1-1     By:  Carona                                           S.B. No. 1162

 1-2           (In the Senate - Filed March 11, 1997; March 17, 1997, read

 1-3     first time and referred to Committee on Economic Development;

 1-4     April 4, 1997, reported adversely, with favorable Committee

 1-5     Substitute by the following vote:  Yeas 9, Nays 0; April 4, 1997,

 1-6     sent to printer.)

 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 1162               By:  Patterson

 1-8                            A BILL TO BE ENTITLED

 1-9                                   AN ACT

1-10     relating to the warranties on the transfer or presentment of demand

1-11     drafts.

1-12           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

1-13           SECTION 1.  Subsection (b), Section 3.103, Business &

1-14     Commerce Code, is amended to read as follows:

1-15           (b)  Other definitions applying to this chapter and the

1-16     sections in which they appear are:

1-17           "Acceptance"                             Section 3.409.

1-18           "Accommodated party"                     Section 3.419.

1-19           "Accommodation party"                    Section 3.419.

1-20           "Alteration"                             Section 3.407.

1-21           "Anomalous indorsement"                  Section 3.205.

1-22           "Blank indorsement"                      Section 3.205.

1-23           "Cashier's check"                        Section 3.104.

1-24           "Certificate of deposit"                 Section 3.104.

1-25           "Certified check"                        Section 3.409.

1-26           "Check"                                  Section 3.104.

1-27           "Consideration"                          Section 3.303.

1-28           "Demand draft"                           Section 3.104.

1-29           "Draft"                                  Section 3.104.

1-30           "Holder in due course"                   Section 3.302.

1-31           "Incomplete instrument"                  Section 3.115.

1-32           "Indorsement"                            Section 3.204.

1-33           "Indorser"                               Section 3.204.

1-34           "Instrument"                             Section 3.104.

1-35           "Issue"                                  Section 3.105.

1-36           "Issuer"                                 Section 3.105.

1-37           "Negotiable instrument"                  Section 3.104.

1-38           "Negotiation"                            Section 3.201.

1-39           "Note"                                   Section 3.104.

1-40           "Payable at a definite time"             Section 3.108.

1-41           "Payable on demand"                      Section 3.108.

1-42           "Payable to bearer"                      Section 3.109.

1-43           "Payable to order"                       Section 3.109.

1-44           "Payment"                                Section 3.602.

1-45           "Person entitled to enforce"             Section 3.301.

1-46           "Presentment"                            Section 3.501.

1-47           "Reacquisition"                          Section 3.207.

1-48           "Special indorsement"                    Section 3.205.

1-49           "Teller's check"                         Section 3.104.

1-50           "Transfer of instrument"                 Section 3.203.

1-51           "Traveler's check"                       Section 3.104.

1-52           "Value"                                  Section 3.303.

1-53           SECTION 2.  Section 3.104, Business & Commerce Code, is

1-54     amended by adding Subsection (k) to read as follows:

1-55           (k)  "Demand draft" means a writing that is not signed by a

1-56     customer, as defined in Section 4.104 (a)(5), and that is created

1-57     by a third party under the purported authority of the customer for

1-58     the purpose of charging the customer's account with a bank.  A

1-59     demand draft does not include a check drawn by a fiduciary, as

1-60     defined in Section 3.307.  A demand draft may contain any or all of

1-61     the following:

1-62                 (1)  the customer's printed or typewritten name or

1-63     account number;

1-64                 (2)  a notation that the customer authorized the draft;

 2-1     and

 2-2                 (3)  the statement "No signature required,"

 2-3     "Authorization on file," "Signature on file," or words to that

 2-4     effect.

 2-5           SECTION 3.  Section 3.416, Business & Commerce Code, is

 2-6     amended by amending Subsection (a) and adding Subsection (e) to

 2-7     read as follows:

 2-8           (a)  A person who transfers an instrument for consideration

 2-9     warrants to the transferee and, if the transfer is by indorsement,

2-10     to any subsequent transferee that:

2-11                 (1)  the warrantor is a person entitled to enforce the

2-12     instrument;

2-13                 (2)  all signatures on the instrument are authentic and

2-14     authorized;

2-15                 (3)  the instrument has not been altered;

2-16                 (4)  the instrument is not subject to a defense or

2-17     claim in recoupment of any party that can be asserted against the

2-18     warrantor; [and]

2-19                 (5)  the warrantor has no knowledge of any insolvency

2-20     proceeding commenced with respect to the maker or acceptor or, in

2-21     the case of an unaccepted draft, the drawer; and

2-22                 (6)  if the instrument is a demand draft, the creation

2-23     of the instrument according to the terms on its face was authorized

2-24     by the person identified as drawer.

