
99-22 on its face appears to be drawn or payable outside of the states,
99-23 territories, dependencies and possessions of the United States, the
99-24 District of Columbia and the Commonwealth of Puerto Rico. The
99-25 holder may at his option make protest of any dishonor of any other
99-26 instrument and in the case of a foreign draft may on insolvency of
99-27 the acceptor before maturity make protest for better security.>
100-1 <(d) Notwithstanding any provision of this section, neither
100-2 presentment nor notice of dishonor nor protest is necessary to
100-3 charge an indorser who has indorsed an instrument after maturity.>
100-4 <Sec. 3.502. ><Unexcused Delay; Discharge><. (a) Where without
100-5 excuse any necessary presentment or notice of dishonor is delayed
100-6 beyond the time when it is due>
100-7 <(1) any indorser is discharged; and>
100-8 <(2) any drawer or the acceptor of a draft payable at
100-9 a bank or the maker of a note payable at a bank who because the
100-10 drawee or payor bank becomes insolvent during the delay is deprived
100-11 of funds maintained with the drawee or payor bank to cover the
100-12 instrument may discharge his liability by written assignment to the
100-13 holder of his rights against the drawee or payor bank in respect of
100-14 such funds, but such drawer, acceptor or maker is not otherwise
100-15 discharged.>
100-16 <(b) Where without excuse a necessary protest is delayed
100-17 beyond the time when it is due any drawer or indorser is
100-18 discharged.>
100-19 <Sec. 3.503. ><Time of Presentment><. (a) Unless a different
100-20 time is expressed in the instrument the time for any presentment is
100-21 determined as follows:>
100-22 <(1) where an instrument is payable at or a fixed
100-23 period after a stated date any presentment for acceptance must be
100-24 made on or before the date it is payable;>
100-25 <(2) where an instrument is payable after sight it
100-26 must either be presented for acceptance or negotiated within a
100-27 reasonable time after date or issue whichever is later;>
101-1 <(3) where an instrument shows the date on which it is
101-2 payable presentment for payment is due on that date;>
101-3 <(4) where an instrument is accelerated presentment
101-4 for payment is due within a reasonable time after the acceleration;>
101-5 <(5) with respect to the liability of any secondary
101-6 party presentment for acceptance or payment of any other instrument
101-7 is due within a reasonable time after such party becomes liable
101-8 thereon.>
101-9 <(b) A reasonable time for presentment is determined by the
101-10 nature of the instrument, any usage of banking or trade and the
101-11 facts of the particular case. In the case of an uncertified check
101-12 which is drawn and payable within the United States and which is
101-13 not a draft drawn by a bank the following are presumed to be
101-14 reasonable periods within which to present for payment or to
101-15 initiate bank collection:>
101-16 <(1) with respect to the liability of the drawer,
101-17 thirty days after date or issue whichever is later; and>
101-18 <(2) with respect to the liability of an indorser,
101-19 seven days after his indorsement.>
101-20 <(c) Where any presentment is due on a day which is not a
101-21 full business day for either the person making presentment or the
101-22 party to pay or accept, presentment is due on the next following
101-23 day which is a full business day for both parties.>
101-24 <(d) Presentment to be sufficient must be made at a
101-25 reasonable hour, and if at a bank during its banking day.>
101-26 <Sec. 3.504. ><How Presentment Made><. (a) Presentment is a
101-27 demand for acceptance or payment made upon the maker, acceptor,
102-1 drawee or other payor by or on behalf of the holder.>
102-2 <(b) Presentment may be made>
102-3 <(1) by mail, in which event the time of presentment
102-4 is determined by the time of receipt of the mail; or>
102-5 <(2) through a clearing house; or>
102-6 <(3) at the place of acceptance or payment specified
102-7 in the instrument or if there be none at the place of business or
102-8 residence of the party to accept or pay. If neither the party to
102-9 accept or pay nor anyone authorized to act for him is present or
102-10 accessible at such place presentment is excused.>
102-11 <(c) It may be made>
102-12 <(1) to any one of two or more makers, acceptors,
102-13 drawees or other payors; or>
102-14 <(2) to any person who has authority to make or refuse
102-15 the acceptance or payment.>
102-16 <(d) A draft accepted or a note made payable at a bank in
102-17 the United States must be presented at such bank.>
102-18 <(e) In the cases described in Section 4.210 presentment may
102-19 be made in the manner and with the result stated in that section.>
102-20 <Sec. 3.505. ><Rights of Party to Whom Presentment Is Made><.
102-21 (a) The party to whom presentment is made may without dishonor
102-22 require>
102-23 <(1) exhibition of the instrument; and>
102-24 <(2) reasonable identification of the person making
102-25 presentment and evidence of his authority to make it if made for
102-26 another; and>
102-27 <(3) that the instrument be produced for acceptance or
103-1 payment at a place specified in it, or if there be none at any
103-2 place reasonable in the circumstances; and>
103-3 <(4) a signed receipt on the instrument for any
103-4 partial or full payment and its surrender upon full payment.>
103-5 <(b) Failure to comply with any such requirement invalidates
103-6 the presentment but the person presenting has a reasonable time in
103-7 which to comply and the time for acceptance or payment runs from
103-8 the time of compliance.>
103-9 <Sec. 3.506. ><Time Allowed for Acceptance or Payment><.
103-10 (a) Acceptance may be deferred without dishonor until the close of
103-11 the next business day following presentment. The holder may also
103-12 in a good faith effort to obtain acceptance and without either
103-13 dishonor of the instrument or discharge of secondary parties allow
103-14 postponement of acceptance for an additional business day.>
103-15 <(b) Except as a longer time is allowed in the case of
103-16 documentary drafts drawn under a letter of credit, and unless an
103-17 earlier time is agreed to by the party to pay, payment of an
103-18 instrument may be deferred without dishonor pending reasonable
103-19 examination to determine whether it is properly payable, but
103-20 payment must be made in any event before the close of business on
103-21 the day of presentment.>
103-22 <Sec. 3.507. ><Dishonor; Holder's Right of Recourse; Term
103-23 Allowing Re-Presentment><. (a) An instrument is dishonored when>
103-24 <(1) a necessary or optional presentment is duly made
103-25 and due acceptance or payment is refused or cannot be obtained
103-26 within the prescribed time or in case of bank collections the
103-27 instrument is seasonably returned by the midnight deadline (Section
104-1 4.301); or>
104-2 <(2) presentment is excused and the instrument is not
104-3 duly accepted or paid.>
104-4 <(b) Subject to any necessary notice of dishonor and
104-5 protest, the holder has upon dishonor an immediate right of
104-6 recourse against the drawers and indorsers.>
104-7 <(c) Return of an instrument for lack of proper indorsement
104-8 is not dishonor.>
104-9 <(d) A term in a draft or an indorsement thereof allowing a
104-10 stated time for re-presentment in the event of any dishonor of the
104-11 draft by nonacceptance if a time draft or by nonpayment if a sight
104-12 draft gives the holder as against any secondary party bound by the
104-13 term an option to waive the dishonor without affecting the
104-14 liability of the secondary party and he may present again up to the
104-15 end of the stated time.>
104-16 <Sec. 3.508. ><Notice of Dishonor><. (a) Notice of dishonor
104-17 may be given to any person who may be liable on the instrument by
104-18 or on behalf of the holder or any party who has himself received
104-19 notice, or any other party who can be compelled to pay the
104-20 instrument. In addition an agent or bank in whose hands the
104-21 instrument is dishonored may give notice to his principal or
104-22 customer or to another agent or bank from which the instrument was
104-23 received.>
104-24 <(b) Any necessary notice must be given by a bank before its
104-25 midnight deadline and by any other person before midnight of the
104-26 third business day after dishonor or receipt of notice of dishonor.>
104-27 <(c) Notice may be given in any reasonable manner. It may
105-1 be oral or written and in any terms which identify the instrument
105-2 and state that it has been dishonored. A misdescription which does
105-3 not mislead the party notified does not vitiate the notice.
105-4 Sending the instrument bearing a stamp, ticket or writing stating
105-5 that acceptance or payment has been refused or sending a notice of
105-6 debit with respect to the instrument is sufficient.>
105-7 <(d) Written notice is given when sent although it is not
105-8 received.>
105-9 <(e) Notice to one partner is notice to each although the
105-10 firm has been dissolved.>
105-11 <(f) When any party is in insolvency proceedings instituted
105-12 after the issue of the instrument notice may be given either to the
105-13 party or to the representative of his estate.>
105-14 <(g) When any party is dead or incompetent notice may be
105-15 sent to his last known address or given to his personal
105-16 representative.>
105-17 <(h) Notice operates for the benefit of all parties who have
105-18 rights on the instrument against the party notified.>
105-19 <Sec. 3.509. ><Protest; Noting for Protest><. (a) A protest is
105-20 a certificate of dishonor made under the hand and seal of a United
105-21 States consul or vice-consul or a notary public or other person
105-22 authorized to certify dishonor by the law of the place where
105-23 dishonor occurs. It may be made upon information satisfactory to
105-24 such person.>
105-25 <(b) The protest must identify the instrument and certify
105-26 either that due presentment has been made or the reason why it is
105-27 excused and that the instrument has been dishonored by
106-1 nonacceptance or nonpayment.>
106-2 <(c) The protest may also certify that notice of dishonor
106-3 has been given to all parties or to specified parties.>
106-4 <(d) Subject to Subsection (e) any necessary protest is due
106-5 by the time that notice of dishonor is due.>
106-6 <(e) If, before protest is due, an instrument has been noted
106-7 for protest by the officer to make protest, the protest may be made
106-8 at any time thereafter as of the date of the noting.>
106-9 <Sec. 3.510. ><Evidence of Dishonor and Notice of Dishonor><.
