By Carona                                       S.B. No. 1162

      75R8768 LJR-F                           

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to the warranties on the transfer or presentment of demand

 1-3     drafts.

 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-5           SECTION 1.  Section 3.103(b), Business & Commerce Code, is

 1-6     amended to read as follows:

 1-7           (b)  Other definitions applying to this chapter and the

 1-8     sections in which they appear are:

 1-9     Acceptance                                          Section 3.409. 

1-10     Accommodated party                                  Section 3.419. 

1-11     Accommodation party                                 Section 3.419. 

1-12     Alteration                                          Section 3.407. 

1-13     Anomalous indorsement                               Section 3.205. 

1-14     Blank indorsement                                   Section 3.205. 

1-15     Cashier's check                                     Section 3.104. 

1-16     Certificate of deposit                              Section 3.104. 

1-17     Certified check                                     Section 3.409. 

1-18     Check                                               Section 3.104. 

1-19     Consideration                                       Section 3.303. 

1-20     Demand draft                                        Section 3.104. 

1-21     Draft                                               Section 3.104. 

1-22     Holder in due course                                Section 3.302. 

1-23     Incomplete instrument                               Section 3.115. 

1-24     Indorsement                                         Section 3.204. 

 2-1     Indorser                                            Section 3.204. 

 2-2     Instrument                                          Section 3.104. 

 2-3     Issue                                               Section 3.105. 

 2-4     Issuer                                              Section 3.105. 

 2-5     Negotiable instrument                               Section 3.104. 

 2-6     Negotiation                                         Section 3.201. 

 2-7     Note                                                Section 3.104. 

 2-8     Payable at a definite time                          Section 3.108. 

 2-9     Payable on demand                                   Section 3.108. 

2-10     Payable to bearer                                   Section 3.109. 

2-11     Payable to order                                    Section 3.109. 

2-12     Payment                                             Section 3.602. 

2-13     Person entitled to enforce                          Section 3.301. 

2-14     Presentment                                         Section 3.501. 

2-15     Reacquisition                                       Section 3.207. 

2-16     Special indorsement                                 Section 3.205. 

2-17     Teller's check                                      Section 3.104. 

2-18     Transfer of instrument                              Section 3.203. 

2-19     Traveler's check                                    Section 3.104. 

2-20     Value                                               Section 3.303. 

2-21           SECTION 2.  Section 3.104, Business & Commerce Code, is

2-22     amended by adding Subsection (k) to read as follows:

2-23           (k)  "Demand draft" means a writing that is not signed by a

2-24     customer and that is created by a third party under the purported

2-25     authority of the customer for the purpose of charging the

2-26     customer's account with a bank.  A demand draft does not include a

2-27     check drawn by a fiduciary, as defined in Section 3.307.  A demand

 3-1     draft may contain any or all of the following:

 3-2                 (1)  the customer's printed or typewritten name or

 3-3     account number;

 3-4                 (2)  a notation that the customer authorized the draft;

 3-5     and

 3-6                 (3)  the statement "No signature required" or

 3-7     "Authorization on file" or words to that effect.

 3-8           SECTION 3.  Section 3.416, Business & Commerce Code, is

 3-9     amended by amending Subsection (a) and adding Subsection (e) to

3-10     read as follows:

3-11           (a)  A person who transfers an instrument for consideration

3-12     warrants to the transferee and, if the transfer is by  indorsement,

3-13     to any subsequent transferee that:

3-14                 (1)  the warrantor is a person entitled to enforce the

3-15     instrument;

3-16                 (2)  all signatures on the instrument are authentic and

3-17     authorized;

3-18                 (3)  the instrument has not been altered;

3-19                 (4)  the instrument is not subject to a defense or

3-20     claim in recoupment of any party that can be asserted against the

3-21     warrantor; [and]

3-22                 (5)  the warrantor has no knowledge of any insolvency

3-23     proceeding commenced with respect to the maker or acceptor or, in

3-24     the case of an unaccepted draft, the drawer; and

3-25                 (6)  if the instrument is a demand draft, the creation

3-26     of the instrument according to the terms on its face was authorized

3-27     by the person identified as drawer.

 4-1           (e)  If the warranty under Subsection (a)(6) is not given by

 4-2     a transferor under applicable conflict of law rules, the warranty

 4-3     is not given to that transferor when that transferor is a

 4-4     transferee.