2-25           (e)  If the warranty under Subsection (a)(6) is not given by

2-26     a transferor under applicable conflict of law rules, the warranty

2-27     is not given to that transferor when that transferor is a

2-28     transferee.

2-29           SECTION 4.  Section 3.417, Business & Commerce Code, is

2-30     amended by amending Subsection (a) and adding Subsection (g) to

2-31     read as follows:

2-32           (a)  If an unaccepted draft is presented to the drawee for

2-33     payment or acceptance and the drawee pays or accepts the draft, (i)

2-34     the person obtaining payment or acceptance, at the time of

2-35     presentment, and (ii) a previous transferor of the draft, at the

2-36     time of transfer, warrant to the drawee making payment or accepting

2-37     the draft in good faith that:

2-38                 (1)  the warrantor is, or was, at the time the

2-39     warrantor transferred the draft, a person entitled to enforce the

2-40     draft or authorized to obtain payment or acceptance of the draft on

2-41     behalf of a person entitled to enforce the draft;

2-42                 (2)  the draft has not been altered; [and]

2-43                 (3)  the warrantor has no knowledge that the signature

2-44     of the drawer of the draft is unauthorized; and

2-45                 (4)  if the instrument is a demand draft, the creation

2-46     of the draft according to the terms on its face was authorized by

2-47     the person identified as drawer.

2-48           (g)  If the warranty under Subsection (a)(4) is not given by

2-49     a transferor under applicable conflict of law rules, the warranty

2-50     is not given to that transferor when that transferor is a

2-51     transferee.

2-52           SECTION 5.  Section 4.207, Business & Commerce Code, is

2-53     amended by amending Subsection (a) and adding Subsection (f) to

2-54     read as follows:

2-55           (a)  A customer or collecting bank that transfers an item and

2-56     receives a settlement or other consideration warrants to the

2-57     transferee and to any subsequent collecting bank that:

2-58                 (1)  the warrantor is a person entitled to enforce the

2-59     item;

2-60                 (2)  all signatures on the item are authentic and

2-61     authorized;

2-62                 (3)  the item has not been altered;

2-63                 (4)  the item is not subject to a defense or claim in

2-64     recoupment (Section 3.305(a)) of any party that can be asserted

2-65     against the warrantor; [and]

2-66                 (5)  the warrantor has no knowledge of any insolvency

2-67     proceeding commenced with respect to the maker or acceptor or, in

2-68     the case of an unaccepted draft, the drawer; and

2-69                 (6)  if the item is a demand draft, the creation of the

 3-1     item according to the terms on its face was authorized by the

 3-2     person identified as drawer.

 3-3           (f)  If the warranty under Subsection (a)(6) is not given by

 3-4     a transferor or collecting bank under applicable conflict of law

 3-5     rules, the warranty is not given to that transferor when that

 3-6     transferor is a transferee or to any prior collecting bank of that

 3-7     transferee.

 3-8           SECTION 6.  Section 4.208, Business & Commerce Code, is

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

3-10     read as follows:

3-11           (a)  If an unaccepted draft is presented to the drawee for

3-12     payment or acceptance and the drawee pays or accepts the draft, (i)

3-13     the person obtaining payment or acceptance, at the time of

3-14     presentment, and (ii) a previous transferor of the draft, at the

3-15     time of transfer, warrant to the drawee that pays or accepts the

3-16     draft in good faith that:

3-17                 (1)  the warrantor is, or was, at the time the

3-18     warrantor transferred the draft, a person entitled to enforce the

3-19     draft or authorized to obtain payment or acceptance of the draft on

3-20     behalf of a person entitled to enforce the draft;

3-21                 (2)  the draft has not been altered; [and]

3-22                 (3)  the warrantor has no knowledge that the signature

3-23     of the purported drawer of the draft is unauthorized; and

3-24                 (4)  if the instrument is a demand draft, the creation

3-25     of the draft according to the terms on its face was authorized by

3-26     the person identified as drawer.

3-27           (g)  If the warranty under Subsection (a)(4) is not given by

3-28     a transferor under applicable conflict of law rules, the warranty

3-29     is not given to that transferor when that transferor is a

3-30     transferee.

3-31           SECTION 7.  This Act takes effect September 1, 1997.

3-32           SECTION 8.  The importance of this legislation and the

3-33     crowded condition of the calendars in both houses create an

3-34     emergency and an imperative public necessity that the

3-35     constitutional rule requiring bills to be read on three several

3-36     days in each house be suspended, and this rule is hereby suspended.

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