106-10 The following are admissible as evidence and create a presumption
106-11 of dishonor and of any notice of dishonor therein shown:>
106-12 <(1) a document regular in form as provided in the
106-13 preceding section which purports to be a protest;>
106-14 <(2) the purported stamp or writing of the drawee,
106-15 payor bank or presenting bank on the instrument or accompanying it
106-16 stating that acceptance or payment has been refused for reasons
106-17 consistent with dishonor;>
106-18 <(3) any book or record of the drawee, payor bank, or
106-19 any collecting bank kept in the usual course of business which
106-20 shows dishonor, even though there is no evidence of who made the
106-21 entry.>
106-22 <Sec. 3.511. ><Waived or Excused Presentment, Protest or
106-23 Notice of Dishonor or Delay Therein><. (a) Delay in presentment,
106-24 protest or notice of dishonor is excused when the party is without
106-25 notice that it is due or when the delay is caused by circumstances
106-26 beyond his control and he exercises reasonable diligence after the
106-27 cause of the delay ceases to operate.>
107-1 <(b) Presentment or notice or protest as the case may be is
107-2 entirely excused when>
107-3 <(1) the party to be charged has waived it expressly
107-4 or by implication either before or after it is due; or>
107-5 <(2) such party has himself dishonored the instrument
107-6 or has countermanded payment or otherwise has no reason to expect
107-7 or right to require that the instrument be accepted or paid; or>
107-8 <(3) by reasonable diligence the presentment or
107-9 protest cannot be made or the notice given.>
107-10 <(c) Presentment is also entirely excused when>
107-11 <(1) the maker, acceptor or drawee of any instrument
107-12 except a documentary draft is dead or in insolvency proceedings
107-13 instituted after the issue of the instrument; or>
107-14 <(2) acceptance or payment is refused but not for want
107-15 of proper presentment.>
107-16 <(d) Where a draft has been dishonored by nonacceptance a
107-17 later presentment for payment and any notice of dishonor and
107-18 protest for nonpayment are excused unless in the meantime the
107-19 instrument has been accepted.>
107-20 <(e) A waiver of protest is also a waiver of presentment and
107-21 of notice of dishonor even though protest is not required.>
107-22 <(f) Where a waiver of presentment or notice or protest is
107-23 embodied in the instrument itself it is binding upon all parties;
107-24 but where it is written above the signature of an indorser it binds
107-25 him only.>
107-26 <SUBCHAPTER F. DISCHARGE>
107-27 <Sec. 3.601. ><Discharge of Parties><. (a) The extent of the
108-1 discharge of any party from liability on an instrument is governed
108-2 by the sections on>
108-3 <(1) payment or satisfaction (Section 3.603); or>
108-4 <(2) tender of payment (Section 3.604); or>
108-5 <(3) cancellation or renunciation (Section 3.605); or>
108-6 <(4) impairment of right of recourse or of collateral
108-7 (Section 3.606); or>
108-8 <(5) reacquisition of the instrument by a prior party
108-9 (Section 3.208); or>
108-10 <(6) fraudulent and material alteration (Section
108-11 3.407); or>
108-12 <(7) certification of a check (Section 3.411); or>
108-13 <(8) acceptance varying a draft (Section 3.412); or>
108-14 <(9) unexcused delay in presentment or notice of
108-15 dishonor or protest (Section 3.502).>
108-16 <(b) Any party is also discharged from his liability on an
108-17 instrument to another party by any other act or agreement with such
108-18 party which would discharge his simple contract for the payment of
108-19 money.>
108-20 <(c) The liability of all parties is discharged when any
108-21 party who has himself no right of action or recourse on the
108-22 instrument>
108-23 <(1) reacquires the instrument in his own right; or>
108-24 <(2) is discharged under any provision of this
108-25 Chapter, except as otherwise provided with respect to discharge for
108-26 impairment of recourse or of collateral (Section 3.606).>
108-27 <Sec. 3.602. ><Effect of Discharge Against Holder in Due
109-1 Course><. No discharge of any party provided by this chapter is
109-2 effective against a subsequent holder in due course unless he has
109-3 notice thereof when he takes the instrument.>
109-4 <Sec. 3.603. ><Payment or Satisfaction><. (a) The liability of
109-5 any party is discharged to the extent of his payment or
109-6 satisfaction to the holder even though it is made with knowledge of
109-7 a claim of another person to the instrument unless prior to such
109-8 payment or satisfaction the person making the claim either supplies
109-9 indemnity deemed adequate by the party seeking the discharge or
109-10 enjoins payment or satisfaction by order of a court of competent
109-11 jurisdiction in an action in which the adverse claimant and the
109-12 holder are parties. This subsection does not, however, result in
109-13 the discharge of the liability>
109-14 <(1) of a party who in bad faith pays or satisfies a
109-15 holder who acquired the instrument by theft or who (unless having
109-16 the rights of a holder in due course) holds through one who so
109-17 acquired it; or>
109-18 <(2) of a party (other than an intermediary bank or a
109-19 payor bank which is not a depositary bank) who pays or satisfies
109-20 the holder of an instrument which has been restrictively indorsed
109-21 in a manner not consistent with the terms of such restrictive
109-22 indorsement.>
109-23 <(b) Payment or satisfaction may be made with the consent of
109-24 the holder by any person including a stranger to the instrument.
109-25 Surrender of the instrument to such a person gives him the rights
109-26 of a transferee (Section 3.201).>
109-27 <Sec. 3.604. ><Tender of Payment><. (a) Any party making
110-1 tender of full payment to a holder when or after it is due is
110-2 discharged to the extent of all subsequent liability for interest,
110-3 costs and attorney's fees.>
110-4 <(b) The holder's refusal of such tender wholly discharges
110-5 any party who has a right of recourse against the party making the
110-6 tender.>
110-7 <(c) Where the maker or acceptor of an instrument payable
110-8 otherwise than on demand is able and ready to pay at every place of
110-9 payment specified in the instrument when it is due, it is
110-10 equivalent to tender.>
110-11 <Sec. 3.605. ><Cancellation and Renunciation><. (a) The holder
110-12 of an instrument may even without consideration discharge any party>
110-13 <(1) in any manner apparent on the face of the
110-14 instrument or the indorsement, as by intentionally cancelling the
110-15 instrument or the party's signature by destruction or mutilation,
110-16 or by striking out the party's signature; or>
110-17 <(2) by renouncing his rights by a writing signed and
110-18 delivered or by surrender of the instrument to the party to be
110-19 discharged.>
110-20 <(b) Neither cancellation nor renunciation without surrender
110-21 of the instrument affects the title thereto.>
110-22 <Sec. 3.606. ><Impairment of Recourse or of Collateral><.
110-23 (a) The holder discharges any party to the instrument to the
110-24 extent that without such party's consent the holder>
110-25 <(1) without express reservation of rights releases or
110-26 agrees not to sue any person against whom the party has to the
110-27 knowledge of the holder a right of recourse or agrees to suspend
111-1 the right to enforce against such person the instrument or
111-2 collateral or otherwise discharges such person, except that failure
111-3 or delay in effecting any required presentment, protest or notice
111-4 of dishonor with respect to any such person does not discharge any
111-5 party as to whom presentment, protest or notice of dishonor is
111-6 effective or unnecessary; or>
111-7 <(2) unjustifiably impairs any collateral for the
111-8 instrument given by or on behalf of the party or any person against
111-9 whom he has a right of recourse.>
111-10 <(b) By express reservation of rights against a party with a
111-11 right of recourse the holder preserves>
111-12 <(1) all his rights against such party as of the time
111-13 when the instrument was originally due; and>
111-14 <(2) the right of the party to pay the instrument as
111-15 of that time; and>
111-16 <(3) all rights of such party to recourse against
111-17 others.>
111-18 <SUBCHAPTER G. ADVICE OF INTERNATIONAL SIGHT DRAFT>
111-19 <Sec. 3.701. ><Letter of Advice of International Sight Draft><.
111-20 (a) A "letter of advice" is a drawer's communication to the drawee
111-21 that a described draft has been drawn.>
111-22 <(b) Unless otherwise agreed when a bank receives from
111-23 another bank a letter of advice of an international sight draft the
111-24 drawee bank may immediately debit the drawer's account and stop the
111-25 running of interest pro tanto. Such a debit and any resulting
111-26 credit to any account covering outstanding drafts leaves in the
111-27 drawer full power to stop payment or otherwise dispose of the
112-1 amount and creates no trust or interest in favor of the holder.>
112-2 <(c) Unless otherwise agreed and except where a draft is
112-3 drawn under a credit issued by the drawee, the drawee of an
112-4 international sight draft owes the drawer no duty to pay an
112-5 unadvised draft but if it does so and the draft is genuine, may
112-6 appropriately debit the drawer's account.>
112-7 <SUBCHAPTER H. MISCELLANEOUS>
112-8 <Sec. 3.801. ><Drafts in a Set><. (a) Where a draft is drawn
112-9 in a set of parts, each of which is numbered and expressed to be an
112-10 order only if no other part has been honored, the whole of the
112-11 parts constitutes one draft but a taker of any part may become a
112-12 holder in due course of the draft.>
112-13 <(b) Any person who negotiates, indorses or accepts a single
112-14 part of a draft drawn in a set thereby becomes liable to any holder
112-15 in due course of that part as if it were the whole set, but as
112-16 between different holders in due course to whom different parts
112-17 have been negotiated the holder whose title first accrues has all
112-18 rights to the draft and its proceeds.>
112-19 <(c) As against the drawee the first presented part of a
112-20 draft drawn in a set is the part entitled to payment, or if a time
112-21 draft to acceptance and payment. Acceptance of any subsequently
112-22 presented part renders the drawee liable thereon under Subsection
112-23 (b). With respect both to a holder and to the drawer payment of a
112-24 subsequently presented part of a draft payable at sight has the
112-25 same effect as payment of a check notwithstanding an effective stop
112-26 order (Section 4.407).>
112-27 <(d) Except as otherwise provided in this section, where any
113-1 part of a draft in a set is discharged by payment or otherwise the
113-2 whole draft is discharged.>
113-3 <Sec. 3.802. ><Effect of Instrument on Obligation for Which It
113-4 Is Given><. (a) Unless otherwise agreed where an instrument is
113-5 taken for an underlying obligation>
113-6 <(1) the obligation is pro tanto discharged if a bank
113-7 is drawer, maker or acceptor of the instrument and there is no
113-8 recourse on the instrument against the underlying obligor; and>
113-9 <(2) in any other case the obligation is suspended pro
113-10 tanto until the instrument is due or if it is payable on demand
113-11 until its presentment. If the instrument is dishonored action may
113-12 be maintained on either the instrument or the obligation; discharge
113-13 of the underlying obligor on the instrument also discharges him on
113-14 the obligation.>
113-15 <(b) The taking in good faith of a check which is not
113-16 postdated does not of itself so extend the time on the original
113-17 obligation as to discharge a surety.>
113-18 <Sec. 3.803. ><Notice to Third Party><. Where a defendant is
113-19 sued for breach of an obligation for which a third person is
113-20 answerable over under this chapter he may give the third person
113-21 written notice of the litigation, and the person notified may then
113-22 give similar notice to any other person who is answerable over to
113-23 him under this chapter. If the notice states that the person
113-24 notified may come in and defend and that if the person notified
113-25 does not do so he will in any action against him by the person
113-26 giving the notice be bound by any determination of fact common to
113-27 the two litigations, then unless after seasonable receipt of the
114-1 notice the person notified does come in and defend he is so bound.>
114-2 <Sec. 3.804. ><Lost, Destroyed or Stolen Instruments><. The
114-3 owner of an instrument which is lost, whether by destruction, theft
114-4 or otherwise, may maintain an action in his own name and recover
114-5 from any party liable thereon upon due proof of his ownership, the
114-6 facts which prevent his production of the instrument and its terms.
114-7 The court may require security indemnifying the defendant against
114-8 loss by reason of further claims on the instrument.>
114-9 <Sec. 3.805. ><Instruments Not Payable to Order or to Bearer><.
114-10 This chapter applies to any instrument whose terms do not preclude
114-11 transfer and which is otherwise negotiable within this chapter but
114-12 which is not payable to order or to bearer, except that there can
114-13 be no holder in due course of such an instrument.>
114-14 SECTION 2. Sections 1.201(20), (24), (43), and (44),
114-15 Business & Commerce Code, are amended to read as follows:
114-16 (20) "Holder" with respect to a negotiable instrument
114-17 means the person in possession if the instrument is payable to
114-18 bearer or, in the case of an instrument payable to an identified
114-19 person, if the identified person is in possession. "Holder" with
114-20 respect to a document of title means the person in possession if
114-21 the goods are deliverable to bearer or to the order of the person
114-22 in possession <means a person who is in possession of a document of
114-23 title or an instrument or a certificated investment security drawn,
114-24 issued, or indorsed to him or to his order or to bearer or in
114-25 blank>.
114-26 (24) "Money" means a medium of exchange authorized or
114-27 adopted by a domestic or foreign government and includes a monetary
115-1 unit of account established by an intergovernmental organization or
115-2 by agreement between two or more nations <as a part of its
115-3 currency>.
115-4 (43) "Unauthorized" signature <or indorsement> means
115-5 one made without actual, implied, or apparent authority and
115-6 includes a forgery.
