03/03/2005 01:30 PM Senate LABOR & COMMERCE

                 HB  90-STATE TREASURY WARRANTS                                                                             
                                                                                                                                
CHAIR BUNDE announced HB 90 to be up for consideration.                                                                         
                                                                                                                                
2:03:44 PM                                                                                                                    
REPRESENTATIVE MAX  GRUENBERG, said he  is here on behalf  of the                                                               
House State Affairs Committee, which  introduced HB 90. This bill                                                               
codifies the  National Bank  of Alaska  v. Univentures  1231, 824                                                               
   nd                                                                                                                           
P.2   1377  (Alaska 1992)  case, a  Supreme  Court decision  that                                                               
makes treasury warrants negotiable  instruments under the Uniform                                                               
Commercial Code  (UCC). Up until  that time, the state  had taken                                                               
the position  treasury warrants were not  negotiable instruments,                                                               
so banks were free to dishonor them.                                                                                            
                                                                                                                                
2:05:09 PM                                                                                                                    
Banks were left  without recourse when they  would cash someone's                                                               
treasury  warrant and  then the  state would  later say  for some                                                               
reason  it  wasn't honoring  it.  In  the Univentures  case,  the                                                               
Alaska  Supreme Court  said, following  a number  of other  state                                                               
litigating similar issues, that  treasury warrants are negotiable                                                               
instruments. He was not aware of any opposition.                                                                                
                                                                                                                                
CHAIR BUNDE asked  in what situation would the state  not honor a                                                               
treasury warrant.                                                                                                               
                                                                                                                                
2:06:36 PM                                                                                                                    
REPRESENTATIVE GRUENBERG related the  Univentures case was a case                                                               
in point. The  state leased a property that was  owned by a joint                                                               
venture or  a partnership. The  people involved in  the ownership                                                               
had a falling out and  because they litigated amongst themselves,                                                               
they asked  the state to put  a stop payment on  the warrants. In                                                               
the meantime,  the state had given  a treasury warrant to  one of                                                               
the litigants. That person negotiated  the warrant; the bank paid                                                               
it and then the bank sent  it through the channels. By that time,                                                               
the state had received the word to not honor it.                                                                                
                                                                                                                                
Another situation where  it could have arisen would  have been if                                                               
a vendor had  delivered some goods to the state;  the state wrote                                                               
a warrant  and then for some  reason found the goods  or services                                                               
to be  defective. They could  have technically dishonored  it and                                                               
because  they are  treasury warrants,  the state  could take  the                                                               
position of stopping payment.                                                                                                   
                                                                                                                                
2:08:05 PM                                                                                                                    
CHAIR BUNDE  said that  basically the bill  is telling  the state                                                               
that it cannot stop payment.                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG responded that it  can do that, but only                                                               
under the rules of  the UCC - that say you  can stop payment, but                                                               
you must notify  the bank in a reasonable time,  so that the bank                                                               
will have notice before it cashes  the check. Once you have given                                                               
proper notice  you must  dishonor the draft,  but if  you haven't                                                               
given proper notice, you have to honor it.                                                                                      
                                                                                                                                
KIM  GARNERO,  Director,  Division   of  Finance,  Department  of                                                               
Administration,  supported previous  testimony  saying that  this                                                               
bill simply codifies  in law a 1992 ruling by  the Alaska Supreme                                                               
Court.                                                                                                                          
                                                                                                                                
CHAIR BUNDE said it is the  practice of the committee to not pass                                                               
a bill  after the  first hearing  and that he  would hold  it for                                                               
another hearing  at a  future date. He  adjourned the  meeting at                                                               
2:11:42 PM.