CHAPTER 4. BANK DEPOSITS AND COLLECTIONS

Statutes > Texas Statutes > BUSINESS AND COMMERCE CODE > TITLE 1. UNIFORM COMMERCIAL CODE > CHAPTER 4. BANK DEPOSITS AND COLLECTIONS

BUSINESS AND COMMERCE CODE

TITLE 1. UNIFORM COMMERCIAL CODE

SUBCHAPTER A. GENERAL PROVISIONS AND DEFINITIONS

Sec. 4.101. SHORT TITLE. This chapter may be cited as Uniform

Commercial Code--Bank Deposits and Collections.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.102. APPLICABILITY. (a) To the extent that items within

this chapter are also within Chapters 3 and 8, they are subject

to those chapters. If there is conflict, this chapter governs

Chapter 3, but Chapter 8 governs this chapter.

(b) The liability of a bank for action or non-action with

respect to an item handled by it for purposes of presentment,

payment, or collection is governed by the law of the place where

the bank is located. In the case of action or non-action by or at

a branch or separate office of a bank, its liability is governed

by the law of the place where the branch or separate office is

located.

a deposit contract between a bank and a consumer account holder

if the branch or separate office of the bank that accepts the

deposit contract is located in this state. For purposes of this

subsection, "consumer account holder" means a natural person who

holds a deposit account primarily for personal, family, or

household purposes but does not include a natural person who

holds an account for another in a professional capacity.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996; Acts 1999, 76th Leg., ch. 344, Sec. 5.001, eff. Sept. 1,

1999; Acts 2003, 78th Leg., ch. 542, Sec. 11, eff. Sept. 1, 2003.

Sec. 4.103. VARIATION BY AGREEMENT; MEASURE OF DAMAGES; ACTION

CONSTITUTING ORDINARY CARE. (a) The effect of the provisions of

this chapter may be varied by agreement, but the parties to the

agreement cannot disclaim a bank's responsibility for its lack of

good faith or failure to exercise ordinary care or limit the

measure of damages for the lack or failure. However, the parties

may determine by agreement the standards by which the bank's

responsibility is to be measured if those standards are not

manifestly unreasonable.

(b) Federal Reserve regulations and operating circulars,

clearing-house rules, and the like have the effect of agreements

under Subsection (a), whether or not specifically assented to by

all parties interested in items handled.

Federal Reserve regulations or operating circulars is the

exercise of ordinary care and, in the absence of special

instructions, action or non-action consistent with clearing-house

rules and the like or with a general banking usage not

disapproved by this chapter, is prima facie the exercise of

ordinary care.

(d) The specification or approval of certain procedures by this

chapter is not disapproval of other procedures that may be

reasonable under the circumstances.

(e) The measure of damages for failure to exercise ordinary care

in handling an item is the amount of the item reduced by an

amount that could not have been realized by the exercise of

ordinary care. If there is also bad faith, it includes any other

damages the party suffered as a proximate consequence.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.104. DEFINITIONS AND INDEX OF DEFINITIONS. (a) In this

chapter, unless the context otherwise requires:

(1) "Account" means any deposit or credit account with a bank,

including a demand, time, savings, passbook, share draft, or like

account, other than an account evidenced by a certificate of

deposit.

(2) "Afternoon" means the period of a day between noon and

midnight.

(3) "Banking day" means the part of a day on which a bank is

open to the public for carrying on substantially all of its

banking functions.

(4) "Clearing house" means an association of banks or other

payors regularly clearing items.

(5) "Customer" means a person having an account with a bank or

for whom a bank has agreed to collect items, including a bank

that maintains an account at another bank.

(6) "Documentary draft" means a draft to be presented for

acceptance or payment if specified documents, certificated

securities (Section 8.102) or instructions for uncertificated

securities (Section 8.102), or other certificates, statements, or

the like are to be received by the drawee or other payor before

acceptance or payment of the draft.

(7) "Draft" means a draft as defined in Section 3.104 or an

item, other than an instrument, that is an order.

(8) "Drawee" means a person ordered in a draft to make payment.

(9) "Item" means an instrument or a promise or order to pay

money handled by a bank for collection or payment. The term does

not include a payment order governed by Chapter 4A or a credit or

debit card slip.

(10) "Midnight deadline" with respect to a bank is midnight on

its next banking day following the banking day on which it

receives the relevant item or notice or from which the time for

taking action commences to run, whichever is later.

(11) "Settle" means to pay in cash, by clearing-house

settlement, in a charge or credit or by remittance, or otherwise

as agreed. A settlement may be either provisional or final.

(12) "Suspends payments" with respect to a bank means that it

has been closed by order of the supervisory authorities, that a

public officer has been appointed to take it over, or that it

ceases or refuses to make payments in the ordinary course of

business.

(b) Other definitions applying to this chapter and the sections

in which they appear are:

"Agreement for electronic

presentment"

Section 4.110.

"Collecting bank"

Section 4.105.

"Depositary bank"

Section 4.105.

"Intermediary bank"

Section 4.105.

"Payor bank"

Section 4.105.

"Presenting bank"

Section 4.105.

"Presentment notice"

Section 4.110.

chapter:

"Acceptance"

Section 3.409.

"Alteration"

Section 3.407.

"Cashier's check"

Section 3.104.

"Certificate of deposit"

Section 3.104.

"Certified check"

Section 3.409.

"Check"

Section 3.104.

"Control"

Section 7.106.

"Holder in due course"

Section 3.302.

"Instrument"

Section 3.104.

"Notice of dishonor"

Section 3.503.

"Order"

Section 3.103.

"Ordinary care"

Section 3.103.

"Person entitled to enforce"

Section 3.301.

"Presentment"

Section 3.501.