115-7 (44) "Value". Except as otherwise provided with
115-8 respect to negotiable instruments and bank collections (Sections
115-9 3.303, 4.210, <4.208> and 4.211 <4.209>) a person gives "value" for
115-10 rights if he acquires them:
115-11 (A) in return for a binding commitment to extend
115-12 credit or for the extension of immediately available credit whether
115-13 or not drawn upon and whether or not a charge-back is provided for
115-14 in the event of difficulties in collection; <or>
115-15 (B) as security for or in total or partial
115-16 satisfaction of a pre-existing claim; <or>
115-17 (C) by accepting delivery pursuant to a
115-18 pre-existing contract for purchase; or
115-19 (D) generally, in return for any consideration
115-20 sufficient to support a simple contract.
115-21 SECTION 3. Section 1.207, Business & Commerce Code, is
115-22 amended to read as follows:
115-23 Sec. 1.207. Performance or Acceptance Under Reservation of
115-24 Rights. (a) A party who, with explicit reservation of rights,
115-25 performs or promises performance or assents to performance in a
115-26 manner demanded or offered by the other party does not thereby
115-27 prejudice the rights reserved. Such words as "without prejudice",
116-1 "under protest", or the like are sufficient.
116-2 (b) Subsection (a) does not apply to an accord and
116-3 satisfaction.
116-4 SECTION 4. Chapter 4, Business & Commerce Code, is amended
116-5 to read as follows:
116-6 CHAPTER 4. BANK DEPOSITS AND COLLECTIONS
116-7 SUBCHAPTER A. GENERAL PROVISIONS AND DEFINITIONS
116-8 Sec. 4.101. SHORT TITLE. This chapter may be cited as
116-9 Uniform Commercial Code--Bank Deposits and Collections.
116-10 Sec. 4.102. APPLICABILITY. (a) To the extent that items
116-11 within this chapter are also within <the scope of> Chapters 3 and
116-12 8, they are subject to <the provisions of> those chapters. If
116-13 there is <In the event of> conflict, <the provisions of> this
116-14 chapter governs <govern those of> Chapter 3, but <the provisions
116-15 of> Chapter 8 governs <govern those of> this chapter.
116-16 (b) The liability of a bank for action or non-action with
116-17 respect to an <any> item handled by it for purposes of presentment,
116-18 payment, or collection is governed by the law of the place where
116-19 the bank is located. In the case of action or non-action by or at
116-20 a branch or separate office of a bank, its liability is governed by
116-21 the law of the place where the branch or separate office is
116-22 located.
116-23 Sec. 4.103. Variation by Agreement; Measure of Damages;
116-24 <Certain> Action Constituting Ordinary Care. (a) The effect of
116-25 the provisions of this chapter may be varied by agreement, but the
116-26 parties to the agreement cannot <except that no agreement can>
116-27 disclaim a bank's responsibility for its <own> lack of good faith
117-1 or failure to exercise ordinary care or <can> limit the measure of
117-2 damages for the <such> lack or failure. However,<; but> the
117-3 parties may determine by agreement <determine> the standards by
117-4 which the bank's <such> responsibility is to be measured if those
117-5 <such> standards are not manifestly unreasonable.
117-6 (b) Federal Reserve regulations and operating circulars
117-7 <letters>, clearing-house <clearing house> rules, and the like<,>
117-8 have the effect of agreements under Subsection (a), whether or not
117-9 specifically assented to by all parties interested in items
117-10 handled.
117-11 (c) Action or non-action approved by this chapter or
117-12 pursuant to Federal Reserve regulations or operating circulars is
117-13 <letters constitutes> the exercise of ordinary care and, in the
117-14 absence of special instructions, action or non-action consistent
117-15 with clearing-house <clearing house> rules and the like or with a
117-16 general banking usage not disapproved by this chapter, is prima
117-17 facie <constitutes> the exercise of ordinary care.
117-18 (d) The specification or approval of certain procedures by
117-19 this chapter is not <does not constitute> disapproval of other
117-20 procedures that <which> may be reasonable under the circumstances.
117-21 (e) The measure of damages for failure to exercise ordinary
117-22 care in handling an item is the amount of the item reduced by an
117-23 amount that <which> could not have been realized by the exercise
117-24 <use> of ordinary care. If<, and where> there is also bad faith,
117-25 it includes any other damages<, if any, suffered by> the party
117-26 suffered as a proximate consequence.
117-27 Sec. 4.104. Definitions and Index of Definitions. (a) In
118-1 this chapter, unless the context otherwise requires:
118-2 (1) "Account" means any deposit or credit account with
118-3 a bank, including a demand, time, savings, passbook, share draft,
118-4 or like account, other than an account evidenced by a certificate
118-5 of deposit. <and includes a checking, time, interest or savings
118-6 account;>
118-7 (2) "Afternoon" means the period of a day between noon
118-8 and midnight.<;>
118-9 (3) "Banking day" means the <that> part of a <any> day
118-10 on which a bank is open to the public for carrying on substantially
118-11 all of its banking functions.<;>
118-12 (4) "Clearing house" means an <any> association of
118-13 banks or other payors regularly clearing items.<;>
118-14 (5) "Customer" means a <any> person having an account
118-15 with a bank or for whom a bank has agreed to collect items,
118-16 including <and includes> a bank that maintains <carrying> an
118-17 account at <with> another bank.<;>
118-18 (6) "Documentary draft" means a draft to be presented
118-19 for acceptance or payment if specified documents, certificated
118-20 securities (Section 8.102) or instructions for uncertificated
118-21 securities (Section 8.308), or other certificates, statements, or
118-22 the like are to be received by the drawee or other payor before
118-23 acceptance or payment of the draft. <any negotiable or
118-24 non-negotiable draft with accompanying documents, securities or
118-25 other papers to be delivered against honor of the draft;>
118-26 (7) "Draft" means a draft as defined in Section 3.104
118-27 or an item, other than an instrument, that is an order.
119-1 (8) "Drawee" means a person ordered in a draft to make
119-2 payment.
119-3 (9) <(7)> "Item" means an instrument or a promise or
119-4 order to pay money handled by a bank for collection or payment.
119-5 The term does not include a payment order governed by Chapter 4A or
119-6 a credit or debit card slip. <any instrument for the payment of
119-7 money even though it is not negotiable but does not include money;>
119-8 (10) <(8)> "Midnight deadline" with respect to a bank
119-9 is midnight on its next banking day following the banking day on
119-10 which it receives the relevant item or notice or from which the
119-11 time for taking action commences to run, whichever is later.<;>
119-12 <(9) "Properly payable" includes the availability of
119-13 funds for payment at the time of decision to pay or dishonor;>
119-14 (11) <(10)> "Settle" means to pay in cash, by
119-15 clearing-house <clearing house> settlement, in a charge or credit
119-16 or by remittance, or otherwise as agreed <instructed>. A
119-17 settlement may be either provisional or final.<;>
119-18 (12) <(11)> "Suspends payments" with respect to a bank
119-19 means that it has been closed by order of the supervisory
119-20 authorities, that a public officer has been appointed to take it
119-21 over, or that it ceases or refuses to make payments in the ordinary
119-22 course of business.
119-23 (b) Other definitions applying to this chapter and the
119-24 sections in which they appear are:
119-25 "Agreement for electronic
119-26 presentment" Section 4.110.
119-27 "Bank" Section 4.105.
120-1 "Collecting bank" Section 4.105.
120-2 "Depositary bank" Section 4.105.
120-3 "Intermediary bank" Section 4.105.
120-4 "Payor bank" Section 4.105.
120-5 "Presenting bank" Section 4.105.
120-6 "Presentment notice" Section 4.110.
120-7 <"Remitting bank"> <Section 4.105.>
120-8 (c) The following definitions in other chapters apply to
120-9 this chapter:
120-10 "Acceptance" Section 3.409 <3.410>.
120-11 "Alteration" Section 3.407.
120-12 "Cashier's check" Section 3.104.
120-13 "Certificate of deposit" Section 3.104.
120-14 "Certified check" Section 3.409.
120-15 <"Certification"> <Section 3.411.>
120-16 "Check" Section 3.104.
120-17 <"Draft"> <Section 3.104.>
120-18 "Good faith" Section 3.103.
120-19 "Holder in due course" Section 3.302.
120-20 "Instrument" Section 3.104.
120-21 "Notice of dishonor" Section 3.503 <3.508>.
120-22 "Order" Section 3.103.
120-23 "Ordinary care" Section 3.103.
120-24 "Person entitled to enforce" Section 3.301.
120-25 "Presentment" Section 3.501 <3.504>.
120-26 "Promise" Section 3.103.
120-27 "Prove" Section 3.103.
121-1 "Teller's check" Section 3.104.
121-2 "Unauthorized signature" Section 3.403.
121-3 <"Protest"> <Section 3.509.>
121-4 <"Secondary party"> <Section 3.102.>
121-5 (d) In addition, Chapter 1 contains general definitions and
121-6 principles of construction and interpretation applicable throughout
121-7 this chapter.
121-8 Sec. 4.105. "BANK"; "Depositary Bank"; "Intermediary Bank";
121-9 "Collecting Bank"; "Payor Bank"; "Presenting Bank"<; "Remitting
121-10 Bank">. In this chapter <unless the context otherwise requires>:
121-11 (1) "Bank" means a person engaged in the business of
121-12 banking, including a savings bank, savings and loan association,
121-13 credit union, or trust company.
121-14 (2) "Depositary bank" means the first bank to take
121-15 <which> an item <is transferred for collection> even though it is
121-16 also the payor bank, unless the item is presented for immediate
121-17 payment over the counter.<;>
121-18 (3) <(2)> "Payor bank" means a bank that is the drawee
121-19 of a draft. <by which an item is payable as drawn or accepted;>
121-20 (4) <(3)> "Intermediary bank" means a <any> bank to
121-21 which an item is transferred in course of collection except the
121-22 depositary or payor bank.<;>
121-23 (5) <(4)> "Collecting bank" means a <any> bank
121-24 handling an <the> item for collection except the payor bank.<;>
121-25 (6) <(5)> "Presenting bank" means a <any> bank
121-26 presenting an item except a payor bank.<;>
121-27 <(6) "Remitting bank" means any payor or intermediary
122-1 bank remitting for an item.>
122-2 Sec. 4.106. PAYABLE THROUGH OR PAYABLE AT BANK; COLLECTING
122-3 BANK. (a) If an item states that it is "payable through" a bank
122-4 identified in the item, the item:
122-5 (1) designates the bank as a collecting bank and does
122-6 not by itself authorize the bank to pay the item; and
122-7 (2) may be presented for payment only by or through
122-8 the bank.
122-9 (b) If an item states that it is "payable at" a bank
122-10 identified in the item, the item is equivalent to a draft drawn on
122-11 the bank.
122-12 (c) If a draft names a nonbank drawee and it is unclear
122-13 whether a bank named in the draft is a co-drawee or a collecting
122-14 bank, the bank is a collecting bank.
122-15 Sec. 4.107 <4.106>. SEPARATE OFFICE OF A BANK. A branch or
122-16 separate office of a bank is a separate bank for the purpose of
122-17 computing the time within which and determining the place at or to
122-18 which action may be taken or notices or orders must <shall> be
122-19 given under this chapter and under Chapter 3.
122-20 Sec. 4.108 <4.107>. TIME OF RECEIPT OF ITEMS. (a) For the
122-21 purpose of allowing time to process items, prove balances, and make
122-22 the necessary entries on its books to determine its position for
122-23 the day, a bank may fix an afternoon hour of two P.M. or later as a
122-24 cutoff <cut-off> hour for the handling of money and items and the
122-25 making of entries on its books.
122-26 (b) An <Any> item or deposit of money received on any day
122-27 after a cutoff <cut-off> hour so fixed or after the close of the
123-1 banking day may be treated as being received at the opening of the
123-2 next banking day.
