The Attorney General of Texas
December 31, 1982
MARK WHITE
Attorney General
Honorable Warren G. Harding Opinion No. MW-556
Supreme Court Building Texas State Treasurer
P. 0. Box 12546
Treasury Department Applicability of section
Austin. TX. 76711. 2546
5121475-2501 P. 0. Box 12608, Capitol Station ::tO6(d) , Texas Business and
Telex 9101674.1367 Austin, Texas 78711 COlNllerCe Code, to warrants
Telecopier 51214750266 issued by the comptroller and
paid by the state treasurer
1607 Main St., Suite 1400
Dallas. TX. 75201-4709 Dear Mr. Harding:
2141742-6944
You have requested our opinion as to whether section 4.406(d) of
the Texas Business and Commerce Code (hereinafter TUCC) applies to
4624 Alberta Ave., Suite 160
state warrants issued by the comptroller of public accounts and drawn
El Paso, TX. 799052793
9151533.3464 on and paid by the state treasury. In addition, you ask if there is a
statute of limitations which applies to the return of state warrants
to presenting banks or other parties due to late discovery of faulty
1220 Dallas Ave., Suite 202
or improper presentation.
“ouston. TX. 77002.6966
7131650.0666
Before reaching your specific questions, we must address the
threshold issue of whether chapter four of the TUCC can be said to
606 Broadway. Suite 312 apply to the treasury of the state of Texas. Chapter four covers,
Lubbock. TX. 79401-3479
generally, bank deposits and collections, and constitutes a uniform
6061747-5236
statement of the principal rules of the bank collection process. Tex.
BUS. & Comm. Code 84.101, comment. In the context of your inquiry,
4309 N. Tenth. Suite S the provisions of chapter four apply to the treasury of the state of
McAllen, TX. 76501-1665 Texas only if the treasury is a "bank" within the meaning of the code.
5121662-4547
Although the term "bank" may have a commonly understood meaning
200 Main Plaza. Suite 400 which connotes a state or federally regulated corporate entity and
San Antonio, TX. 76205.2797 which would necessarily preclude the inclusion of a governmental body
5121225.4191 as one of its kind, we are not dealing with the dictionary definition
of a "bank." The TUCC definitions are terms of art, limited to the
An Equal Opportunity/
specific statutory enactment and not intended to apply generally.
Affirmative Action Emplpyer Reed V. Washington Trailer Sales, Inc., 393 F. Supp. 886 (M.D. Term.
1974). We are bound to apply the code's statutory definition in
deciding the issue of the &p&ability of chapter four. Nelson v.
Union Equity Co-Operative Exchange, 548 S.W.2d 352 (Tex. 1977). A
"bank" is defined as any person engaged in the business of banking.
Tex. Bus. & Comm. Code §1.201(4). A "person" is an individual or an
organization, and an "organization" includes a government or
governmental subdivision or agency. Tex. Bus. & COUUtl. Code
§1.201(28), (30). Thus, the state treasury is a "bank" for purposes
p. 2035
Honorable Warren G. Harding - Page 2 (MW-556)
of chapter 4 of the code if it is engaged in the "business of
banking." Neither the Uniform Commercial Code nor the Texas Uniform
Commercial Code defines the "business of banking."
This has a two-fold aspect. First, it permits the
Code to apply to whatever business is known as the
'banking business' at the particular time in
question rather than narrowing the application to
persons engaged in what was known as the banking
business as of the time when the Code was adopted.
This flexible coverage of the Code is in harmony
with its underlying purposes of 'modernizing' the
law governing business transactions, and of
permitting continued expansion of commercial
practices through usage. Secondly, it permits the
Code to apply to persons and to organizations
which engage in only a restricted area or segment
of the total possible banking business. To hold
that to be a bank there must be an engaging in the
totality of banking business would lead to the
absurd result that many organizations which are
admittedly and obviously engaged in bank
collections would not be considered banks within
the meaning of the Code.
1 R. Anderson, Uniform Commercial Code, §l-201:8, at 74 (2d ed. 1970).
The courts have held that the keenina . I of denosits constitutes the
business of banking. Moran v. Cobb, 120 F.26 16 (D.C. Cir. 1941),
cert. dismissed, 314 U.S. 703 (1941); Brenham Production Credit
Association v. Zeiss, 264 S.W.2d 95 (1954); Kaliski v. Gossett, 109
S.W.2d 340 (Tex. Civ. App. - San Antonio 1937, writ ref'd). "IA1
person carrying on the business of receiving deposits may be. said to
be carrying on the banking business." Rosenblum v. Anglim, 135 F.2d
512, 513 (9th Cir. 1943). The treasurer of the state of Texas keeps
and pays out deposits. V.T.C.S. arts. 4370, 4371. To that limited
extent, the treasurer is engaged in what is commonly recognized as the
business of banking. Thus, the state treasury is a "bank" to which
chapter four of the TUCC applies. It must be reiterated that we are
finding here that the treasury is a bank only as defined by the TUCC,
with the only result being that the uniform commercial rules set out
in chapter four are applicable to the treasury. This result is
compelled by the terms of the statute and fosters the underlying
purposes and policies of the TUCC. The code "was written in terms of
current commercial practices, to meet the contemporary needs of a fast
moving cormnercial society and to advance fair dealing." 1 R.