"Promise"

Section 3.103.

"Prove"

Section 3.103.

"Record"

Section 1.201.

"Remotely-created item"

Section 3.103.

"Teller's check"

Section 3.104.

"Unauthorized signature"

Section 3.403.

(d) In addition, Chapter 1 contains general definitions and

principles of construction and interpretation applicable

throughout this chapter.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996; Acts 1995, 74th Leg., ch. 962, Sec. 18, eff. Sept. 1,

1995; Acts 2003, 78th Leg., ch. 542, Sec. 12, eff. Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

95, Sec. 15, eff. September 1, 2005.

Acts 2005, 79th Leg., Ch.

122, Sec. 16, eff. September 1, 2005.

Sec. 4.105. "BANK"; "DEPOSITARY BANK"; "INTERMEDIARY BANK";

"COLLECTING BANK"; "PAYOR BANK"; "PRESENTING BANK". In this

chapter:

(1) "Bank" means a person engaged in the business of banking,

including a savings bank, savings and loan association, credit

union, or trust company.

(2) "Depositary bank" means the first bank to take an item even

though it is also the payor bank, unless the item is presented

for immediate payment over the counter.

(3) "Payor bank" means a bank that is the drawee of a draft.

(4) "Intermediary bank" means a bank to which an item is

transferred in course of collection except the depositary or

payor bank.

(5) "Collecting bank" means a bank handling an item for

collection except the payor bank.

(6) "Presenting bank" means a bank presenting an item except a

payor bank.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.106. PAYABLE THROUGH OR PAYABLE AT BANK; COLLECTING BANK.

(a) If an item states that it is "payable through" a bank

identified in the item, the item:

(1) designates the bank as a collecting bank and does not by

itself authorize the bank to pay the item; and

(2) may be presented for payment only by or through the bank.

(b) If an item states that it is "payable at" a bank identified

in the item, the item is equivalent to a draft drawn on the bank.

a bank named in the draft is a co-drawee or a collecting bank,

the bank is a collecting bank.

Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan. 1,

1996.

Sec. 4.107. SEPARATE OFFICE OF A BANK. A branch or separate

office of a bank is a separate bank for the purpose of computing

the time within which and determining the place at or to which

action may be taken or notices or orders must be given under this

chapter and under Chapter 3.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.106 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Sec. 4.108. TIME OF RECEIPT OF ITEMS. (a) For the purpose of

allowing time to process items, prove balances, and make the

necessary entries on its books to determine its position for the

day, a bank may fix an afternoon hour of two P.M. or later as a

cutoff hour for the handling of money and items and the making of

entries on its books.

(b) An item or deposit of money received on any day after a

cutoff hour so fixed or after the close of the banking day may be

treated as being received at the opening of the next banking day.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.107 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Sec. 4.109. DELAYS. (a) Unless otherwise instructed, a

collecting bank in a good faith effort to secure payment of a

specific item drawn on a payor other than a bank, and with or

without the approval of any person involved, may waive, modify,

or extend time limits imposed or permitted by this title for a

period not exceeding two additional banking days without

discharge of drawers or indorsers or liability to its transferor

or a prior party.

(b) Delay by a collecting bank or payor bank beyond time limits

prescribed or permitted by this title or by instructions is

excused if:

(1) the delay is caused by interruption of communication or

computer facilities, suspension of payments by another bank, war,

emergency conditions, failure of equipment, or other

circumstances beyond the control of the bank; and

(2) the bank exercises such diligence as the circumstances

require.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.108 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Sec. 4.110. ELECTRONIC PRESENTMENT. (a) "Agreement for

electronic presentment" means an agreement, clearing-house rule,

or Federal Reserve regulation or operating circular providing

that presentment of an item may be made by transmission of an

image of an item or information describing the item ("presentment

notice") rather than delivery of the item itself. The agreement

may provide for procedures governing retention, presentment,

payment, dishonor, and other matters concerning items subject to

the agreement.

(b) Presentment of an item under an agreement for presentment is

made when the presentment notice is received.

"item" or "check" in this chapter means the presentment notice

unless the context otherwise indicates.

Added by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan. 1,

1996.

Sec. 4.111. STATUTE OF LIMITATIONS. An action to enforce an

obligation, duty, or right arising under this chapter must be

commenced within three years after the cause of action accrues.

Added by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan. 1,

1996.

Sec. 4.112. PAYMENT OF CHECK AT PAR. (a) Except as otherwise

provided by Chapter 3 or this chapter, a payor bank shall pay a

check drawn on it against an account with a sufficient balance at

par without regard to whether the payee holds an account at the

bank.

(b) This section does not prohibit a bank from requiring

commercially reasonable verification of the payee's identity

before settlement of the check.

commissioner, in coordination with the Finance Commission of

Texas, shall ensure that payor banks comply with the requirements

of this section.

Added by Acts 2001, 77th Leg., ch. 699, Sec. 20, eff. Sept. 1,

2001.

SUBCHAPTER B. COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING

BANKS

Sec. 4.201. STATUS OF COLLECTING BANK AS AGENT AND PROVISIONAL

STATUS OF CREDITS; APPLICABILITY OF CHAPTER; ITEM INDORSED "PAY

ANY BANK". (a) Unless a contrary intent clearly appears and

before the time that a settlement given by a collecting bank for

an item is or becomes final, the bank, with respect to the item,

is an agent or sub-agent of the owner of the item and any

settlement given for the item is provisional. This provision

applies regardless of the form of indorsement or lack of

indorsement and even though credit given for the item is subject

to immediate withdrawal as of right or is in fact withdrawn; but

the continuance of ownership of an item by its owner and any

rights of the owner to proceeds of the item are subject to rights

of a collecting bank, such as those resulting from outstanding

advances on the item and rights of recoupment or setoff. If an

item is handled by banks for purposes of presentment, payment,

collection, or return, the relevant provisions of this chapter

apply even though action of the parties clearly establishes that

a particular bank has purchased the item and is the owner of it.