123-3 Sec. 4.109 <4.108>. DELAYS. (a) Unless otherwise
123-4 instructed, a collecting bank in a good faith effort to secure
123-5 payment <may, in the case> of a specific item drawn on a payor
123-6 other than a bank, <items> and with or without the approval of any
123-7 person involved, may waive, modify, or extend time limits imposed
123-8 or permitted by this title for a period not exceeding two <in
123-9 excess of an> additional banking days <day> without discharge of
123-10 drawers or indorsers or <secondary parties and without> liability
123-11 to its transferor or a <any> prior party.
123-12 (b) Delay by a collecting bank or payor bank beyond time
123-13 limits prescribed or permitted by this title or by instructions is
123-14 excused if:
123-15 (1) the delay is caused by interruption of
123-16 communication or computer facilities, suspension of payments by
123-17 another bank, war, emergency conditions, failure of equipment, or
123-18 other circumstances beyond the control of the bank; and
123-19 (2) the bank <provided it> exercises such diligence as
123-20 the circumstances require.
123-21 Sec. 4.110. ELECTRONIC PRESENTMENT. (a) "Agreement for
123-22 electronic presentment" means an agreement, clearing-house rule, or
123-23 Federal Reserve regulation or operating circular providing that
123-24 presentment of an item may be made by transmission of an image of
123-25 an item or information describing the item ("presentment notice")
123-26 rather than delivery of the item itself. The agreement may provide
123-27 for procedures governing retention, presentment, payment, dishonor,
124-1 and other matters concerning items subject to the agreement.
124-2 (b) Presentment of an item under an agreement for
124-3 presentment is made when the presentment notice is received.
124-4 (c) If presentment is made by presentment notice, a
124-5 reference to "item" or "check" in this chapter means the
124-6 presentment notice unless the context otherwise indicates.
124-7 Sec. 4.111. STATUTE OF LIMITATIONS. An action to enforce an
124-8 obligation, duty, or right arising under this chapter must be
124-9 commenced within three years after the cause of action accrues.
124-10 SUBCHAPTER B. COLLECTION OF ITEMS: DEPOSITARY AND
124-11 COLLECTING BANKS
124-12 Sec. 4.201. <PRESUMPTION AND DURATION OF AGENCY> STATUS OF
124-13 COLLECTING BANK AS AGENT <BANKS> AND PROVISIONAL STATUS OF CREDITS;
124-14 APPLICABILITY OF CHAPTER; ITEM INDORSED "PAY ANY BANK".
124-15 (a) Unless a contrary intent clearly appears and before <prior to>
124-16 the time that a settlement given by a collecting bank for an item
124-17 is or becomes final, <(Subsection (c) of Section 4.211 and Sections
124-18 4.212 and 4.213)> the bank, with respect to the item, is an agent
124-19 or sub-agent of the owner of the item and any settlement given for
124-20 the item is provisional. This provision applies regardless of the
124-21 form of indorsement or lack of indorsement and even though credit
124-22 given for the item is subject to immediate withdrawal as of right
124-23 or is in fact withdrawn; but the continuance of ownership of an
124-24 item by its owner and any rights of the owner to proceeds of the
124-25 item are subject to rights of a collecting bank, such as those
124-26 resulting from outstanding advances on the item and <valid> rights
124-27 of recoupment or setoff. If <When> an item is handled by banks for
125-1 purposes of presentment, payment, <and> collection, or return, the
125-2 relevant provisions of this chapter apply even though action of the
125-3 parties clearly establishes that a particular bank has purchased
125-4 the item and is the owner of it.
125-5 (b) After an item has been indorsed with the words "pay any
125-6 bank" or the like, only a bank may acquire the rights of a holder
125-7 until the item has been:
125-8 (1) <until the item has been> returned to the customer
125-9 initiating collection; or
125-10 (2) <until the item has been> specially indorsed by a
125-11 bank to a person who is not a bank.
125-12 Sec. 4.202. RESPONSIBILITY FOR COLLECTION OR RETURN; WHEN
125-13 ACTION TIMELY <SEASONABLE>. (a) A collecting bank must exercise
125-14 <use> ordinary care in:
125-15 (1) presenting an item or sending it for presentment;
125-16 <and>
125-17 (2) sending notice of dishonor or non-payment or
125-18 returning an item other than a documentary draft to the bank's
125-19 transferor <or directly to the depositary bank under Subsection (b)
125-20 of Section 4.212> after learning that the item has not been paid or
125-21 accepted, as the case may be; <and>
125-22 (3) settling for an item when the bank receives final
125-23 settlement; and
125-24 (4) <making or providing for any necessary protest;
125-25 and>
125-26 <(5)> notifying its transferor of any loss or delay in
125-27 transit within a reasonable time after discovery thereof.
126-1 (b) A collecting bank exercises ordinary care under
126-2 Subsection (a) by taking proper action before its midnight deadline
126-3 following receipt of an item, notice, or settlement. Taking
126-4 <payment acts seasonably; taking> proper action within a reasonably
126-5 longer time may constitute the exercise of ordinary care, <be
126-6 seasonable> but the bank has the burden of <so> establishing
126-7 timeliness.
126-8 (c) Subject to Subsection (a)(1), a bank is not liable for
126-9 the insolvency, neglect, misconduct, mistake, or default of another
126-10 bank or person or for loss or destruction of an item in the
126-11 possession of others or in transit <or in the possession of
126-12 others>.
126-13 Sec. 4.203. Effect of Instructions. Subject to <the
126-14 provisions of> Chapter 3 concerning conversion of instruments
126-15 (Section 3.420 <3.419>) and <the provisions of both Chapter 3 and
126-16 this chapter concerning> restrictive indorsements (Section 3.206),
126-17 only a collecting bank's transferor can give instructions that
126-18 <which> affect the bank or constitute notice to it, and a
126-19 collecting bank is not liable to prior parties for any action taken
126-20 pursuant to the <such> instructions or in accordance with any
126-21 agreement with its transferor.
126-22 Sec. 4.204. Methods of Sending and Presenting; Sending
126-23 DIRECTLY <Direct> to Payor Bank. (a) A collecting bank shall
126-24 <must> send items by a reasonably prompt method, taking into
126-25 consideration <any> relevant instructions, the nature of the item,
126-26 the number of those <such> items on hand, <and> the cost of
126-27 collection involved, and the method generally used by it or others
127-1 to present those <such> items.
127-2 (b) A collecting bank may send:
127-3 (1) an <any> item directly <direct> to the payor bank;
127-4 (2) an <any> item to a <any> non-bank payor if
127-5 authorized by its transferor; and
127-6 (3) an <any> item other than a documentary draft
127-7 <drafts> to a <any> non-bank payor, if authorized by Federal
127-8 Reserve regulation or operating circular <letter>, clearing-house
127-9 <clearing house> rule, or the like.
127-10 (c) Presentment may be made by a presenting bank at a place
127-11 where the payor bank or other payor has requested that presentment
127-12 be made.
127-13 Sec. 4.205. DEPOSITARY BANK HOLDER OF UNINDORSED ITEM
127-14 <Supplying Missing Indorsement; No Notice from Prior Indorsement>.
127-15 If a customer delivers an item to a depositary bank for collection,
127-16 the depositary bank:
127-17 (1) becomes a holder of the item at the time it
127-18 receives the item for collection if the customer at the time of
127-19 delivery was a holder of the item, whether or not the customer
127-20 indorses the item, and, if the bank satisfies the other
127-21 requirements of Section 3.302, the bank is a holder in due course;
127-22 and
127-23 (2) warrants to collecting banks, the payor bank or
127-24 other payor, and the drawer that the amount of the item was paid to
127-25 the customer or deposited to the customer's account. <(a) A
127-26 depositary bank which has taken an item for collection may supply
127-27 any indorsement of the customer which is necessary to title unless
128-1 the item contains the words "payee's indorsement required" or the
128-2 like. In the absence of such a requirement a statement placed on
128-3 the item by the depositary bank to the effect that the item was
128-4 deposited by a customer or credited to his account is effective as
128-5 the customer's indorsement.>
128-6 <(b) An intermediary bank, or payor bank which is not a
128-7 depositary bank, is neither given notice nor otherwise affected by
128-8 a restrictive indorsement of any person except the bank's immediate
128-9 transferor.>
128-10 Sec. 4.206. TRANSFER BETWEEN BANKS. Any agreed method that
128-11 <which> identifies the transferor bank is sufficient for the item's
128-12 further transfer to another bank.
128-13 Sec. 4.207. TRANSFER WARRANTIES. (a) A customer or
128-14 collecting bank that transfers an item and receives a settlement or
128-15 other consideration warrants to the transferee and to any
128-16 subsequent collecting bank that:
128-17 (1) the warrantor is a person entitled to enforce the
128-18 item;
128-19 (2) all signatures on the item are authentic and
128-20 authorized;
128-21 (3) the item has not been altered;
128-22 (4) the item is not subject to a defense or claim in
128-23 recoupment (Section 3.305(a)) of any party that can be asserted
128-24 against the warrantor; and
128-25 (5) the warrantor has no knowledge of any insolvency
128-26 proceeding commenced with respect to the maker or acceptor or, in
128-27 the case of an unaccepted draft, the drawer.
129-1 (b) If an item is dishonored, a customer or collecting bank
129-2 transferring the item and receiving settlement or other
129-3 consideration is obliged to pay the amount due on the item (i)
129-4 according to the terms of the item at the time it was transferred,
129-5 or (ii) if the transfer was of an incomplete item, according to its
129-6 terms when completed as stated in Sections 3.115 and 3.407. The
129-7 obligation of a transferor is owed to the transferee and to any
129-8 subsequent collecting bank that takes the item in good faith. A
129-9 transferor cannot disclaim its obligation under this subsection by
129-10 an indorsement stating that it is made "without recourse" or
129-11 otherwise disclaiming liability.
129-12 (c) A person to whom the warranties under Subsection (a) are
129-13 made and who took the item in good faith may recover from the
129-14 warrantor as damages for breach of warranty an amount equal to the
129-15 loss suffered as a result of the breach, but not more than the
129-16 amount of the item plus expenses and loss of interest incurred as a
129-17 result of the breach.
129-18 (d) The warranties stated in Subsection (a) cannot be
129-19 disclaimed with respect to checks. Unless notice of a claim for
129-20 breach of warranty is given to the warrantor within 30 days after
129-21 the claimant has reason to know of the breach and the identity of
129-22 the warrantor, the warrantor is discharged to the extent of any
129-23 loss caused by the delay in giving notice of the claim.
129-24 (e) A cause of action for breach of warranty under this
129-25 section accrues when the claimant has reason to know of the breach.