 4-5           SECTION 4.  Section 3.417, Business & Commerce Code, is

 4-6     amended by amending Subsection (a) and adding Subsections (g) and

 4-7     (h) to read as follows:

 4-8           (a)  If an unaccepted draft is presented to the drawee for

 4-9     payment or acceptance and the drawee pays or accepts the draft, (i)

4-10     the person obtaining payment or acceptance, at the time of

4-11     presentment, and (ii) a previous transferor of the draft, at the

4-12     time of transfer, warrant to the drawee making payment or accepting

4-13     the draft in good faith that:

4-14                 (1)  the warrantor is, or was, at the time the

4-15     warrantor transferred the draft, a person entitled to enforce the

4-16     draft or authorized to obtain payment or acceptance of the draft on

4-17     behalf of a person entitled to enforce the draft;

4-18                 (2)  the draft has not been altered; [and]

4-19                 (3)  the warrantor has no knowledge that the signature

4-20     of the drawer of the draft is unauthorized; and

4-21                 (4)  if the instrument is a demand draft, the creation

4-22     of the draft according to the terms on its face was authorized by

4-23     the person identified as drawer.

4-24           (g)  A demand draft is a check.

4-25           (h)  If the warranty under Subsection (a)(4) is not given by

4-26     a transferor under applicable conflict of law rules, the warranty

4-27     is not given to that transferor when that transferor is a

 5-1     transferee.

 5-2           SECTION 5.  Section 4.207, Business & Commerce Code, is

 5-3     amended by amending Subsection (a) and adding Subsection (f) to

 5-4     read as follows:

 5-5           (a)  A customer or collecting bank that transfers an item and

 5-6     receives a settlement or other consideration warrants to the

 5-7     transferee and to any subsequent collecting bank that:

 5-8                 (1)  the warrantor is a person entitled to enforce the

 5-9     item;

5-10                 (2)  all signatures on the item are authentic and

5-11     authorized;

5-12                 (3)  the item has not been altered;

5-13                 (4)  the item is not subject to a defense or claim in

5-14     recoupment (Section 3.305(a)) of any party that can be asserted

5-15     against the warrantor; [and]

5-16                 (5)  the warrantor has no knowledge of any insolvency

5-17     proceeding commenced with respect to the maker or acceptor or, in

5-18     the case of an unaccepted draft, the drawer; and

5-19                 (6)  if the item is a demand draft, the creation of the

5-20     item according to the terms on its face was authorized by the

5-21     person identified as drawer.

5-22           (f)  If the warranty under Subsection (a)(6) is not given by

5-23     a transferor or collecting bank under applicable conflict of law

5-24     rules, the warranty is not given to that transferor when that

5-25     transferor is a transferee or to any prior collecting bank of that

5-26     transferee.

5-27           SECTION 6.  Section 4.208, Business & Commerce Code, is

 6-1     amended by amending Subsection (a) and adding Subsections (g) and

 6-2     (h) to read as follows:

 6-3           (a)  If an unaccepted draft is presented to the drawee for

 6-4     payment or acceptance and the drawee pays or accepts the draft, (i)

 6-5     the person obtaining payment or acceptance, at the time of

 6-6     presentment, and (ii) a previous transferor of the draft, at the

 6-7     time of transfer, warrant to the drawee that pays or accepts the

 6-8     draft in good faith that:

 6-9                 (1)  the warrantor is, or was, at the time the

6-10     warrantor transferred the draft, a person entitled to enforce the

6-11     draft or authorized to obtain payment or acceptance of the draft on

6-12     behalf of a person entitled to enforce the draft;

6-13                 (2)  the draft has not been altered; [and]

6-14                 (3)  the warrantor has no knowledge that the signature

6-15     of the purported drawer of the draft is unauthorized; and

6-16                 (4)  if the instrument is a demand draft, the creation

6-17     of the draft according to the terms on its face was authorized by

6-18     the person identified as drawer.

6-19           (g)  A demand draft is a check.

6-20           (h)  If the warranty under Subsection (a)(4) is not given by

6-21     a transferor under applicable conflict of law rules, the warranty

6-22     is not given to that transferor when that transferor is a

6-23     transferee.

6-24           SECTION 7.  This Act takes effect September 1, 1997.

6-25           SECTION 8.  The importance of this legislation and the

6-26     crowded condition of the calendars in both houses create an

6-27     emergency and an imperative public necessity that the

 7-1     constitutional rule requiring bills to be read on three several

 7-2     days in each house be suspended, and this rule is hereby suspended.