(b) After an item has been indorsed with the words "pay any

bank" or the like, only a bank may acquire the rights of a holder

until the item has been:

(1) returned to the customer initiating collection; or

(2) specially indorsed by a bank to a person who is not a bank.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.202. RESPONSIBILITY FOR COLLECTION OR RETURN; WHEN ACTION

TIMELY. (a) A collecting bank must exercise ordinary care in:

(1) presenting an item or sending it for presentment;

(2) sending notice of dishonor or non-payment or returning an

item other than a documentary draft to the bank's transferor

after learning that the item has not been paid or accepted, as

the case may be;

(3) settling for an item when the bank receives final

settlement; and

(4) notifying its transferor of any loss or delay in transit

within a reasonable time after discovery thereof.

(b) A collecting bank exercises ordinary care under Subsection

(a) by taking proper action before its midnight deadline

following receipt of an item, notice, or settlement. Taking

proper action within a reasonably longer time may constitute the

exercise of ordinary care, but the bank has the burden of

establishing timeliness.

insolvency, neglect, misconduct, mistake, or default of another

bank or person or for loss or destruction of an item in the

possession of others or in transit.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.203. EFFECT OF INSTRUCTIONS. Subject to Chapter 3

concerning conversion of instruments (Section 3.420) and

restrictive indorsements (Section 3.206), only a collecting

bank's transferor can give instructions that affect the bank or

constitute notice to it, and a collecting bank is not liable to

prior parties for any action taken pursuant to the instructions

or in accordance with any agreement with its transferor.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.204. METHODS OF SENDING AND PRESENTING; SENDING DIRECTLY

TO PAYOR BANK. (a) A collecting bank shall send items by a

reasonably prompt method, taking into consideration relevant

instructions, the nature of the item, the number of those items

on hand, the cost of collection involved, and the method

generally used by it or others to present those items.

(b) A collecting bank may send:

(1) an item directly to the payor bank;

(2) an item to a non-bank payor if authorized by its transferor;

and

(3) an item other than a documentary draft to a non-bank payor,

if authorized by Federal Reserve regulation or operating

circular, clearing-house rule, or the like.

where the payor bank or other payor has requested that

presentment be made.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.205. DEPOSITORY BANK HOLDER OF UNINDORSED ITEM. If a

customer delivers an item to a depositary bank for collection,

the depositary bank:

(1) becomes a holder of the item at the time it receives the

item for collection if the customer at the time of delivery was a

holder of the item, whether or not the customer indorses the

item, and, if the bank satisfies the other requirements of

Section 3.302, the bank is a holder in due course; and

(2) warrants to collecting banks, the payor bank or other payor,

and the drawer that the amount of the item was paid to the

customer or deposited to the customer's account.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.206. TRANSFER BETWEEN BANKS. Any agreed method that

identifies the transferor bank is sufficient for the item's

further transfer to another bank.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.207. TRANSFER WARRANTIES. (a) A customer or collecting

bank that transfers an item and receives a settlement or other

consideration warrants to the transferee and to any subsequent

collecting bank that:

(1) the warrantor is a person entitled to enforce the item;

(2) all signatures on the item are authentic and authorized;

(3) the item has not been altered;

(4) the item is not subject to a defense or claim in recoupment

(Section 3.305(a)) of any party that can be asserted against the

warrantor;

(5) the warrantor has no knowledge of any insolvency proceeding

commenced with respect to the maker or acceptor or, in the case

of an unaccepted draft, the drawer; and

(6) with respect to a remotely-created item, that the person on

whose account the item is drawn authorized the issuance of the

item in the amount for which the item is drawn.

(b) If an item is dishonored, a customer or collecting bank

transferring the item and receiving settlement or other

consideration is obliged to pay the amount due on the item (i)

according to the terms of the item at the time it was

transferred, or (ii) if the transfer was of an incomplete item,

according to its terms when completed as stated in Sections 3.115

and 3.407. The obligation of a transferor is owed to the

transferee and to any subsequent collecting bank that takes the

item in good faith. A transferor cannot disclaim its obligation

under this subsection by an indorsement stating that it is made

"without recourse" or otherwise disclaiming liability.

made and who took the item in good faith may recover from the

warrantor as damages for breach of warranty an amount equal to

the loss suffered as a result of the breach, but not more than

the amount of the item plus expenses and loss of interest

incurred as a result of the breach.

(d) The warranties stated in Subsection (a) cannot be disclaimed

with respect to checks. Unless notice of a claim for breach of

warranty is given to the warrantor within 30 days after the

claimant has reason to know of the breach and the identity of the

warrantor, the warrantor is discharged to the extent of any loss

caused by the delay in giving notice of the claim.

(e) A cause of action for breach of warranty under this section

accrues when the claimant has reason to know of the breach.

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

transferor or collecting bank under applicable conflict of law

rules, the warranty is not given to that transferor when that

transferor is a transferee or to any prior collecting bank of

that transferee.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996; Acts 1997, 75th Leg., ch. 131, Sec. 5, eff. Sept. 1,

1997.

Amended by:

Acts 2005, 79th Leg., Ch.

95, Sec. 16, eff. September 1, 2005.