129-26 <WARRANTIES OF CUSTOMER AND COLLECTING BANK ON TRANSFER OR
129-27 PRESENTMENT OF ITEMS; TIME FOR CLAIMS. (a) Each customer or
130-1 collecting bank who obtains payment or acceptance of an item and
130-2 each prior customer and collecting bank warrants to the payor bank
130-3 or other payor who in good faith pays or accepts the item that>
130-4 <(1) he has a good title to the item or is authorized
130-5 to obtain payment or acceptance on behalf of one who has a good
130-6 title; and>
130-7 <(2) he has no knowledge that the signature of the
130-8 maker or drawer is unauthorized, except that this warranty is not
130-9 given by any customer or collecting bank that is a holder in due
130-10 course and acts in good faith>
130-11 <(A) to a maker with respect to the maker's own
130-12 signature; or>
130-13 <(B) to a drawer with respect to the drawer's
130-14 own signature, whether or not the drawer is also the drawee; or>
130-15 <(C) to an acceptor of an item if the holder in
130-16 due course took the item after the acceptance or obtained the
130-17 acceptance without knowledge that the drawer's signature was
130-18 unauthorized; and>
130-19 <(3) the item has not been materially altered, except
130-20 that this warranty is not given by any customer or collecting bank
130-21 that is a holder in due course and acts in good faith>
130-22 <(A) to the maker of a note; or>
130-23 <(B) to the drawer of a draft whether or not the
130-24 drawer is also the drawee; or>
130-25 <(C) to the acceptor of an item with respect to
130-26 an alteration made prior to the acceptance if the holder in due
130-27 course took the item after the acceptance, even though the
131-1 acceptance provided "payable as originally drawn" or equivalent
131-2 terms; or>
131-3 <(D) to the acceptor of an item with respect to
131-4 an alteration made after the acceptance.>
131-5 <(b) Each customer and collecting bank who transfers an item
131-6 and receives a settlement or other consideration for it warrants to
131-7 his transferee and to any subsequent collecting bank who takes the
131-8 item in good faith that>
131-9 <(1) he has a good title to the item or is authorized
131-10 to obtain payment or acceptance on behalf of one who has a good
131-11 title and the transfer is otherwise rightful; and>
131-12 <(2) all signatures are genuine or authorized; and>
131-13 <(3) the item has not been materially altered; and>
131-14 <(4) no defense of any party is good against him; and>
131-15 <(5) he has no knowledge of any insolvency proceeding
131-16 instituted with respect to the maker or acceptor or the drawer of
131-17 an unaccepted item.>
131-18 <In addition each customer and collecting bank so
131-19 transferring an item and receiving a settlement or other
131-20 consideration engages that upon dishonor and any necessary notice
131-21 of dishonor and protest he will take up the item.>
131-22 <(c) The warranties and the engagement to honor set forth in
131-23 the two preceding subsections arise notwithstanding the absence of
131-24 indorsement or words of guaranty or warranty in the transfer or
131-25 presentment and a collecting bank remains liable for their breach
131-26 despite remittance to its transferor. Damages for breach of such
131-27 warranties or engagement to honor shall not exceed the
132-1 consideration received by the customer or collecting bank
132-2 responsible plus finance charges and expenses related to the item,
132-3 if any.>
132-4 <(d) Unless a claim for breach of warranty under this
132-5 section is made within a reasonable time after the person claiming
132-6 learns of the breach, the person liable is discharged to the extent
132-7 of any loss caused by the delay in making claim.>
132-8 Sec. 4.208. PRESENTMENT WARRANTIES. (a) If an unaccepted
132-9 draft is presented to the drawee for payment or acceptance and the
132-10 drawee pays or accepts the draft, (i) the person obtaining payment
132-11 or acceptance, at the time of presentment, and (ii) a previous
132-12 transferor of the draft, at the time of transfer, warrant to the
132-13 drawee that pays or accepts the draft in good faith that:
132-14 (1) the warrantor is, or was, at the time the
132-15 warrantor transferred the draft, a person entitled to enforce the
132-16 draft or authorized to obtain payment or acceptance of the draft on
132-17 behalf of a person entitled to enforce the draft;
132-18 (2) the draft has not been altered; and
132-19 (3) the warrantor has no knowledge that the signature
132-20 of the purported drawer of the draft is unauthorized.
132-21 (b) A drawee making payment may recover from a warrantor
132-22 damages for breach of warranty equal to the amount paid by the
132-23 drawee less the amount the drawee received or is entitled to
132-24 receive from the drawer because of the payment. In addition, the
132-25 drawee is entitled to compensation for expenses and loss of
132-26 interest resulting from the breach. The right of the drawee to
132-27 recover damages under this subsection is not affected by any
133-1 failure of the drawee to exercise ordinary care in making payment.
133-2 If the drawee accepts the draft, breach of warranty is a defense to
133-3 the obligation of the acceptor. If the acceptor makes payment with
133-4 respect to the draft, the acceptor is entitled to recover from a
133-5 warrantor for breach of warranty the amounts stated in this
133-6 subsection.
133-7 (c) If a drawee asserts a claim for breach of warranty under
133-8 Subsection (a) based on an unauthorized indorsement of the draft or
133-9 an alteration of the draft, the warrantor may defend by proving
133-10 that the indorsement is effective under Section 3.404 or 3.405 or
133-11 the drawer is precluded under Section 3.406 or 4.406 from asserting
133-12 against the drawee the unauthorized indorsement or alteration.
133-13 (d) If (i) a dishonored draft is presented for payment to
133-14 the drawer or an indorser, or (ii) any other item is presented for
133-15 payment to a party obliged to pay the item, and the item is paid,
133-16 the person obtaining payment and a prior transferor of the item
133-17 warrant to the person making payment in good faith that the
133-18 warrantor is, or was, at the time the warrantor transferred the
133-19 item, a person entitled to enforce the item or authorized to obtain
133-20 payment on behalf of a person entitled to enforce the item. The
133-21 person making payment may recover from any warrantor for breach of
133-22 warranty an amount equal to the amount paid plus expenses and loss
133-23 of interest resulting from the breach.
133-24 (e) The warranties stated in Subsections (a) and (d) cannot
133-25 be disclaimed with respect to checks. Unless notice of a claim for
133-26 breach of warranty is given to the warrantor within 30 days after
133-27 the claimant has reason to know of the breach and the identity of
134-1 the warrantor, the warrantor is discharged to the extent of any
134-2 loss caused by the delay in giving notice of the claim.
134-3 (f) A cause of action for breach of warranty under this
134-4 section accrues when the claimant has reason to know of the breach.
134-5 Sec. 4.209. ENCODING AND RETENTION WARRANTIES. (a) A
134-6 person who encodes information on or with respect to an item after
134-7 issue warrants to any subsequent collecting bank and to the payor
134-8 bank or other payor that the information is correctly encoded. If
134-9 the customer of a depositary bank encodes, that bank also makes the
134-10 warranty.
134-11 (b) A person who undertakes to retain an item pursuant to an
134-12 agreement for electronic presentment warrants to any subsequent
134-13 collecting bank and to the payor bank or other payor that retention
134-14 and presentment of the item comply with the agreement. If a
134-15 customer of a depositary bank undertakes to retain an item, that
134-16 bank also makes this warranty.
134-17 (c) A person to whom warranties are made under this section
134-18 and who took the item in good faith may recover from the warrantor
134-19 as damages for breach of warranty an amount equal to the loss
134-20 suffered as a result of the breach, plus expenses and loss of
134-21 interest incurred as a result of the breach.
134-22 Sec. 4.210 <4.208>. SECURITY INTEREST OF COLLECTING BANK IN
134-23 ITEMS, ACCOMPANYING DOCUMENTS AND PROCEEDS. (a) A collecting bank
134-24 has a security interest in an item and any accompanying documents
134-25 or the proceeds of either:
134-26 (1) in case of an item deposited in an account, to the
134-27 extent to which credit given for the item has been withdrawn or
135-1 applied;
135-2 (2) in case of an item for which it has given credit
135-3 available for withdrawal as of right, to the extent of the credit
135-4 given, whether or not the credit is drawn upon <and whether> or
135-5 <not> there is a right of charge-back; or
135-6 (3) if it makes an advance on or against the item.
135-7 (b) If <When> credit <which has been> given for several
135-8 items received at one time or pursuant to a single agreement is
135-9 withdrawn or applied in part, the security interest remains upon
135-10 all the items, any accompanying documents, or the proceeds of
135-11 either. For the purpose of this section, credits first given are
135-12 first withdrawn.
135-13 (c) Receipt by a collecting bank of a final settlement for
135-14 an item is a realization on its security interest in the item,
135-15 accompanying documents, and proceeds. So <To the extent and so>
135-16 long as the bank does not receive final settlement for the item or
135-17 give up possession of the item or accompanying documents for
135-18 purposes other than collection, the security interest continues to
135-19 that extent and is subject to <the provisions of> Chapter 9, but:
135-20 <except that>
135-21 (1) no security agreement is necessary to make the
135-22 security interest enforceable (<Subsection (a)(2) of> Section
135-23 9.203(a)(1) <9.203>); <and>
135-24 (2) no filing is required to perfect the security
135-25 interest; and
135-26 (3) the security interest has priority over
135-27 conflicting perfected security interests in the item, accompanying
136-1 documents, or proceeds.
136-2 Sec. 4.211 <4.209>. WHEN BANK GIVES VALUE FOR PURPOSES OF
136-3 HOLDER IN DUE COURSE. For purposes of determining its status as a
136-4 holder in due course, a <the> bank has given value to the extent
136-5 <that> it has a security interest in an item, if <provided that>
136-6 the bank otherwise complies with the requirements of Section 3.302
136-7 on what constitutes a holder in due course.
136-8 Sec. 4.212 <4.210>. PRESENTMENT BY NOTICE OF ITEM NOT
136-9 PAYABLE BY, THROUGH, OR AT A BANK; LIABILITY OF DRAWER OR INDORSER
136-10 <SECONDARY PARTIES>. (a) Unless otherwise instructed, a
136-11 collecting bank may present an item not payable by, through, or at
136-12 a bank by sending to the party to accept or pay a written notice
136-13 that the bank holds the item for acceptance or payment. The notice
136-14 must be sent in time to be received on or before the day when
136-15 presentment is due, and the bank must meet any requirement of the
136-16 party to accept or pay under Section 3.501 <3.505> by the close of
136-17 the bank's next banking day after it knows of the requirement.
136-18 (b) If <Where> presentment is made by notice and payment,
136-19 acceptance, or <neither honor nor> request for compliance with a
136-20 requirement under Section 3.501 <3.505> is not received by the
136-21 close of business on the day after maturity or, in the case of
136-22 demand items, by the close of business on the third banking day
136-23 after notice was sent, the presenting bank may treat the item as
136-24 dishonored and charge any drawer or indorser <secondary party> by
136-25 sending it <him> notice of the facts.
136-26 Sec. 4.213 <4.211>. MEDIUM AND TIME OF SETTLEMENT BY BANK
136-27 <MEDIA OF REMITTANCE; PROVISIONAL AND FINAL SETTLEMENT IN
137-1 REMITTANCE CASES>. (a) With respect to settlement by a bank, the
137-2 medium and time of settlement may be prescribed by Federal Reserve
137-3 regulations or circulars, clearing-house rules, and the like or by
137-4 agreement. In the absence of such a prescription:
137-5 (1) the medium of settlement is cash or credit to an
137-6 account in a Federal Reserve bank of or specified by the person to
137-7 receive settlement; and
137-8 (2) the time of settlement is:
137-9 (A) with respect to tender of settlement by
137-10 cash, a cashier's check, or a teller's check, when the cash or
137-11 check is sent or delivered;
137-12 (B) with respect to tender of settlement by
137-13 credit to an account in a Federal Reserve bank, when the credit is
137-14 made;
137-15 (C) with respect to tender of settlement by a
137-16 credit or debit to an account in a bank, when the credit or debit
137-17 is made or, in the case of tender of settlement by authority to
137-18 charge an account, when the authority is sent or delivered; or
137-19 (D) with respect to tender of settlement by a
137-20 funds transfer, when payment is made pursuant to Section 4A.406(a)
137-21 to the person receiving settlement.
137-22 (b) If the tender of settlement is not by a medium
137-23 authorized by Subsection (a) or the time of settlement is not fixed
137-24 by Subsection (a), a settlement does not occur until the tender of
137-25 settlement is accepted by the person receiving settlement.
