An Act Making Amendments to the Uniform Commercial Code Covering Provisions Dealing with Negotiable Instruments and Bank Depoits and Collections LR 2358(02)
Maine Legislature, Session 121, LD 1786
Committee Amendment CA_A_H772 (House)
Amends: 11 MRSA §3, 11 MRSA §4

COMMITTEE AMENDMENT "ft., to H.P. l308, L.D. 1786, Bill, "An 
Act Making Amendments to the Uniform Commercial Code Covering 
Provisions Dealing with Negotiable Instruments and Bank Deposits 
and Collections" 
Amend the bill by striking out everything after the enacting 
clause and before the summary and inserting in its place the 
following: 
'Sec. 1. 11 MRSA §3-1103, sub-§(2), as enacted by PL 1993, c. 
293, Pt. A, §2, is amended to read: 
(2) 
Other definitions applying to this Article and the 
sections in which they appear are: 
"Acceptance" 
"Accommodated party" 
"Accommodation party" 
"Alteration" 
"Anomalous indorsement" 
"Blank indorsement" 
"Cashier's check" 
"Certificate of deposit" 
"Certified check" 
"Check" 
"Consideration" 
"Demand draft" 
"Draft" 
Section 3-1409 
Section 3-1419 
Section 3-1419 
Section 3-1407 
Section 3-1205 
Section 3-1205 
Section 3-1104 
Section 3-1104 
Section 3-1409 
Section 3-1104 
Section 3-1303 
Section 3-1104 
Section 3-1104 
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"Holder in due course" 
"Incomplete instrument" 
"Indorsement" 
"Indorser" 
"Instrument" 
"Issue" 
"Issuer" 
"Negotiable instrument" 
"Negotiation" 
"Note" 
"Payable at a definite time" 
"Payable on demand" 
"Payable to bearer" 
"Payable to order" 
"Payment" 
"Person entitled to enforce" 
"Presentment" 
"Reacquisition" 
"Special indorsement" 
"Teller's check" 
"Transfer of instrument" 
"Traveler's check" 
"Value" 
Section 3-1302 
Section 3-1115 
Section 3-1204 
Section 3-1204 
Section 3-1104 
Section 3-1105 
Section 3-1105 
Section 3-1104 
Section 3-1201 
Section 3-1104 
Section 3-1108 
Section 3-1108 
Section 3-1109 
Section 3-1109 
Section 3-1602 
Section 3-1301 
Section 3-1501 
Section 3-1207 
Section 3-1205 
Section 3-1104 
Section 3-1203 
Section 3-1104 
Section 3-1303 
Sec. 2. 11 MRSA §3-1104, sub-§(6), as enacted by PL 1993, c. 
293, Pt. A, §2, is amended to read: 
(6) 
"Check" means: 
(a) 
A draft, other than a documentary draft, payable on 
demand and drawn on a bank; e~ 
(b) 
A cashier's check or teller's checkT~ 
(c) 
A demand draft. 
An instrument may be a check even though it is described on its 
face by another term, such as "money order." 
Sec.3. 11 MRSA §3-1104, sub-§(II) is enacted to read: 
(11) 
"Demand draft" 
means 
a 
writing not 
signed 
by 
a 
customer that is created by a 
3rd party under the purported 
authority of 
the 
customer 
for 
the purpose 
of 
charging 
the 
customer's account with a bank. 
A demand draft must contain the 
customer's account number 
and may contain any or all of the 
following: 
(a) 
The customer's printed or typewritten name: 
COMMITTEE AMENDMENT 
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COMMITTEE AMENDMENT "A" to H.P. l308, L.D. 1786 
(b) 
A notation that the customer authorized the draft: and 
(c) 
The statement "No Signature Required" or words to that 
effect. 
"Demand draft" does not include a check purportedly drawn by and 
bearing the signature of a 
fiduciary, 
as defined in section 
3-1307. subsection I. paragraph (a). 
Sec. 4. 11 MRSA §3-1416, sub-§(I), 1[1[(d) and (e), as enacted by PL 
1993, c. 293, Pt. A, §2, are amended to read: 
(d) 
The instrument is not subject to a defense or claim in 
recoupment of any party that may be asserted against the 
warrantor; aRa 
(e) 
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 drawerT~ 
Sec.5. 11 MRS A §3-1416, sub-§(I), 1[(f) is enacted to read: 
(f) 
If the instrument is a demand draft, creation of the 
instrument according to the terms on its face was authorized 
by the person identified as the drawer. 
Sec.6. 11 MRSA §3-1416, sub-§(5) is enacted to read: 
(5) 
If the warranty in subsection (1), paragraph (f) is not 
given by a transferor under applicable conflict of laws rules. 
then the warranty is not given to that transferor when that 
transferor is a transferee. 
Sec. 7. 11 MRS A §3-1417, sub-§(I), as enacted by PL 1993, c. 