Sec. 4.208. PRESENTMENT WARRANTIES. (a) If an unaccepted draft

is presented to the drawee for payment or acceptance and the

drawee pays or accepts the draft, (i) the person obtaining

payment or acceptance, at the time of presentment, and (ii) a

previous transferor of the draft, at the time of transfer,

warrant to the drawee that pays or accepts the draft in good

faith that:

(1) the warrantor is, or was, at the time the warrantor

transferred the draft, a person entitled to enforce the draft or

authorized to obtain payment or acceptance of the draft on behalf

of a person entitled to enforce the draft;

(2) the draft has not been altered;

(3) the warrantor has no knowledge that the signature of the

purported drawer of the draft is unauthorized; and

(4) with respect to any remotely-created item, that the person

on whose account the item is drawn authorized the issuance of the

item in the amount for which the item is drawn.

(b) A drawee making payment may recover from a warrantor damages

for breach of warranty equal to the amount paid by the drawee

less the amount the drawee received or is entitled to receive

from the drawer because of the payment. In addition, the drawee

is entitled to compensation for expenses and loss of interest

resulting from the breach. The right of the drawee to recover

damages under this subsection is not affected by any failure of

the drawee to exercise ordinary care in making payment. If the

drawee accepts the draft, breach of warranty is a defense to the

obligation of the acceptor. If the acceptor makes payment with

respect to the draft, the acceptor is entitled to recover from a

warrantor for breach of warranty the amounts stated in this

subsection.

Subsection (a) based on an unauthorized indorsement of the draft

or an alteration of the draft, the warrantor may defend by

proving that the indorsement is effective under Section 3.404 or

3.405 or the drawer is precluded under Section 3.406 or 4.406

from asserting against the drawee the unauthorized indorsement or

alteration.

(d) If (i) a dishonored draft is presented for payment to the

drawer or an indorser, or (ii) any other item is presented for

payment to a party obliged to pay the item, and the item is paid,

the person obtaining payment and a prior transferor of the item

warrant to the person making payment in good faith that the

warrantor is, or was, at the time the warrantor transferred the

item, a person entitled to enforce the item or authorized to

obtain payment on behalf of a person entitled to enforce the

item. The person making payment may recover from any warrantor

for breach of warranty an amount equal to the amount paid plus

expenses and loss of interest resulting from the breach.

(e) The warranties stated in Subsections (a) and (d) cannot be

disclaimed with respect to checks. Unless notice of a claim for

breach of warranty is given to the warrantor within 30 days after

the claimant has reason to know of the breach and the identity of

the warrantor, the warrantor is discharged to the extent of any

loss caused by the delay in giving notice of the claim.

(f) A cause of action for breach of warranty under this section

accrues when the claimant has reason to know of the breach.

(g) If as to a particular item (1) a transferee (including a

collecting bank) asserts a claim for breach of the warranty under

Subsection (a)(4), but (2) under applicable law (including the

applicable choice-of-law principles) that transferee would not

make a warranty substantially similar to the warranty in

Subsection (a)(4) if such transferee were a transferor, then that

transferee would not receive the warranty in Subsection (a)(4)

from any transferor.

Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan. 1,

1996; Acts 1997, 75th Leg., ch. 131, Sec. 6, eff. Sept. 1, 1997.

Amended by:

Acts 2005, 79th Leg., Ch.

95, Sec. 17, eff. September 1, 2005.

Sec. 4.209. ENCODING AND RETENTION WARRANTIES. (a) A person

who encodes information on or with respect to an item after issue

warrants to any subsequent collecting bank and to the payor bank

or other payor that the information is correctly encoded. If the

customer of a depositary bank encodes, that bank also makes the

warranty.

(b) A person who undertakes to retain an item pursuant to an

agreement for electronic presentment warrants to any subsequent

collecting bank and to the payor bank or other payor that

retention and presentment of the item comply with the agreement.

If a customer of a depositary bank undertakes to retain an item,

that bank also makes this warranty.

who took the item in good faith may recover from the warrantor as

damages for breach of warranty an amount equal to the loss

suffered as a result of the breach, plus expenses and loss of

interest incurred as a result of the breach.

Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan. 1,

1996.

Sec. 4.210. SECURITY INTEREST OF COLLECTING BANK IN ITEMS,

ACCOMPANYING DOCUMENTS AND PROCEEDS. (a) A collecting bank has

a security interest in an item and any accompanying documents or

the proceeds of either:

(1) in case of an item deposited in an account, to the extent to

which credit given for the item has been withdrawn or applied;

(2) in case of an item for which it has given credit available

for withdrawal as of right, to the extent of the credit given,

whether or not the credit is drawn upon or there is a right of

charge-back; or

(3) if it makes an advance on or against the item.

(b) If credit given for several items received at one time or

pursuant to a single agreement is withdrawn or applied in part,

the security interest remains upon all the items, any

accompanying documents, or the proceeds of either. For the

purpose of this section, credits first given are first withdrawn.

item is a realization on its security interest in the item,

accompanying documents, and proceeds. So long as the bank does

not receive final settlement for the item or give up possession

of the item or possession or control of the accompanying

documents for purposes other than collection, the security

interest continues to that extent and is subject to Chapter 9,

but:

(1) no security agreement is necessary to make the security

interest enforceable (Section 9.203(b)(3)(A));

(2) no filing is required to perfect the security interest; and

(3) the security interest has priority over conflicting

perfected security interests in the item, accompanying documents,

or proceeds.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.208 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996; Acts 1999, 76th Leg.,

ch. 414, Sec. 2.23, eff. July 1, 2001.

Amended by:

Acts 2005, 79th Leg., Ch.

122, Sec. 17, eff. September 1, 2005.