137-26 (c) If settlement for an item is made by cashier's check or
137-27 teller's check and the person receiving settlement, before its
138-1 midnight deadline:
138-2 (1) presents or forwards the check for collection,
138-3 settlement is final when the check is finally paid; or
138-4 (2) fails to present or forward the check for
138-5 collection, settlement is final at the midnight deadline of the
138-6 person receiving settlement.
138-7 (d) If settlement for an item is made by giving authority to
138-8 charge the account of the bank giving settlement in the bank
138-9 receiving settlement, settlement is final when the charge is made
138-10 by the bank receiving settlement if there are funds available in
138-11 the account for the amount of the item. <A collecting bank may
138-12 take in settlement of an item>
138-13 <(1) a check of the remitting bank or of another bank
138-14 on any bank except the remitting bank; or>
138-15 <(2) a cashier's check or similar primary obligation
138-16 of a remitting bank which is a member of or clears through a member
138-17 of the same clearing house or group as the collecting bank; or>
138-18 <(3) appropriate authority to charge an account of the
138-19 remitting bank or of another bank with the collecting bank; or>
138-20 <(4) if the item is drawn upon or payable by a person
138-21 other than a bank, a cashier's check, certified check or other bank
138-22 check or obligation.>
138-23 <(b) If before its midnight deadline the collecting bank
138-24 properly dishonors a remittance check or authorization to charge on
138-25 itself or presents or forwards for collection a remittance
138-26 instrument of or on another bank which is of a kind approved by
138-27 Subsection (a) or has not been authorized by it, the collecting
139-1 bank is not liable to prior parties in the event of the dishonor of
139-2 such check, instrument or authorization.>
139-3 <(c) A settlement for an item by means of a remittance
139-4 instrument or authorization to charge is or becomes a final
139-5 settlement as to both the person making and the person receiving
139-6 the settlement>
139-7 <(1) if the remittance instrument or authorization to
139-8 charge is of a kind approved by Subsection (a) or has not been
139-9 authorized by the person receiving the settlement and in either
139-10 case the person receiving the settlement acts seasonably before its
139-11 midnight deadline in presenting, forwarding for collection or
139-12 paying the instrument or authorization,--at the time the remittance
139-13 instrument or authorization is finally paid by the payor by which
139-14 it is payable;>
139-15 <(2) if the person receiving the settlement has
139-16 authorized remittance by a non-bank check or obligation or by a
139-17 cashier's check or similar primary obligation of or a check upon
139-18 the payor or other remitting bank which is not of a kind approved
139-19 by Subsection (a)(2);--at the time of the receipt of such
139-20 remittance check or obligation; or>
139-21 <(3) if in a case not covered by Subdivision (1) or
139-22 (2) the person receiving the settlement fails to seasonably
139-23 present, forward for collection, pay or return a remittance
139-24 instrument or authorization to it to charge before its midnight
139-25 deadline,--at such midnight deadline.>
139-26 Sec. 4.214 <4.212>. RIGHT OF CHARGE-BACK OR REFUND;
139-27 LIABILITY OF COLLECTING BANK; RETURN OF ITEM. (a) If a collecting
140-1 bank has made provisional settlement with its customer for an item
140-2 and <itself> fails by reason of dishonor, suspension of payments by
140-3 a bank, or otherwise to receive <a> settlement for the item that
140-4 <which> is or becomes final, the bank may revoke the settlement
140-5 given by it, charge back the amount of any credit given for the
140-6 item to its customer's account, or obtain refund from its customer,
140-7 whether or not it is able to return the item, <items> if by its
140-8 midnight deadline or within a longer reasonable time after it
140-9 learns the facts it returns the item or sends notification of the
140-10 facts. If the return or notice is delayed beyond the bank's
140-11 midnight deadline or a longer reasonable time after it learns the
140-12 facts, the bank may revoke the settlement, charge back the credit,
140-13 or obtain refund from its customers, but it is liable for any loss
140-14 resulting from the delay. These rights to revoke, charge-back, and
140-15 obtain refund terminate if and when a settlement for the item
140-16 received by the bank is or becomes final <(Subsection (c) of
140-17 Section 4.211 and Subsections (b) and (c) of Section 4.213)>.
140-18 (b) A collecting bank returns an item when it is sent or
140-19 delivered to the bank's customer or transferor or pursuant to its
140-20 instructions. <Within the time and manner prescribed by this
140-21 section and Section 4.301, an intermediary or payor bank, as the
140-22 case may be, may return an unpaid item directly to the depositary
140-23 bank and may send for collection a draft on the depositary bank and
140-24 obtain reimbursement. In such case, if the depositary bank has
140-25 received provisional settlement for the item, it must reimburse the
140-26 bank drawing the draft and any provisional credits for the item
140-27 between banks shall become and remain final.>
141-1 (c) A depositary bank that <which> is also the payor may
141-2 charge-back the amount of an item to its customer's account or
141-3 obtain refund in accordance with the section governing return of an
141-4 item received by a payor bank for credit on its books (Section
141-5 4.301).
141-6 (d) The right to charge-back is not affected by:
141-7 (1) previous <prior> use of a <the> credit given for
141-8 the item; or
141-9 (2) failure by any bank to exercise ordinary care with
141-10 respect to the item, but a <any> bank so failing remains liable.
141-11 (e) A failure to charge-back or claim refund does not affect
141-12 other rights of the bank against the customer or any other party.
141-13 (f) If credit is given in dollars as the equivalent of the
141-14 value of an item payable in <a> foreign money, <currency> the
141-15 dollar amount of any charge-back or refund must <shall> be
141-16 calculated on the basis of the bank-offered spot <buying sight>
141-17 rate for the foreign money <currency> prevailing on the day when
141-18 the person entitled to the charge-back or refund learns that it
141-19 will not receive payment in ordinary course.
141-20 Sec. 4.215 <4.213>. FINAL PAYMENT OF ITEM BY PAYOR BANK;
141-21 WHEN PROVISIONAL DEBITS AND CREDITS BECOME FINAL; WHEN CERTAIN
141-22 CREDITS BECOME AVAILABLE FOR WITHDRAWAL. (a) An item is finally
141-23 paid by a payor bank when the bank has first done any of the
141-24 following<, whichever happens first>:
141-25 (1) paid the item in cash; <or>
141-26 (2) settled for the item without having <reserving> a
141-27 right to revoke the settlement <and without having such right>
142-1 under statute, clearing-house <clearing house> rule, or agreement;
142-2 or
142-3 (3) made a provisional settlement for the item and
142-4 failed to revoke the settlement in the time and manner permitted by
142-5 statute, clearing-house <clearing house> rule, or agreement.
142-6 <Upon a final payment under Subdivisions (2) or (3), the
142-7 payor bank shall be accountable for the amount of the item.>
142-8 (b) If provisional settlement for an item does not become
142-9 final, the item is not finally paid.
142-10 (c) If provisional settlement for an item between the
142-11 presenting and payor banks is made through a clearing house or by
142-12 debits or credits in an account between them, then to the extent
142-13 that provisional debits or credits for the item are entered in
142-14 accounts between the presenting and payor banks or between the
142-15 presenting and successive prior collecting banks seriatim, they
142-16 become final upon final payment of the item by the payor bank.
142-17 (d) <(c)> If a collecting bank receives a settlement for an
142-18 item that <which> is or becomes final, <(Subsection (c) of Section
142-19 4.211, Subsection (b) of Section 4.213)> the bank is accountable to
142-20 its customer for the amount of the item, and any provisional credit
142-21 given for the item in an account with its customer becomes final.
142-22 (e) <(d)> Subject to (i) applicable law stating a time for
142-23 availability of funds, and (ii) any right of the bank to apply the
142-24 credit to an obligation of the customer, credit given by a bank for
142-25 an item in a customer's account <an account with its customer>
142-26 becomes available for withdrawal as of right if the bank:
142-27 (1) <in any case where the bank> has received a
143-1 provisional settlement for the item,--when the <such> settlement
143-2 becomes final and the bank has had a reasonable time to receive
143-3 return of the item and the item has not been received within that
143-4 time <learn that the settlement is final>; or
143-5 (2) <in any case where the bank> is both the <a>
143-6 depositary bank and the <a> payor bank, and the item is finally
143-7 paid,--at the opening of the bank's second banking day following
143-8 receipt of the item.
143-9 (f) Subject to applicable law stating a time for
143-10 availability of funds and <(e) A deposit of money in a bank is
143-11 final when made but, subject to> any right of a <the> bank to apply
143-12 a <the> deposit to an obligation of the depositor <customer>, a
143-13 <the> deposit of money becomes available for withdrawal as of right
143-14 at the opening of the bank's next banking day after <following>
143-15 receipt of the deposit.
143-16 Sec. 4.216 <4.214>. INSOLVENCY AND PREFERENCE. (a) If an
143-17 <Any> item is in or comes <coming> into the possession of a payor
143-18 or collecting bank that <which> suspends payment and the <which>
143-19 item has <is> not been finally paid, the item must <shall> be
143-20 returned by the receiver, trustee, or agent in charge of the closed
143-21 bank to the presenting bank or the closed bank's customer.
143-22 (b) If a payor bank finally pays an item and suspends
143-23 payments without making a settlement for the item with its customer
143-24 or the presenting bank, which settlement is or becomes final, the
143-25 owner of the item has a preferred claim against the payor bank.
143-26 (c) If a payor bank gives or a collecting bank gives or
143-27 receives a provisional settlement for an item and thereafter
144-1 suspends payments, the suspension does not prevent or interfere
144-2 with the settlement's <settlement> becoming final if the <such>
144-3 finality occurs automatically upon the lapse of certain time or the
144-4 happening of certain events <(Subsection (c) of Section 4.211,
144-5 Subsections (a)(4), (b) and (c) of Section 4.213)>.
144-6 (d) If a collecting bank receives from subsequent parties
144-7 settlement for an item, which settlement is or becomes final, and
144-8 the bank suspends payments without making a settlement for the item
144-9 with its customer, which settlement is or becomes final, the owner
144-10 of the item has a preferred claim against the <such> collecting
144-11 bank.
144-12 SUBCHAPTER C. COLLECTION OF ITEMS: PAYOR BANKS
144-13 Sec. 4.301. DEFERRED POSTING; RECOVERY OF PAYMENT BY RETURN
144-14 OF ITEMS; TIME OF DISHONOR; RETURN OF ITEMS BY PAYOR BANK. (a) If
144-15 a payor bank settles <Where an authorized settlement> for a demand
144-16 item <(>other than a documentary draft presented<) received by a
144-17 payor bank> otherwise than for immediate payment over the counter
144-18 <has been made> before midnight of the banking day of receipt, the
144-19 payor bank may revoke the settlement and recover the settlement
144-20 <any payment> if, before it has made final payment <(Subsection (a)
144-21 of Section 4.213)> and before its midnight deadline, it:
144-22 (1) returns the item; or
144-23 (2) sends written notice of dishonor or nonpayment if
144-24 the item is <held for protest or is otherwise> unavailable for
144-25 return.
144-26 (b) If a demand item is received by a payor bank for credit
144-27 on its books, it may return the <such> item or send notice of
145-1 dishonor and may revoke any credit given or recover the amount
145-2 thereof withdrawn by its customer, if it acts within the time limit
145-3 and in the manner specified in Subsection (a) <the preceding
145-4 subsection>.
145-5 (c) Unless previous notice of dishonor has been sent, an
145-6 item is dishonored at the time when for purposes of dishonor it is
145-7 returned or notice sent in accordance with this section.
