House File 371 - Introduced
HOUSE FILE
BY COMMITTEE ON COMMERCE,
REGULATION AND LABOR
(SUCCESSOR TO HSB 132)
(COMPANION TO SF 139)
Passed House, Date Passed Senate, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act relating to negotiable instruments, by providing for
2 liabilities among certain parties, and providing a statute of
3 limitations.
4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
5 TLSB 1563HV 81
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PAG LIN
1 1 Section 1. Section 554.3103, subsections 2 and 3, Code
1 2 2005, are amended to read as follows:
1 3 2. Other definitions applying to this Article and the
1 4 sections in which they appear are:
1 5 a. "Acceptance" Section 554.3409.
1 6 b. "Accommodated party" Section 554.3419.
1 7 c. "Accommodation party" Section 554.3419.
1 8 d. "Alteration" Section 554.3407.
1 9 e. "Anomalous endorsement" Section 554.3205.
1 10 f. "Blank endorsement" Section 554.3205.
1 11 g. "Cashier's check" Section 554.3104.
1 12 h. "Certificate of deposit" Section 554.3104.
1 13 i. "Certified check" Section 554.3409.
1 14 j. "Check" Section 554.3104.
1 15 k. "Consideration" Section 554.3303.
1 16 l. "Demand draft" Section 554.3104.
1 17 m. "Draft" Section 554.3104.
1 18 n. "Holder in due course" Section 554.3302.
1 19 o. "Incomplete instrument" Section 554.3115.
1 20 p. "Endorsement" Section 554.3204.
1 21 q. "Endorser" Section 554.3204.
1 22 r. "Instrument" Section 554.3104.
1 23 s. "Issue" Section 554.3105.
1 24 t. "Issuer" Section 554.3105.
1 25 u. "Negotiable instrument" Section 554.3104.
1 26 v. "Negotiation" Section 554.3201.
1 27 w. "Note" Section 554.3104.
1 28 x. "Payable at a
1 29 definite time" Section 554.3108.
1 30 y. "Payable on demand" Section 554.3108.
1 31 z. "Payable to bearer" Section 554.3109.
1 32 aa. "Payable to order" Section 554.3109.
1 33 ab. "Payment" Section 554.3602.
1 34 ac. "Person entitled
1 35 to enforce" Section 554.3301.
2 1 ad. "Presentment" Section 554.3501.
2 2 ae. "Reacquisition" Section 554.3207.
2 3 af. "Special endorsement" Section 554.3205.
2 4 ag. "Teller's check" Section 554.3104.
2 5 ah. "Transfer of instrument" Section 554.3203.
2 6 ai. "Traveler's check" Section 554.3104.
2 7 aj. "Value" Section 554.3303.
2 8 3. The following definitions in other Articles apply to
2 9 this Article:
2 10 a. "Bank" Section 554.4105.
2 11 b. "Banking day" Section 554.4104.
2 12 c. "Clearing house" Section 554.4104.
2 13 d. "Collecting bank" Section 554.4105.
2 14 e. "Depositary bank" Section 554.4105.
2 15 f. "Documentary draft" Section 554.4104.
2 16 g. "Intermediary bank" Section 554.4105.
2 17 h. "Item" Section 554.4104.
2 18 i. "Payor bank" Section 554.4105.
2 19 j. "Suspends payments" Section 554.4104.
2 20 Sec. 2. Section 554.3104, Code 2005, is amended by adding
2 21 the following new subsection:
2 22 NEW SUBSECTION. 11. a. "Demand draft" means a writing
2 23 not signed by a customer as defined in section 554.4104 that
2 24 is created by a third party under the purported authority of
2 25 the customer for the purpose of charging the customer's
2 26 account with a bank. The writing must contain the customer's
2 27 account number and may contain any of the following:
2 28 (1) The customer's printed or typewritten name;
2 29 (2) A notation that the customer authorized the draft; or
2 30 (3) The statement "no signature required", "authorized on
2 31 file", "signature on file", or words to that effect.
2 32 b. "Demand draft" does not include a check purportedly
2 33 drawn by and bearing the signature of a fiduciary as defined
2 34 in section 554.3307.
2 35 Sec. 3. Section 554.3309, subsection 1, Code 2005, is
3 1 amended to read as follows:
3 2 1. A person not in possession of an instrument is entitled
3 3 to enforce the instrument if: (i)
3 4 a. the person was in possession of the instrument and
3 5 entitled to enforce it seeking to enforce the instrument:
3 6 (1) was entitled to enforce the instrument when loss or
3 7 possession occurred, or
3 8 (2) has directly or indirectly acquired ownership of the
3 9 instrument from a person who was entitled to the instrument
3 10 when loss of possession occurred, (ii);
3 11 b. the loss of possession was not the result of a transfer
3 12 by the person or a lawful seizure,; and (iii)
3 13 c. the person cannot reasonably obtain possession of the
3 14 instrument because the instrument was destroyed, its
3 15 whereabouts cannot be determined, or it is in the wrongful
3 16 possession of an unknown person or a person that cannot be
3 17 found or is not amenable to service of process.