Sec. 4.211. WHEN BANK GIVES VALUE FOR PURPOSES OF HOLDER IN DUE

COURSE. For purposes of determining its status as a holder in

due course, a bank has given value to the extent it has a

security interest in an item, if the bank otherwise complies with

the requirements of Section 3.302 on what constitutes a holder in

due course.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.209 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Sec. 4.212. PRESENTMENT BY NOTICE OF ITEM NOT PAYABLE BY,

THROUGH OR AT A BANK; LIABILITY OF DRAWER OR INDORSER. (a)

Unless otherwise instructed, a collecting bank may present an

item not payable by, through, or at a bank by sending to the

party to accept or pay a record providing notice that the bank

holds the item for acceptance or payment. The notice must be

sent in time to be received on or before the day when presentment

is due, and the bank must meet any requirement of the party to

accept or pay under Section 3.501 by the close of the bank's next

banking day after it knows of the requirement.

(b) If presentment is made by notice and payment, acceptance, or

request for compliance with a requirement under Section 3.501 is

not received by the close of business on the day after maturity

or, in the case of demand items, by the close of business on the

third banking day after notice was sent, the presenting bank may

treat the item as dishonored and charge any drawer or indorser by

sending it notice of the facts.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.210 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Amended by:

Acts 2005, 79th Leg., Ch.

95, Sec. 18, eff. September 1, 2005.

Sec. 4.213. MEDIUM AND TIME OF SETTLEMENT BY BANK. (a) With

respect to settlement by a bank, the medium and time of

settlement may be prescribed by Federal Reserve regulations or

circulars, clearing-house rules, and the like or by agreement. In

the absence of such a prescription:

(1) the medium of settlement is cash or credit to an account in

a Federal Reserve bank of or specified by the person to receive

settlement; and

(2) the time of settlement is:

(A) with respect to tender of settlement by cash, a cashier's

check, or a teller's check, when the cash or check is sent or

delivered;

(B) with respect to tender of settlement by credit to an account

in a Federal Reserve bank, when the credit is made;

an account in a bank, when the credit or debit is made or, in the

case of tender of settlement by authority to charge an account,

when the authority is sent or delivered; or

(D) with respect to tender of settlement by a funds transfer,

when payment is made pursuant to Section 4A.406(a) to the person

receiving settlement.

(b) If the tender of settlement is not by a medium authorized by

Subsection (a) or the time of settlement is not fixed by

Subsection (a), a settlement does not occur until the tender of

settlement is accepted by the person receiving settlement.

teller's check and the person receiving settlement, before its

midnight deadline:

(1) presents or forwards the check for collection, settlement is

final when the check is finally paid; or

(2) fails to present or forward the check for collection,

settlement is final at the midnight deadline of the person

receiving settlement.

(d) If settlement for an item is made by giving authority to

charge the account of the bank giving settlement in the bank

receiving settlement, settlement is final when the charge is made

by the bank receiving settlement if there are funds available in

the account for the amount of the item.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1983, 68th Leg., p. 1531, ch. 290, Sec. 4,

eff. Aug. 29, 1983. Renumbered from Sec. 4.211 and amended by

Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Sec. 4.214. RIGHT OF CHARGE-BACK OR REFUND; LIABILITY OF

COLLECTING BANK; RETURN OF ITEM. (a) If a collecting bank has

made provisional settlement with its customer for an item and

fails by reason of dishonor, suspension of payments by a bank, or

otherwise to receive settlement for the item that is or becomes

final, the bank may revoke the settlement given by it, charge

back the amount of any credit given for the item to its

customer's account, or obtain refund from its customer, whether

or not it is able to return the item, if by its midnight deadline

or within a longer reasonable time after it learns the facts it

returns the item or sends notification of the facts. If the

return or notice is delayed beyond the bank's midnight deadline

or a longer reasonable time after it learns the facts, the bank

may revoke the settlement, charge back the credit, or obtain

refund from its customers, but it is liable for any loss

resulting from the delay. These rights to revoke, charge-back,

and obtain refund terminate if and when a settlement for the item

received by the bank is or becomes final.

(b) A collecting bank returns an item when it is sent or

delivered to the bank's customer or transferor or pursuant to its

instructions.

amount of an item to its customer's account or obtain refund in

accordance with the section governing return of an item received

by a payor bank for credit on its books (Section 4.301).

(d) The right to charge-back is not affected by:

(1) previous use of a credit given for the item; or

(2) failure by any bank to exercise ordinary care with respect

to the item, but a bank so failing remains liable.

(e) A failure to charge-back or claim refund does not affect

other rights of the bank against the customer or any other party.

(f) If credit is given in dollars as the equivalent of the value

of an item payable in foreign money, the dollar amount of any

charge-back or refund must be calculated on the basis of the

bank-offered spot rate for the foreign money prevailing on the

day when the person entitled to the charge-back or refund learns

that it will not receive payment in ordinary course.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.212 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Sec. 4.215. FINAL PAYMENT OF ITEM BY PAYOR BANK; WHEN

PROVISIONAL DEBITS AND CREDITS BECOME FINAL; WHEN CERTAIN CREDITS

BECOME AVAILABLE FOR WITHDRAWAL. (a) An item is finally paid by

a payor bank when the bank has first done any of the following:

(1) paid the item in cash;

(2) settled for the item without having a right to revoke the

settlement under statute, clearing-house rule, or agreement; or

(3) made a provisional settlement for the item and failed to

revoke the settlement in the time and manner permitted by

statute, clearing-house rule, or agreement.

(b) If provisional settlement for an item does not become final,

the item is not finally paid.

and payor banks is made through a clearing house or by debits or

credits in an account between them, then to the extent that

provisional debits or credits for the item are entered in

accounts between the presenting and payor banks or between the

presenting and successive prior collecting banks seriatim, they

become final upon final payment of the item by the payor bank.

(d) If a collecting bank receives a settlement for an item that

is or becomes final, the bank is accountable to its customer for

the amount of the item, and any provisional credit given for the

item in an account with its customer becomes final.