293, Pt. A, §2, is amended to read: 
(1) 
If an unaccepted draft is presented to the drawee for 
payment or acceptance and the drawee pays or accepts the draft, 
the person obtaining payment or acceptance, 
at the 
time of 
presentment~ and a previous transferor of the draft, at the time 
of transfer, 
shall warrant to the drawee 
making payment or 
accepting the draft in good faith that: 
(a) 
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; 
(b) 
The draft has not been altered; aRa 
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COMMITTEE AMENDMENT "R" to H.P. 1308, L.D. 1786 
(c) 
The warrantor has no knowledge that the signature of 
the drawer of the draft is unauthorizedT~ 
(d) 
If the draft is a demand draft, creation of the demand 
draft according to the terms on its face was authorized by 
the person identified as the drawer. 
Sec. 8. 11 MRSA §3-1417, sub-§§(7) and (8) are enacted to read: 
(7) 
A demand draft is a 
check, 
as provided in section 
3-1104, subsection (6). 
(8) 
If the warranty in subsection (1), paragraph (d) is not 
given by a transferor under applicable conflict of laws rules, 
then the warranty is not given to that transferor when that 
transferor is a transferee. 
Sec. 9. 11 MRSA §4-104, sub-§(3), as amended by PL 1993, c. 
293, Pt. B, §9, is further amended to read: 
(3) 
The following definitions in other Articles apply to 
this Article: 
"Acceptance." 
"Alteration." 
"Cashier's check." 
"Certificate of deposit." 
"Certified Check." 
"Check." 
"Demand draft." 
"Draft." 
"Good faith." 
"Holder in due course." 
"Instrument." 
"Notice of dishonor." 
"Order." 
"Ordinary care." 
"Person entitled to enforce." 
"Presentment." 
"Promise." 
"Prove." 
"Teller's check." 
"Unauthorized signature." 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
Section 
3-1409. 
3-1407. 
3-1104. 
3-1104. 
3-1409. 
3-1104. 
3-1104. 
3-1104. 
3-1103. 
3-1102. 
3-1104. 
3-1503. 
3-1103. 
3-1103. 
3-1301. 
3-1501. 
3-1103. 
3-1103. 
3-1104. 
3-1403. 
Sec. 10. 11 MRSA §4-207-A, sub-§(I), ,,(d) and (e), as enacted by 
PL 1993, c. 293, Pt. B, §25, are amended to read: 
(d) 
The 
recoupment 
item is not subject to a 
defense or claim in 
(section 3-1305, 
subsection (1» 
of any party 
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COMMITTEE AMENDMENT "A" to H.P. 1308, L.D. 1786 
that can be asserted against the warrantor; aRe 
(e) 
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 drawerT; and 
Sec. 11. 11 MRSA §4-207-A, sub-§(I), ,(f) is enacted to read: 
( f) 
If the item is· a demand draft. creation of the item 
according to the terms on its face was authorized by the 
person identified as the drawer. 
Sec. 12. 11 MRSA §4-207-A, sub-§(6) is enacted to read: 
(6) 
If the warranty in subsection (I). paragraph (f) is not 
given 
by 
a 
transferor 
or 
collecting 
bank 
under 
applicable 
conflict of laws rules. then the warranty is not given to that 
transferor when that transferor is a transferee nor to any prior 
collecting bank of that transferee. 
Sec. 13. 11 MRSA §4-207-B, sub-§(I), as enacted by PL 1993, c. 
293, Pt. B, §26, are amended to read: 
(1) 
If an unaccepted draft is presented to the drawee for 
payment or acceptance and the drawee pays or accepts the draft, 
the person obtaining payment or acceptance, 
at the time of 
presentmentL 
and 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: 
(a) 
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; 
(b) 
The draft has not been altered; aRe 
(c) 
The warrantor has no knowledge that the signature of 
the purported drawer of the draft is unauthorizedT~ 
(d) 
If the draft is a demand draft. creation of the demand 
draft according to the terms on its face was authorized by 
the person identified as the drawer. 
Sec. 14. 11 MRSA §4-207-B, sub-§§(7) and (8) are enacted to read: 
(7) 
A demand draft is a 
check. 
as provided in section 
3-1104. subsection (6). 
COMMITTEE AMENDMENT 
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COMMITTEE AMENDMENT "fr' to H.P. 1308, L.D. 1786 
(8) 
If the warranty in subsection (1), paragraph (d) is not 
given by a transferor under applicable conflict of laws rules, 
then the warranty is not given to the transferor when that 
transferor is a transferee.' 
SUMMARY 
This amendment replaces the bill. 
Modern check collection methods have increased the risk on 
payor banks that items not bearing authorized signatures may be 
paid against customer accounts. 
The purpose of this amendment is 
to define a 
new class of payment instrument, drawn on a bank 
customer's account without an authorized signature, and to shift 
the 
risk 
of 
loss 
for 
processing 
this 
instrument 
to 
the 
depositary-collecting bank, 
which is in the best position to 
prevent its introduction into the check collection system. 
The definition of "demand draft" is intended to identify a 
payment instrument created to debit a bank customer's account 
with the bank by a party who is not a signer on the account. 