Anderson, Uniform Commercial Code, §l-102:7, at 12 (2d ed. 1970). The
treasury is involved, on an enormous scale, with daily financial
transactions. The provisions of chapter four promote the smooth and
orderly disposition of financial transactions and are to the benefit
of the state of Texas.
p. 2036
Honorable Warren C. Harding - Page 3 (MW-556)
Having found that chapter four of the TUCC does apply to the
state treasury, we turn to your inquiry regarding the applicability of
section 4.406(d) of the TUCC to state warrants. Section 4.406(d)
provides:
Without regard to care or lack of care of either
the customer or the bank a customer who does not
within one year from the time the statement and
items are made available to the customer
(Subsection (a)) discover and report his
unauthorized signature or any alteration on the
face or back of the item or does not within three
years from the time discover and report any
unauthorized indorsement is precluded from
asserting against the bank such unauthorized
signature or indorsement or such alteration.
This section has been cited to you as a basis for a bank's refusal to
charge back an amount paid on a state warrant which had a forged
indorsement.
Special Fund Warrant No. R499313 was issued on June 1, 1977. The
warrant was deposited in a collecting bank on June 6, 1977, and passed
through an intermediary bank to the state treasurer on June 8, 1977.
The treasurer paid the warrant on June 9, 1977. On June 18, 1980, the
payee notified the state, by affidavit, that she had neither received
nor indorsed the Family Care Provider Warrant issued to her for
services rendered in May 1977, indicating that the indorsement on the
warrant was forged by an unknown third party. On June 30, 1980, the
warrant was returned to the collecting bank for a charge back. The
collecting bank has refused to return the amount of the warrant to the
state, claiming that the treasurer is barred by section 4.406(d) from
seeking recovery based upon the forged indorsement.
By its terms, section 4.406(d) governs the relationship between a
bank and its customer. The treasury is not a customer of the
collecting bank in this instance. If the treasury is barred from
recovering the money paid on a forged indorsement under the facts you
have described, it is by virtue of section 4.406(e) of the TUCC which
provides:
If under this section a payor bank has a valid
defense against a claim of a customer upon or
resulting from payment of an item and waives or
fails upon request to assert the defense the bank
may not assert against any collecting bank or
other prior party presenting or transferring the
item a claim based upon the unauthorized signature
or alteration giving rise to the customer's claim.
p. 2037
Honorable Warren G. Harding - Page 4 (Mw-55h)
"Under the Commercial Code, defenses available to a drawee bank
against claims of its depositor, by clear implication are also
available to a collecting or depository bank." Allied Concord
Financial Corporation V. Bank of America National Trust and Savings
Association, 275 Cal. App. 2d 1, 80 Cal. Rptr. 622, 625 (1969). Those
defenses include the time limits imposed by section 4.406(d). Sun 'N
Sand, Inc. v. United California Bank, 148 Cal. Rptr. 329, 582 P.2d 920
(1978). Therefore, if the treasury has a valid defense to a demand by
its customer to charge back the amount paid on the warrant bearing a
forged indorsement, such defense is, in turn, available to the
collecting bank.
Under section 4.104(a)(5) of the TUCC, a "customer" is "any
person having an account with a bank or for whom a bank has agreed to
collect items and includes a bank carrying an account with another
bank." The person whose funds were on deposit with the treasury and
whose funds were used to pay the warrant in question was the state of
Texas. The state's failure to notify the treasury of the forgery of
Special Fund Warrant No. R499313 within three years triggers the bar
of section 4.406(d). Consequently, the treasury may not look to the
collecting bank for reimbursement based upon the forged indorsement of
that warrant.
In response to your second inquiry, it is our opinion that
statutes of limitations, generally, are not applicable to the state
when it is operating in its governmental capacity. Hemphill County v.
Adams, 408 S.W.2d 926 (Tex. 1966); Lewis Cox and Son, Inc. v. High
Plains Underground Water Conservation District No. 1, 538 S.W.2d 659
(Tex. Civ. App.