(e) Subject to (i) applicable law stating a time for

availability of funds, and (ii) any right of the bank to apply

the credit to an obligation of the customer, credit given by a

bank for an item in a customer's account becomes available for

withdrawal as of right if the bank:

(1) has received a provisional settlement for the item,--when

the settlement becomes final and the bank has had a reasonable

time to receive return of the item and the item has not been

received within that time; or

(2) is both the depositary bank and the payor bank, and the item

is finally paid,--at the opening of the bank's second banking day

following receipt of the item.

(f) Subject to applicable law stating a time for availability of

funds and any right of a bank to apply a deposit to an obligation

of the depositor, a deposit of money becomes available for

withdrawal as of right at the opening of the bank's next banking

day after receipt of the deposit.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1985, 69th Leg., ch. 621, Sec. 1, eff. June

14, 1985. Renumbered from Sec. 4.213 and amended by Acts 1995,

74th Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

Sec. 4.216. INSOLVENCY AND PREFERENCE. (a) If an item is in or

comes into the possession of a payor or collecting bank that

suspends payment and the item has not been finally paid, the item

must be returned by the receiver, trustee, or agent in charge of

the closed bank to the presenting bank or the closed bank's

customer.

(b) If a payor bank finally pays an item and suspends payments

without making a settlement for the item with its customer or the

presenting bank, which settlement is or becomes final, the owner

of the item has a preferred claim against the payor bank.

a provisional settlement for an item and thereafter suspends

payments, the suspension does not prevent or interfere with the

settlement's becoming final if the finality occurs automatically

upon the lapse of certain time or the happening of certain

events.

(d) If a collecting bank receives from subsequent parties

settlement for an item, which settlement is or becomes final, and

the bank suspends payments without making a settlement for the

item with its customer, which settlement is or becomes final, the

owner of the item has a preferred claim against the collecting

bank.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Renumbered from Sec. 4.214 and amended by Acts 1995, 74th

Leg., ch. 921, Sec. 4, eff. Jan. 1, 1996.

SUBCHAPTER C. COLLECTION OF ITEMS: PAYOR BANKS

Sec. 4.301. DEFERRED POSTING; RECOVERY OF PAYMENT BY RETURN OF

ITEMS; TIME OF DISHONOR; RETURN OF ITEMS BY PAYOR BANK. (a) If

a payor bank settles for a demand item other than a documentary

draft presented otherwise than for immediate payment over the

counter before midnight of the banking day of receipt, the payor

bank may revoke the settlement and recover the settlement if,

before it has made final payment and before its midnight

deadline, it:

(1) returns the item;

(2) returns an image of the item, if the party to which the

return is made has entered into an agreement to accept an image

as a return of the item, and the image is returned in accordance

with that agreement; or

(3) sends a record providing notice of dishonor or nonpayment if

the item is unavailable for return.

(b) If a demand item is received by a payor bank for credit on

its books, it may return the item or send notice of dishonor and

may revoke any credit given or recover the amount thereof

withdrawn by its customer, if it acts within the time limit and

in the manner specified in Subsection (a).

dishonored at the time when for purposes of dishonor it is

returned or notice sent in accordance with this section.

(d) An item is returned:

(1) as to an item presented through a clearing house, when it is

delivered to the presenting or last collecting bank or to the

clearing house or is sent or delivered in accordance with

clearing-house rules; or

(2) in all other cases, when it is sent or delivered to the

bank's customer or transferor or pursuant to instructions.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Amended by:

Acts 2005, 79th Leg., Ch.

95, Sec. 19, eff. September 1, 2005.

Sec. 4.302. PAYOR BANK'S RESPONSIBILITY FOR LATE RETURN OF ITEM.

(a) If an item is presented to and received by a payor bank,

the bank is accountable for the amount of:

(1) a demand item, other than a documentary draft, whether

properly payable or not, if the bank, in any case in which it is

not also the depositary bank, retains the item beyond midnight of

the banking day of receipt without settling for it or, whether or

not it is also the depositary bank, does not pay or return the

item or send notice of dishonor until after its midnight

deadline; or

(2) any other properly payable item unless, within the time

allowed for acceptance or payment of that item, the bank either

accepts or pays the item or returns it and accompanying

documents.

(b) The liability of a payor bank to pay an item pursuant to

Subsection (a) is subject to defenses based on breach of a

presentment warranty (Section 4.208) or proof that the person

seeking enforcement of the liability presented or transferred the

item for the purpose of defrauding the payor bank.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.303. WHEN ITEMS SUBJECT TO NOTICE, STOP-PAYMENT ORDER,

LEGAL PROCESS, OR SETOFF; ORDER IN WHICH ITEMS MAY BE CHARGED OR

CERTIFIED. (a) Any knowledge, notice, or stop-payment order

received by, legal process served upon, or setoff exercised by a

payor bank comes too late to terminate, suspend, or modify the

bank's right or duty to pay an item or to charge its customer's

account for the item if the knowledge, notice, stop-payment

order, or legal process is received or served and a reasonable

time for the bank to act thereon expires or the setoff is

exercised after the earliest of the following:

(1) the bank accepts or certifies the item;

(2) the bank pays the item in cash;

(3) the bank settles for the item without having a right to

revoke the settlement under statute, clearing-house rule, or

agreement;

(4) the bank becomes accountable for the amount of the item

under Section 4.302 dealing with the payor bank's responsibility

for late return of items; or

(5) with respect to checks, a cutoff hour not earlier than one

hour after the opening of the next banking day after the banking

day on which the bank received the check and not later than the

close of that next banking day or, if no cutoff hour is fixed,

the close of the next banking day after the banking day on which

the bank received the check.