145-8 (d) An item is returned:
145-9 (1) as to an item presented <received> through a
145-10 clearing house, when it is delivered to the presenting or last
145-11 collecting bank or to the clearing house or is sent or delivered in
145-12 accordance with clearing-house <its> rules; or
145-13 (2) in all other cases, when it is sent or delivered
145-14 to the bank's customer or transferor or pursuant to <his>
145-15 instructions.
145-16 Sec. 4.302. PAYOR BANK'S RESPONSIBILITY FOR LATE RETURN OF
145-17 ITEM. (a) If <In the absence of a valid defense such as breach of
145-18 a presentment warranty (Subsection (a) of Section 4.207),
145-19 settlement effected or the like, if> an item is presented to <on>
145-20 and received by a payor bank, the bank is accountable for the
145-21 amount of:
145-22 (1) a demand item, other than a documentary draft,
145-23 whether properly payable or not, if the bank, in any case in which
145-24 <where> it is not also the depositary bank, retains the item beyond
145-25 midnight of the banking day of receipt without settling for it or,
145-26 <regardless of> whether or not it is also the depositary bank, does
145-27 not pay or return the item or send notice of dishonor until after
146-1 its midnight deadline; or
146-2 (2) any other properly payable item unless, within the
146-3 time allowed for acceptance or payment of that item, the bank
146-4 either accepts or pays the item or returns it and accompanying
146-5 documents.
146-6 (b) The liability of a payor bank to pay an item pursuant to
146-7 Subsection (a) is subject to defenses based on breach of a
146-8 presentment warranty (Section 4.208) or proof that the person
146-9 seeking enforcement of the liability presented or transferred the
146-10 item for the purpose of defrauding the payor bank.
146-11 Sec. 4.303. WHEN ITEMS SUBJECT TO NOTICE, STOP-PAYMENT ORDER
146-12 <STOP-ORDER>, LEGAL PROCESS, OR SETOFF; ORDER IN WHICH ITEMS MAY BE
146-13 CHARGED OR CERTIFIED. (a) Any knowledge, notice, or stop-payment
146-14 order <stop-order> received by, legal process served upon, or
146-15 setoff exercised by a payor bank comes too late<, whether or not
146-16 effective under other rules of law> to terminate, suspend, or
146-17 modify the bank's right or duty to pay an item or to charge its
146-18 customer's account for the item<, comes too late to so terminate,
146-19 suspend or modify such right or duty> if the knowledge, notice,
146-20 stop-payment order, <stop-order> or legal process is received or
146-21 served and <the bank does not have> a reasonable time for the bank
146-22 to act thereon expires <before,> or the setoff is exercised
146-23 after<,> the earliest <happening> of <any of> the following:
146-24 (1) the bank accepts or certifies <has accepted or
146-25 certified> the item;
146-26 (2) the bank pays <has paid> the item in cash;
146-27 (3) the bank settles <has settled> for the item
147-1 without having <reserving> a right to revoke the settlement <and
147-2 without having such right> under statute, clearing-house <clearing
147-3 house> rule, or agreement; <or>
147-4 (4) the bank becomes <has become> accountable for the
147-5 amount of the item under <Subsection (a)(3) of Section 4.213 and>
147-6 Section 4.302 dealing with the payor bank's responsibility for late
147-7 return of items; or
147-8 (5) with respect to checks, a cutoff hour not earlier
147-9 than one hour after the opening of the next banking day after the
147-10 banking day on which the bank received the check and not later than
147-11 the close of that next banking day or, if no cutoff hour is fixed,
147-12 the close of the next banking day after the banking day on which
147-13 the bank received the check.
147-14 (b) Subject to <the provisions of> Subsection (a), items may
147-15 be accepted, paid, certified, or charged to the indicated account
147-16 of a bank's <its> customer in any order <convenient to the bank>
147-17 and before or after the bank's <its> regular banking hours. A bank
147-18 is under no obligation to determine the time of day an item is
147-19 received and without liability may withhold the amount thereof
147-20 pending a determination of the effect, consequence or priority of
147-21 any knowledge, notice, stop-payment order, <stop-order> or legal
147-22 process concerning the same, or interplead such amount and the
147-23 claimants thereto.
147-24 SUBCHAPTER D. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER
147-25 Sec. 4.401. WHEN BANK MAY CHARGE CUSTOMER'S ACCOUNT. (a) A
147-26 <As against its customer, a> bank may charge against the <his>
147-27 account of a customer an <any> item that <which> is <otherwise>
148-1 properly payable from that account even though the charge creates
148-2 an overdraft. An item is properly payable if it is authorized by
148-3 the customer and is in accordance with any agreement between the
148-4 customer and the bank.
148-5 (b) A customer is not liable for the amount of an overdraft
148-6 if the customer neither signed the item nor benefited from the
148-7 proceeds of the item.
148-8 (c) A bank may charge against the account of a customer a
148-9 check that is otherwise properly payable from the account, even
148-10 though payment was made before the date of the check, unless the
148-11 customer has given notice to the bank of the postdating describing
148-12 the check with reasonable certainty. The notice is effective for
148-13 the period stated in Section 4.403(b) for stop-payment orders and
148-14 must be received at such time and in such manner as to afford the
148-15 bank a reasonable opportunity to act on it before the bank takes
148-16 any action with respect to the check described in Section 4.303.
148-17 If a bank charges against the account of a customer a check before
148-18 the date stated in the notice of postdating, the bank is liable for
148-19 damages for the loss resulting from its act. The loss may include
148-20 damages for dishonor of subsequent items under Section 4.402.
148-21 (d) A bank that <which> in good faith makes payment to a
148-22 holder may charge the indicated account of its customer according
148-23 to:
148-24 (1) the original terms <tenor> of the <his> altered
148-25 item; or
148-26 (2) the terms <tenor> of the <his> completed item,
148-27 even though the bank knows the item has been completed, unless the
149-1 bank has notice that the completion was improper.
149-2 Sec. 4.402. BANK'S LIABILITY TO CUSTOMER FOR WRONGFUL
149-3 DISHONOR; TIME OF DETERMINING INSUFFICIENCY OF ACCOUNT.
149-4 (a) Except as otherwise provided by this chapter, a payor bank
149-5 wrongfully dishonors an item if it dishonors an item that is
149-6 properly payable, but a bank may dishonor an item that would create
149-7 an overdraft unless it has agreed to pay the overdraft.
149-8 (b) A payor bank is liable to its customer for damages
149-9 proximately caused by the wrongful dishonor of an item. Liability
149-10 <When the dishonor occurs through mistake liability> is limited to
149-11 actual damages proved and<. If so proximately caused and proved
149-12 damages> may include damages for an arrest or prosecution of the
149-13 customer or other consequential damages. Whether any consequential
149-14 damages are proximately caused by the wrongful dishonor is a
149-15 question of fact to be determined in each case.
149-16 (c) A payor bank's determination of the customer's account
149-17 balance on which a decision to dishonor for insufficiency of
149-18 available funds is based may be made at any time between the time
149-19 the item is received by the payor bank and the time that the payor
149-20 bank returns the item or gives notice in lieu of return, and no
149-21 more than one determination need be made. If, at the election of
149-22 the payor bank, a subsequent balance determination is made for the
149-23 purpose of reevaluating the bank's decision to dishonor the item,
149-24 the account balance at that time is determinative of whether a
149-25 dishonor for insufficiency of available funds is wrongful.
149-26 Sec. 4.403. CUSTOMER'S RIGHT TO STOP PAYMENT; BURDEN OF
149-27 PROOF OF LOSS. (a) A customer or any person authorized to draw on
150-1 the account if there is more than one person may stop payment of
150-2 any item drawn on the customer's account or close the account by an
150-3 order to the bank describing the item or account with reasonable
150-4 certainty <may by order to his bank stop payment of any item
150-5 payable for his account but the order must be> received at a <such>
150-6 time and in a <such> manner that affords <as to afford> the bank a
150-7 reasonable opportunity to act on it before <prior to> any action by
150-8 the bank with respect to the item described in Section 4.303. If
150-9 the signature of more than one person is required to draw on an
150-10 account, any of those persons may stop payment or close the
150-11 account.
150-12 (b) A stop-payment order is effective for six months and is
150-13 binding on the bank only if it is in writing, dated, and signed and
150-14 describes the item with certainty. A stop-payment order may be
150-15 renewed for additional six-month periods by a writing given to the
150-16 bank within a period during which the stop-payment order is
150-17 effective. <An order is binding upon the bank only if it is in
150-18 writing, dated, signed, and describes the item with certainty. An
150-19 order is effective for only six months unless renewed in writing.>
150-20 (c) The burden of establishing the fact and amount of loss
150-21 resulting from the payment of an item contrary to a stop-payment
150-22 <binding stop payment> order or order to close an account is on the
150-23 customer. The loss from payment of an item contrary to a
150-24 stop-payment order may include damages for dishonor of subsequent
150-25 items under Section 4.402.
150-26 Sec. 4.404. BANK NOT OBLIGATED TO PAY CHECK MORE THAN SIX
150-27 MONTHS OLD. A bank is under no obligation to a customer having a
151-1 checking account to pay a check, other than a certified check, that
151-2 <which> is presented more than six months after its date, but it
151-3 may charge its customer's account for a payment made thereafter in
151-4 good faith.
151-5 Sec. 4.405. DEATH OR INCOMPETENCE OF CUSTOMER. (a) A payor
151-6 or collecting bank's authority to accept, pay, or collect an item
151-7 or to account for proceeds of its collection, if otherwise
151-8 effective, is not rendered ineffective by the incompetence of a
151-9 customer of either bank existing at the time the item is issued or
151-10 its collection is undertaken if the bank does not know of an
151-11 adjudication of incompetence. Neither death nor incompetence of a
151-12 customer revokes the <such> authority to accept, pay, collect, or
151-13 account until the bank knows of the fact of death or of an
151-14 adjudication of incompetence and has reasonable opportunity to act
151-15 on it.
151-16 (b) Even with knowledge, a bank may for 10 days after the
151-17 date of death pay or certify checks drawn on or before <prior to>
151-18 that date unless ordered to stop payment by a person claiming an
151-19 interest in the account.
151-20 Sec. 4.406. CUSTOMER'S DUTY TO DISCOVER AND REPORT
151-21 UNAUTHORIZED SIGNATURE OR ALTERATION. (a) A bank that sends or
151-22 makes available to a customer a statement of account showing
151-23 payment of items for the account shall either return or make
151-24 available to the customer the items paid or provide information in
151-25 the statement of account sufficient to allow the customer
151-26 reasonably to identify the items paid. The statement of account
151-27 provides sufficient information if the item is described by item
152-1 number, amount, and date of payment. If the bank does not return
152-2 the items, it shall provide in the statement of account the
152-3 telephone number that the customer may call to request an item or a
152-4 legible copy of the items pursuant to Subsection (b).
152-5 (b) If the items are not returned to the customer, the
152-6 person retaining the items shall either retain the items or, if the
152-7 items are destroyed, maintain the capacity to furnish legible
152-8 copies of the items until the expiration of seven years after
152-9 receipt of the items. A customer may request an item from the bank
152-10 that paid the item, and that bank must provide in a reasonable time
152-11 either the item or, if the item has been destroyed or is not
152-12 otherwise obtainable, a legible copy of the item. A bank shall
152-13 provide, on request and without charge to the customer, at least
152-14 two items or a legible copy of the items with respect to each
152-15 statement of account sent to the customer.