3 18 Sec. 4. Section 554.3416, subsection 1, paragraphs d and
3 19 e, Code 2005, are amended to read as follows:
3 20 d. the instrument is not subject to a defense or claim in
3 21 recoupment of any party which can be asserted against the
3 22 warrantor; and
3 23 e. the warrantor has no knowledge of any insolvency
3 24 proceeding commenced with respect to the maker or acceptor or,
3 25 in the case of an unaccepted draft, the drawer; and
3 26 f. if the instrument is a demand draft, creation of the
3 27 instrument according to the terms on its face was authorized
3 28 by the person identified as the drawer.
3 29 Sec. 5. Section 554.3416, Code 2005, is amended by adding
3 30 the following new subsection:
3 31 NEW SUBSECTION. 5. If a warranty under subsection 1,
3 32 paragraph "f", is not given by a transferor under applicable
3 33 conflict of laws rules, the warranty is not given to that
3 34 transferor when that transferor is a transferee.
3 35 Sec. 6. Section 554.3417, subsection 1, paragraphs b and
4 1 c, Code 2005, are amended to read as follows:
4 2 b. the draft has not been altered; and
4 3 c. the warrantor has no knowledge that the signature of
4 4 the drawer of the draft is unauthorized; and
4 5 d. if the draft is a demand draft, the creation of the
4 6 demand draft according to the terms on its face was authorized
4 7 by the person identified as the drawer.
4 8 Sec. 7. Section 554.3417, Code 2005, is amended by adding
4 9 the following new subsections:
4 10 NEW SUBSECTION. 7. A demand draft is a check as provided
4 11 in section 554.3104, subsection 6.
4 12 NEW SUBSECTION. 8. If a warranty under subsection 1,
4 13 paragraph "d", is not given by a transferor under applicable
4 14 conflict of laws rules, the warranty is not given to that
4 15 transferor when that transferor is a transferee.
4 16 Sec. 8. NEW SECTION. 554.4111 STATUTE OF LIMITATIONS.
4 17 An action to enforce an obligation, duty, or right arising
4 18 under this Article must be commenced within three years after
4 19 the cause of action accrues.
4 20 Sec. 9. Section 554.4207, subsection 1, paragraphs d and
4 21 e, Code 2005, are amended to read as follows:
4 22 d. the item is not subject to a defense or claim in
4 23 recoupment (section 554.3305, subsection 1) of any party that
4 24 can be asserted against the warrantor; and
4 25 e. the warrantor has no knowledge of any insolvency
4 26 proceeding commenced with respect to the maker or acceptor or,
4 27 in the case of an unaccepted draft, the drawer; and
4 28 f. if the item is a demand draft, creation of the item
4 29 according to the terms on its face was authorized by the
4 30 person identified as the drawer.
4 31 Sec. 10. Section 554.4207, Code 2005, is amended by adding
4 32 the following new subsection:
4 33 NEW SUBSECTION. 6. If the warranty under subsection 1,
4 34 paragraph "f", is not given by a transferor or collecting bank
4 35 under applicable conflict of laws rules, the warranty is not
5 1 given to that transferor when the transferor is a transferee
5 2 or to any prior collecting bank of that transferee.
5 3 Sec. 11. Section 554.4208, subsection 1, paragraphs b and
5 4 c, Code 2005, are amended to read as follows:
5 5 b. the draft has not been altered; and
5 6 c. the warrantor has no knowledge that the signature of
5 7 the purported drawer of the draft is unauthorized; and
5 8 d. if the draft is a demand draft, the creation of the
5 9 demand draft according to the terms on its face was authorized
5 10 by the person identified as the drawer.
5 11 Sec. 12. Section 554.4208, Code 2005, is amended by adding
5 12 the following new subsections:
5 13 NEW SUBSECTION. 7. A demand draft is a check as provided
5 14 in section 554.3104, subsection 6.
5 15 NEW SUBSECTION. 8. If a warranty under subsection 1,
5 16 paragraph "d", is not given by a transferor under applicable
5 17 conflict of laws rules, the warranty is not given to that
5 18 transferor when that transferor is a transferee.
5 19 EXPLANATION
5 20 GENERAL. This bill amends provisions in Articles 3 and 4
5 21 of the Uniform Commercial Code, a model Act governing
5 22 commercial transactions as drafted by the national conference
5 23 of commissioners on uniform state laws and the American law
5 24 institute. Articles 3 and 4 govern negotiable instruments
5 25 (sometimes referred to as simply "items"). Together the
5 26 articles regulate the payment of items as they are processed
5 27 through the collection stream, including the writing
5 28 ("drawing") of checks and drafts, and liabilities associated
5 29 with lost or fraudulent items as it affects banks (depository
5 30 banks, collecting banks, and payor banks).