(b) Subject to Subsection (a), items may be accepted, paid,

certified, or charged to the indicated account of a bank's

customer in any order and before or after the bank's regular

banking hours. A bank is under no obligation to determine the

time of day an item is received and without liability may

withhold the amount thereof pending a determination of the

effect, consequence or priority of any knowledge, notice,

stop-payment order, or legal process concerning the same, or

interplead such amount and the claimants thereto.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1985, 69th Leg., ch. 621, Sec. 2, eff. June

14, 1985; Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan. 1,

1996.

SUBCHAPTER D. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER

Sec. 4.401. WHEN BANK MAY CHARGE CUSTOMER'S ACCOUNT. (a) A

bank may charge against the account of a customer an item that is

properly payable from that account even though the charge creates

an overdraft. An item is properly payable if it is authorized by

the customer and is in accordance with any agreement between the

customer and the bank.

(b) A customer is not liable for the amount of an overdraft if

the customer neither signed the item nor benefited from the

proceeds of the item.

that is otherwise properly payable from the account, even though

payment was made before the date of the check, unless the

customer has given notice to the bank of the postdating

describing the check with reasonable certainty. The notice is

effective for the period stated in Section 4.403(b) for

stop-payment orders and must be received at such time and in such

manner as to afford the bank a reasonable opportunity to act on

it before the bank takes any action with respect to the check

described in Section 4.303. If a bank charges against the account

of a customer a check before the date stated in the notice of

postdating, the bank is liable for damages for the loss resulting

from its act. The loss may include damages for dishonor of

subsequent items under Section 4.402.

(d) A bank that in good faith makes payment to a holder may

charge the indicated account of its customer according to:

(1) the original terms of the altered item; or

(2) the terms of the completed item, even though the bank knows

the item has been completed, unless the bank has notice that the

completion was improper.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.402. BANK'S LIABILITY TO CUSTOMER FOR WRONGFUL DISHONOR.

(a) Except as otherwise provided by this chapter, a payor bank

wrongfully dishonors an item if it dishonors an item that is

properly payable, but a bank may dishonor an item that would

create an overdraft unless it has agreed to pay the overdraft.

(b) A payor bank is liable to its customer for damages

proximately caused by the wrongful dishonor of an item. Liability

is limited to actual damages proved and may include damages for

an arrest or prosecution of the customer or other consequential

damages. Whether any consequential damages are proximately caused

by the wrongful dishonor is a question of fact to be determined

in each case.

balance on which a decision to dishonor for insufficiency of

available funds is based may be made at any time between the time

the item is received by the payor bank and the time that the

payor bank returns the item or gives notice in lieu of return,

and no more than one determination need be made. If, at the

election of the payor bank, a subsequent balance determination is

made for the purpose of reevaluating the bank's decision to

dishonor the item, the account balance at that time is

determinative of whether a dishonor for insufficiency of

available funds is wrongful.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.403. CUSTOMER'S RIGHT TO STOP PAYMENT; BURDEN OF PROOF OF

LOSS. (a) A customer or any person authorized to draw on the

account if there is more than one person may stop payment of any

item drawn on the customer's account or close the account by an

order to the bank describing the item or account with reasonable

certainty received at a time and in a manner that affords the

bank a reasonable opportunity to act on it before any action by

the bank with respect to the item described in Section 4.303. If

the signature of more than one person is required to draw on an

account, any of those persons may stop payment or close the

account.

(b) A stop-payment order is effective for six months and is

binding on the bank only if it is in a dated, authenticated

record that describes the item with certainty. A stop-payment

order may be renewed for additional six-month periods by an

authenticated record given to the bank within a period during

which the stop-payment order is effective.

resulting from the payment of an item contrary to a stop-payment

order or order to close an account is on the customer. The loss

from payment of an item contrary to a stop-payment order may

include damages for dishonor of subsequent items under Section

4.402.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Amended by:

Acts 2005, 79th Leg., Ch.

95, Sec. 20, eff. September 1, 2005.

Sec. 4.404. BANK NOT OBLIGATED TO PAY CHECK MORE THAN SIX MONTHS

OLD. A bank is under no obligation to a customer having a

checking account to pay a check, other than a certified check,

that is presented more than six months after its date, but it may

charge its customer's account for a payment made thereafter in

good faith.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.405. DEATH OR INCOMPETENCE OF CUSTOMER. (a) A payor or

collecting bank's authority to accept, pay, or collect an item or

to account for proceeds of its collection, if otherwise

effective, is not rendered ineffective by the incompetence of a

customer of either bank existing at the time the item is issued

or its collection is undertaken if the bank does not know of an

adjudication of incompetence. Neither death nor incompetence of a

customer revokes the authority to accept, pay, collect, or

account until the bank knows of the fact of death or of an

adjudication of incompetence and has reasonable opportunity to

act on it.

(b) Even with knowledge, a bank may for 10 days after the date

of death pay or certify checks drawn on or before that date

unless ordered to stop payment by a person claiming an interest

in the account.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.406. CUSTOMER'S DUTY TO DISCOVER AND REPORT UNAUTHORIZED

SIGNATURE OR ALTERATION. (a) A bank that sends or makes

available to a customer a statement of account showing payment of

items for the account shall either return or make available to

the customer the items paid or provide information in the

statement of account sufficient to allow the customer reasonably

to identify the items paid. The statement of account provides

sufficient information if the item is described by item number,

amount, and date of payment. If the bank does not return the

items, it shall provide in the statement of account the telephone

number that the customer may call to request an item or a legible

copy of the items pursuant to Subsection (b).