This payment instrument is not signed by an authorized signer on 
the account and does not bear or purport to bear a signature of 
an authorized signer. 
This payment instrument is intended to 
debit the bank customer's account by deposit and collection 
through the normal check collection system. 
A demand draft may 
be created by a 
rd party, such as a telemarketer, with the 
authorization by the bank customer to obtain payment from the 
bank customer's account as a means to pay the 3rd party. 
A 
demand draft may also be created by a 3rd party, such as a home 
banking service provider, as a means to pay itself or others. 
The customer's account number and other processing information is 
encoded on the demand draft, and the demand draft is deposited in 
a bank for collection through normal banking channels and payment 
by the payor bank. 
Because checks and other items deposited for 
collection are processed rapidly and in high volume, payor banks 
are 
not 
able 
to 
determine 
whether 
customers 
authorize 
the 
creation of demand drafts. 
The depositary bank, which is charged 
with knowing its customer, is in the best position to avoid the 
introduction into the check collection system of an unauthorized 
demand draft by scrutinizing the customers allowed to deposit 
those drafts. 
This change creates an additional warranty to each 
transferee, in the case of a demand draft, that the demand draft 
was authorized by the bank customer upon whose account it is 
drawn. 
This change shifts the risk to the depositary bank if its 
customer deposits an unauthorized demand draft for collection. 
Demand drafts do not include instruments that bear forged or 
unauthorized signatures of customers. 
Instruments bearing forged 
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COMMITTEE AMENDMENT "fi" to H.P. l308, L.D. 1786 
or unauthorized signatures should be handled under the forgery 
provisions and unauthorized signature provisions of Articles 3-A 
and 4 of the Uniform Commercial Code, as applicable. 
Demand drafts also 
do 
not include instruments 
drawn or 
purportedly drawn and signed by a "fiduciary" as defined in the 
Uniform Commercial Code, Article 3-A, section 3-1307, subsection 
(1), paragraph (a). 
Application of this section is illustrated by the following 
examples: 
Case No.1: 
X contacts Y by telephone or otherwise. 
X obtains Y' s 
account number with Bank A and creates an instrument payable to X 
that lists Y as the maker of the instrument and has Y' s bank 
account 
information 
encoded 
with 
magnetic 
ink 
character 
recognition symbols on the bottom of the instrument. 
In the 
signature block, X affixes a 
stamp that states "SIGNATURE 
ON 
FILE." 
X deposits the instrument into X's account at Bank B. 
Bank B presents the instrument to Bank A for payment. 
Bank A 
pays the check and deducts the funds from Y's account. 
Y claims 
that Y did not authorize the creation of the instrument to debit 
Y's account and Y did not receive any benefit from the payment. 
In this case, the instrument qualifies as a demand draft. 
Bank A 
has a breach of warranty claim against Bank B under the Uniform 
Commercial 
Code, 
Article 4, 
section 4-207-B, 
subsection (1), 
paragraph (d). 
Even if X had not affixed the stamp stating 
"SIGNATURE ON FILE" or included the name of Y on the instrument, 
the instrument would qualify as a demand draft because Y' s bank 
account information is printed by encoding on the bottom of the 
instrument. 
Case No.2: 
This case has the same facts as Case No.1, except that X 
includes Y's name on the instrument and by error or with intent X 
has Z's bank account information at Bank A encoded on the bottom 
of the instrument. 
Both Y and Z claim they did not authorize the 
instrument and dJ.d not receive benefit from the payment. 
The 
instrument qualifies as a demand draft. 
Bank A has a breach of 
warranty claim against Bank B under the Uniform Commercial Code, 
Article 4, section 4-207 -B, 
subsection (1) , 
paragraph (d) 
and 
section 4-207-C. 
Case No.3: 
X fraudulently issues a 
check payable to Y drawn on Z' s 
account with Bank A and signs the check "X, attorney-in-fact for 
Z." 
Y deposits the check into Bank B, who presents the check to 
COMMITTEE AMENDMENT 
COMMITTEE AMENDMENT .. ff:. to H.P. 1308, L.D. 1786 
Bank A. 
Bank A pays the check and deducts the funds from Z' s 
account. 
Z claims the check was not authorized, that X is not 
Z's attorney-in-fact and that Z received no benefit from the 
payment. 
In this case, the check is not a demand draft, because 
the signature of X is on the instrument as a fiduciary. 
FISCAL NOTE REQUIRED 
(See attached) 
COMMITTEE AMENDMENT 
Approved: 03/01104 ~aC!. 
Office of Fiscal and Program Review 
LD 1786 
An Act Making Amendments to the Uniform Commercial Code Covering 
Provisions Dealing with Negotiable Instruments and Bank Depoits and 
Collections 
LR 2358(02) 
Fiscal Note for Bill as Amended by Committee Amendment" " 
Committee: Judiciary 
Fiscal Note Required: Yes 
Fiscal Note 
Minor cost increase - General Fund 
LR2358(2) - Fiscal Note - Page 1 of 1