5 31 WARRANTY == DEMAND DRAFTS. A demand draft is an item
5 32 resembling a check which is usually printed by a merchant
5 33 (identified in the bill as the "third party") that has
5 34 purportedly obtained permission from a buyer (the "drawer") to
5 35 create the draft on their behalf. The drawer is called the
6 1 "customer", meaning a customer of the drawer's bank. The
6 2 merchant may deposit the draft at any willing bank (a
6 3 "depository bank") for ultimate presentment and collection at
6 4 the customer's bank (the "payor bank").
6 5 Generally, a payor bank will recredit its customer's
6 6 account in cases where wrongful items have been presented and
6 7 honored. The question then is under what circumstances may
6 8 the payor bank seek recovery from parties in the collection
6 9 stream acting between it and the third=party merchant (e.g.,
6 10 anyone who cashes the draft for the merchant, the depository
6 11 bank which accepts the draft, or a collecting bank which
6 12 receives the draft and either presents it to the payor bank or
6 13 passes it along to another collecting bank for ultimate
6 14 presentment). Under UCC's warranty provisions special terms
6 15 are used to describe these parties. A bank which accepts and
6 16 passes on an item, such as a depository bank, is known as a
6 17 "transferor", and a bank which receives an item such as a
6 18 payor bank is known as a "transferee". A collecting bank is
6 19 both a transferor and transferee. A transferor warrants that
6 20 all signatures on the item are authentic, and that it has no
6 21 knowledge that the signature of the drawer of the draft is
6 22 unauthorized (see Code sections 554.3416, 554.3417, and
6 23 554.4208).
6 24 Under the bill, a demand draft must at least contain the
6 25 customer's account number. The bill expressly refers to
6 26 demand drafts in the warranty provisions, and specifies that a
6 27 transferor is warranting that the demand draft has been
6 28 authorized by the person identified as the payor bank's
6 29 customer, as evidenced by the customer's account number
6 30 printed on the face of the demand draft. Under the bill, if a
6 31 breach is proved, the payor bank as a transferee will have a
6 32 breach of warranty claim against the upstream transferor bank,
6 33 and each upstream bank will have a similar claim as a
6 34 transferee back up the stream to the depository bank.
6 35 RECIPROCITY. The bill also contains a conflict of laws
7 1 provision which applies in cases where the payor bank or
7 2 collecting bank (transferee) is located in another state and
7 3 the depository bank or collecting bank (transferor) is located
7 4 in Iowa. The bill provides that an Iowa bank does not have to
7 5 warrant a demand draft which has been transferred by an out=
7 6 of=state bank if the other state law does not have a
7 7 reciprocal warranty provision similar to the one contained in
7 8 the bill. For example, a merchant in Iowa could create a
7 9 demand draft and cash it at an Iowa depository bank for
7 10 transfer and presentment to an out=of=state payor bank. If
7 11 the out=of=state law did not have a reciprocity provision, and
7 12 the demand draft were fraudulent, the out=of=state payor bank
7 13 would have to recredit its customer's account, but could not
7 14 pass that liability upstream to the Iowa depository bank under
7 15 rules of warranty.
7 16 LOSS OF POSSESSION. The bill amends a provision which
7 17 provides that a person is entitled to obtain payment of an
7 18 item ("enforce the instrument") even if the person has lost
7 19 possession of the item (it has been misplaced, destroyed, or
7 20 stolen). A payee's or transferee's acceptance of the item
7 21 does not discharge the underlying obligation to pay regardless
7 22 of its physical loss. The bill originates from language
7 23 promulgated by the commissioners on uniform state laws.
7 24 According to comments from the commissioners, it is intended
7 25 to address the result of a court case, Dennis Joslin Co. v.
7 26 Robinson Broadcasting Corp., 977 F. Supp. 491 (D.D.C. 1997),
7 27 which held that a transferee of the item must have been in
7 28 actual possession of the item when it was lost. The bill
7 29 provides that a person need only prove that the person was
7 30 entitled to enforce the instrument at the time it was lost
7 31 (even when lost in transit regardless of the precise status of
7 32 ownership at the point of loss).
7 33 STATUTE OF LIMITATIONS. The bill includes a provision in
7 34 Article 4, which provides an express statute of limitations of
7 35 three years in order to enforce an obligation, duty, or right
8 1 arising under the Article. The provision is part of the model
8 2 Act under 4=111 but was not included in 1994 when the general
8 3 assembly enacted its provisions (1994 Iowa Acts, ch. 1167).
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