152-16 (c) If a bank sends or makes available a statement of
152-17 account or items pursuant to Subsection (a), the customer must
152-18 exercise reasonable promptness in examining the statement or the
152-19 items to determine whether any payment was not authorized because
152-20 of an alteration of an item or because a purported signature by or
152-21 on behalf of the customer was not authorized. If, based on the
152-22 statement or items provided, the customer should reasonably have
152-23 discovered the unauthorized payment, the customer must promptly
152-24 notify the bank of the relevant facts. <When a bank sends to its
152-25 customer a statement of account accompanied by items paid in good
152-26 faith in support of the debit entries or holds the statement and
152-27 items pursuant to a request or instructions of its customer or
153-1 otherwise in a reasonable manner makes the statement and items
153-2 available to the customer, the customer must exercise reasonable
153-3 care and promptness to examine the statement and items to discover
153-4 his unauthorized signature or any alteration on an item and must
153-5 notify the bank promptly after discovery thereof.>
153-6 (d) <(b)> If the bank proves <establishes> that the customer
153-7 failed, with respect to an item, to comply with the duties imposed
153-8 on the customer by Subsection (c), <(a)> the customer is precluded
153-9 from asserting against the bank:
153-10 (1) the customer's <his> unauthorized signature or any
153-11 alteration on the item, if the bank also proves <establishes> that
153-12 it suffered a loss by reason of the <such> failure; and
153-13 (2) the customer's <an> unauthorized signature or
153-14 alteration by the same wrongdoer on any other item paid in good
153-15 faith by the bank if the payment was made before the bank received
153-16 notice from the customer of the unauthorized signature or
153-17 alteration and after the customer had been afforded a reasonable
153-18 period of time, not exceeding 30 days, in which to examine the item
153-19 or statement of account and notify the bank. <after the first item
153-20 and statement was available to the customer for a reasonable period
153-21 not exceeding fourteen calendar days and before the bank receives
153-22 notification from the customer of any such unauthorized signature
153-23 or alteration.>
153-24 <(c) The preclusion under Subsection (b) does not apply if
153-25 the customer establishes lack of ordinary care on the part of the
153-26 bank in paying the item(s).>
153-27 (e) If Subsection (d) applies and the customer proves that
154-1 the bank failed to exercise ordinary care in paying the item and
154-2 that the failure contributed to loss, the loss is allocated between
154-3 the customer precluded and the bank asserting the preclusion
154-4 according to the extent to which the failure of the customer to
154-5 comply with Subsection (c) and the failure of the bank to exercise
154-6 ordinary care contributed to the loss. If the customer proves that
154-7 the bank did not pay the item in good faith, the preclusion under
154-8 Subsection (d) does not apply.
154-9 (f) <(d)> Without regard to care or lack of care of either
154-10 the customer or the bank, a customer who does not within one year
154-11 after <from the time> the statement or <and> items are made
154-12 available to the customer (Subsection (a)) discover and report the
154-13 customer's <his> unauthorized signature on or any alteration on the
154-14 <face or back of the> item <or does not within three years from
154-15 that time discover and report any unauthorized indorsement> is
154-16 precluded from asserting against the bank the <such> unauthorized
154-17 signature <or indorsement> or <such> alteration. If there is a
154-18 preclusion under this subsection, the payor bank may not recover
154-19 for breach of warranty under Section 4.208 with respect to the
154-20 unauthorized signature or alteration to which the preclusion
154-21 applies.
154-22 <(e) If under this section a payor bank has a valid defense
154-23 against a claim of a customer upon or resulting from payment of an
154-24 item and waives or fails upon request to assert the defense the
154-25 bank may not assert against any collecting bank or other prior
154-26 party presenting or transferring the item a claim based upon the
154-27 unauthorized signature or alteration giving rise to the customer's
155-1 claim.>
155-2 Sec. 4.407. PAYOR BANK'S RIGHT TO SUBROGATION ON IMPROPER
155-3 PAYMENT. If a payor bank has paid an item over the <stop payment>
155-4 order of the drawer or maker to stop payment, or after an account
155-5 has been closed, or otherwise under circumstances giving a basis
155-6 for objection by the drawer or maker, to prevent unjust enrichment
155-7 and only to the extent necessary to prevent loss to the bank by
155-8 reason of its payment of the item, the payor bank is <shall be>
155-9 subrogated to the rights:
155-10 (1) of any holder in due course on the item against
155-11 the drawer or maker; <and>
155-12 (2) of the payee or any other holder of the item
155-13 against the drawer or maker either on the item or under the
155-14 transaction out of which the item arose; and
155-15 (3) of the drawer or maker against the payee or any
155-16 other holder of the item with respect to the transaction out of
155-17 which the item arose.
155-18 SUBCHAPTER E. COLLECTION OF DOCUMENTARY DRAFTS
155-19 Sec. 4.501. HANDLING OF DOCUMENTARY DRAFTS; DUTY TO SEND FOR
155-20 PRESENTMENT AND TO NOTIFY CUSTOMER OF DISHONOR. A bank that
155-21 <which> takes a documentary draft for collection shall <must>
155-22 present or send the draft and accompanying documents for
155-23 presentment and, upon learning that the draft has not been paid or
155-24 accepted in due course, shall <must> seasonably notify its customer
155-25 of the <such> fact even though it may have discounted or bought the
155-26 draft or extended credit available for withdrawal as of right.
155-27 Sec. 4.502. PRESENTMENT OF "ON ARRIVAL" DRAFTS. If <When> a
156-1 draft or the relevant instructions require presentment "on
156-2 arrival", "when goods arrive", or the like, the collecting bank
156-3 need not present until in its judgment a reasonable time for
156-4 arrival of the goods has expired. Refusal to pay or accept because
156-5 the goods have not arrived is not dishonor; the bank must notify
156-6 its transferor of the <such> refusal but need not present the draft
156-7 again until it is instructed to do so or learns of the arrival of
156-8 the goods.
156-9 Sec. 4.503. RESPONSIBILITY OF PRESENTING BANK FOR DOCUMENTS
156-10 AND GOODS; REPORT OF REASONS FOR DISHONOR; REFEREE IN CASE OF NEED.
156-11 Unless otherwise instructed and except as provided in Chapter 5, a
156-12 bank presenting a documentary draft:
156-13 (1) must deliver the documents to the drawee on
156-14 acceptance of the draft if it is payable more than three days after
156-15 presentment; otherwise, only on payment; and
156-16 (2) upon dishonor, either in the case of presentment
156-17 for acceptance or presentment for payment, may seek and follow
156-18 instructions from any referee in case of need designated in the
156-19 draft or, if the presenting bank does not choose to utilize the
156-20 referee's <his> services, it must use diligence and good faith to
156-21 ascertain the reason for dishonor, must notify its transferor of
156-22 the dishonor and of the results of its effort to ascertain the
156-23 reasons therefor, and must request instructions.
156-24 However, <But> the presenting bank is under no obligation
156-25 with respect to goods represented by the documents except to follow
156-26 any reasonable instructions seasonably received; it has a right to
156-27 reimbursement for any expense incurred in following instructions
157-1 and to prepayment of or indemnity for those <such> expenses.
157-2 Sec. 4.504. PRIVILEGE OF PRESENTING BANK TO DEAL WITH GOODS;
157-3 SECURITY INTEREST FOR EXPENSES. (a) A presenting bank that
157-4 <which>, following the dishonor of a documentary draft, has
157-5 seasonably requested instructions but does not receive them within
157-6 a reasonable time may store, sell, or otherwise deal with the goods
157-7 in any reasonable manner.
157-8 (b) For its reasonable expenses incurred by action under
157-9 Subsection (a) the presenting bank has a lien upon the goods or
157-10 their proceeds, which may be foreclosed in the same manner as an
157-11 unpaid seller's lien.
157-12 SECTION 5. Section 5.103(c), Business & Commerce Code, is
157-13 amended to read as follows:
157-14 (c) Definitions in other chapters applying to this chapter
157-15 and the sections in which they appear are:
157-16 "Accept" or "Acceptance". Section 3.409 <3.410>.
157-17 "Contract for sale". Section 2.106.
157-18 "Draft". Section 3.104.
157-19 "Holder in due course". Section 3.302.
157-20 "Midnight deadline". Section 4.104.
157-21 "Security". Section 8.102.
157-22 SECTION 6. Section 9.203(a), Business & Commerce Code, is
157-23 amended to read as follows:
157-24 (a) Subject to the provisions of Section 4.210 <4.208> on
157-25 the security interest of a collecting bank, Section 8.321 on
157-26 security interests in securities, and Section 9.113 on a security
157-27 interest arising under the chapter on Sales, a security interest is
158-1 not enforceable against the debtor or third parties with respect to
158-2 the collateral and does not attach unless:
158-3 (1) the collateral is in the possession of the secured
158-4 party pursuant to agreement or the debtor has signed a security
158-5 agreement which contains a description of the collateral and in
158-6 addition, when the security interest covers crops growing or to be
158-7 grown or timber to be cut, a description of the land concerned;
158-8 (2) value has been given; and
158-9 (3) the debtor has rights in the collateral.
158-10 SECTION 7. Section 9.302(a), Business & Commerce Code, is
158-11 amended to read as follows:
158-12 (a) A financing statement must be filed to perfect all
158-13 security interests except the following:
158-14 (1) a security interest in collateral in possession of
158-15 the secured party under Section 9.305;
158-16 (2) a security interest temporarily perfected in
158-17 instruments or documents without delivery under Section 9.304 or in
158-18 proceeds for a 10 day period under Section 9.306;
158-19 (3) a security interest created by an assignment of a
158-20 beneficial interest in a trust or a decedent's estate;
158-21 (4) a purchase money security interest in consumer
158-22 goods; but notation on a certificate of title is required for goods
158-23 covered by a statute referred to in Subsection (c)(2); and fixture
158-24 filing is required for priority over conflicting interests in
158-25 fixtures to the extent provided in Section 9.313;
158-26 (5) an assignment of accounts which does not alone or
158-27 in conjunction with other assignments to the same assignee transfer
159-1 a significant part of the outstanding accounts of the assignor;
159-2 (6) a security interest of a collecting bank (Section
159-3 4.210 <4.208>), a security interest in securities (Section 8.321),
159-4 a security interest arising under the Chapter on Sales (see Section
159-5 9.113), or a security interest covered in Subsection (c) of this
159-6 Section; <or>
159-7 (7) an assignment for the benefit of all the creditors
159-8 of the transferor, and subsequent transfers by the assignee
159-9 thereunder; and
159-10 (8) a security interest in oil or gas production or
159-11 their proceeds under Section 9.319 of this code.
159-12 SECTION 8. Section 9.312(a), Business & Commerce Code, is
159-13 amended to read as follows:
159-14 (a) The rules of priority stated in other sections of this
159-15 subchapter and in the following sections shall govern when
159-16 applicable: Section 4.210 <4.208> with respect to the security
159-17 interests of collecting banks in items being collected,
159-18 accompanying documents and proceeds; Section 9.103 on security
159-19 interests related to other jurisdictions; Section 9.114 on
159-20 consignments.
159-21 SECTION 9. (a) The changes made by this Act apply only to
159-22 an action or proceeding that is commenced or a right that accrues
159-23 on or after the effective date of this Act.
159-24 (b) An action or proceeding that is commenced or a right
159-25 that accrues before the effective date of this Act is governed by
159-26 the law in effect on the date the action or proceeding was
159-27 commenced or the right accrued, and that law is continued in effect
160-1 for that purpose.
160-2 SECTION 10. This Act takes effect January 1, 1996.
160-3 SECTION 11. The importance of this legislation and the
160-4 crowded condition of the calendars in both houses create an
160-5 emergency and an imperative public necessity that the
160-6 constitutional rule requiring bills to be read on three several
160-7 days in each house be suspended, and this rule is hereby suspended.