(b) If the items are not returned to the customer, the person

retaining the items shall either retain the items or, if the

items are destroyed, maintain the capacity to furnish legible

copies of the items until the expiration of seven years after

receipt of the items. A customer may request an item from the

bank that paid the item, and that bank must provide in a

reasonable time either the item or, if the item has been

destroyed or is not otherwise obtainable, a legible copy of the

item. A bank shall provide, on request and without charge to the

customer, at least two items or a legible copy of the items with

respect to each statement of account sent to the customer.

items pursuant to Subsection (a), the customer must exercise

reasonable promptness in examining the statement or the items to

determine whether any payment was not authorized because of an

alteration of an item or because a purported signature by or on

behalf of the customer was not authorized. If, based on the

statement or items provided, the customer should reasonably have

discovered the unauthorized payment, the customer must promptly

notify the bank of the relevant facts.

(d) If the bank proves that the customer failed, with respect to

an item, to comply with the duties imposed on the customer by

Subsection (c), the customer is precluded from asserting against

the bank:

(1) the customer's unauthorized signature or any alteration on

the item, if the bank also proves that it suffered a loss by

reason of the failure; and

(2) the customer's unauthorized signature or alteration by the

same wrongdoer on any other item paid in good faith by the bank

if the payment was made before the bank received notice from the

customer of the unauthorized signature or alteration and after

the customer had been afforded a reasonable period of time, not

exceeding 30 days, in which to examine the item or statement of

account and notify the bank.

(e) If Subsection (d) applies and the customer proves that the

bank failed to exercise ordinary care in paying the item and that

the failure contributed to loss, the loss is allocated between

the customer precluded and the bank asserting the preclusion

according to the extent to which the failure of the customer to

comply with Subsection (c) and the failure of the bank to

exercise ordinary care contributed to the loss. If the customer

proves that the bank did not pay the item in good faith, the

preclusion under Subsection (d) does not apply.

(f) Without regard to care or lack of care of either the

customer or the bank, a customer who does not within one year

after the statement or items are made available to the customer

(Subsection (a)) discover and report the customer's unauthorized

signature on or any alteration on the item is precluded from

asserting against the bank the unauthorized signature or

alteration. If there is a preclusion under this subsection, the

payor bank may not recover for breach of warranty under Section

4.208 with respect to the unauthorized signature or alteration to

which the preclusion applies.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.407. PAYOR BANK'S RIGHT TO SUBROGATION ON IMPROPER

PAYMENT. If a payor bank has paid an item over the order of the

drawer or maker to stop payment, or after an account has been

closed, or otherwise under circumstances giving a basis for

objection by the drawer or maker, to prevent unjust enrichment

and only to the extent necessary to prevent loss to the bank by

reason of its payment of the item, the payor bank is subrogated

to the rights:

(1) of any holder in due course on the item against the drawer

or maker;

(2) of the payee or any other holder of the item against the

drawer or maker either on the item or under the transaction out

of which the item arose; and

(3) of the drawer or maker against the payee or any other holder

of the item with respect to the transaction out of which the item

arose.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

SUBCHAPTER E. COLLECTION OF DOCUMENTARY DRAFTS

Sec. 4.501. HANDLING OF DOCUMENTARY DRAFTS; DUTY TO SEND FOR

PRESENTMENT AND TO NOTIFY CUSTOMER OF DISHONOR. A bank that

takes a documentary draft for collection shall present or send

the draft and accompanying documents for presentment and, upon

learning that the draft has not been paid or accepted in due

course, shall seasonably notify its customer of the fact even

though it may have discounted or bought the draft or extended

credit available for withdrawal as of right.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.502. PRESENTMENT OF "ON ARRIVAL" DRAFTS. If a draft or

the relevant instructions require presentment "on arrival", "when

goods arrive", or the like, the collecting bank need not present

until in its judgment a reasonable time for arrival of the goods

has expired. Refusal to pay or accept because the goods have not

arrived is not dishonor; the bank must notify its transferor of

the refusal but need not present the draft again until it is

instructed to do so or learns of the arrival of the goods.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.503. RESPONSIBILITY OF PRESENTING BANK FOR DOCUMENTS AND

GOODS; REPORT OF REASONS FOR DISHONOR; REFEREE IN CASE OF NEED.

Unless otherwise instructed and except as provided in Chapter 5,

a bank presenting a documentary draft:

(1) must deliver the documents to the drawee on acceptance of

the draft if it is payable more than three days after

presentment; otherwise, only on payment; and

(2) upon dishonor, either in the case of presentment for

acceptance or presentment for payment, may seek and follow

instructions from any referee in case of need designated in the

draft or, if the presenting bank does not choose to utilize the

referee's services, it must use diligence and good faith to

ascertain the reason for dishonor, must notify its transferor of

the dishonor and of the results of its effort to ascertain the

reasons therefor, and must request instructions.

However, the presenting bank is under no obligation with respect

to goods represented by the documents except to follow any

reasonable instructions seasonably received; it has a right to

reimbursement for any expense incurred in following instructions

and to prepayment of or indemnity for those expenses.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Sec. 4.504. PRIVILEGE OF PRESENTING BANK TO DEAL WITH GOODS;

SECURITY INTEREST FOR EXPENSES. (a) A presenting bank that,

following the dishonor of a documentary draft, has seasonably

requested instructions but does not receive them within a

reasonable time may store, sell, or otherwise deal with the goods

in any reasonable manner.

(b) For its reasonable expenses incurred by action under

Subsection (a) the presenting bank has a lien upon the goods or

their proceeds, which may be foreclosed in the same manner as an

unpaid seller's lien.

Acts 1967, 60th Leg., p. 2343, ch. 785, Sec. 1, eff. Sept. 1,

1967. Amended by Acts 1995, 74th Leg., ch. 921, Sec. 4, eff. Jan.

1, 1996.

Find Legal Information

Texas Codes and Statutes

CHAPTER 4. BANK DEPOSITS AND COLLECTIONS