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§ 4—101. Short title
This article may be cited as Uniform Commercial Code—Bank Deposits and Collections. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—102. Applicability
(a) To the extent that items within this article are also within Articles 3 and 8 of this
title, they are subject to those articles. If there is conflict, this article governs
Article 3 of this title, but Article 8 of this title governs this article.
(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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—103. Variation by agreement; measure of damages; action constituting ordinary care
(a) The effect of the provisions of this article 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) of this section, whether
or not specifically assented to by all parties interested in items handled.
(c) Action or non-action approved by this article or pursuant to 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 article, is prima facie the
exercise of ordinary care.
(d) The specification or approval of certain procedures by this article 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—104. Definitions and index of definitions
(a) In this article, 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 (§ 8—102) or instructions for uncertificated securities (§ 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 § 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 Article
4A of this title 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 article and the sections in which they appear are:
“Agreement for electronic presentment” § 4—110
“Bank” § 4—105
“Collecting bank” § 4—105
“Depositary bank” § 4—105
“Intermediary bank” § 4—105
“Payor bank” § 4—105
“Presenting bank” § 4—105
“Presentment notice” § 4—110
(c) “Control” as provided in section 7—106 of this title and the following definitions in other articles apply to this article:
“Acceptance” § 3—409
“Alteration” § 3—407
“Cashier’s check” § 3—104
“Certificate of deposit” § 3—104
“Certified check” § 3—409
“Check” § 3—104
“Demand draft” § 3—104
“Holder in due course” § 3—302
“Instrument” § 3—104
“Notice of dishonor” § 3–503
“Order” § 3—103
“Ordinary care” § 3—103
“Person entitled to enforce” § 3—301
“Presentment” § 3—501
“Promise” § 3—103
“Prove” § 3—103
“Teller’s check” § 3—104
“Unauthorized signature” § 3—403
(d) In addition, Article 1 of this title contains general definitions and principles of
construction and interpretation applicable throughout this article. (Amended 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995; 1995, No. 92 (Adj. Sess.), § 20, eff. Jan. 1, 1997; 2003, No. 87 (Adj. Sess.), § 5; 2007, No. 99 (Adj. Sess.), § 12; 2015, No. 51, § B.7, eff. June 3, 2015.)
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§ 4—105. “Bank”; “depository bank”; “intermediary bank”; “collecting bank”; “payor bank”; “presenting
bank”
In this article:
(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) “Depository 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995; 2019, No. 131 (Adj. Sess.), § 11.)
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§ 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, (i)
the item designates the bank as a collecting bank and does not by itself authorize
the bank to pay the item, and (ii) the item 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.
(c) If a draft names a nonbank drawee and it is unclear whether a bank named in the draft
is a co-drawee or a collecting bank, the bank is a collecting bank. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—107. Separate office of 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 article and under Article 3 of this
title. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 2 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 (i) 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 (ii) the bank exercises such diligence as the circumstances require. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 pursuant to an agreement for presentment is made when the presentment
notice is received.
(c) If presentment is made by presentment notice, a reference to “item” or “check” in
this article means the presentment notice unless the context otherwise indicates. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—111. Statute of limitations
An action to enforce an obligation, duty, or right arising under this article must
be commenced within three years after the cause of action accrues. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—201. Status of collecting bank as agent and provisional status of credits; applicability
of article; 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 article 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 nonpayment 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) of this section 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.
(c) Subject to subsection (a)(1)of this section, a bank is not liable for the 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—203. Effect of instructions
Subject to Article 3 of this title concerning conversion of instruments (§ 3—420) and restrictive indorsements (§ 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 nonbank payor if authorized by its transferor; and
(3) an item other than documentary drafts to a nonbank payor, if authorized by Federal
Reserve regulation or operating circular, clearing-house rule, or the like.
(c) Presentment may be made by a presenting bank at a place where the payor bank or other
payor has requested that presentment be made. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—205. Depositary bank holder of unindorsed item
If a customer delivers an item to a depositary bank for collection:
(1) the depositary bank 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 of this title, it is a holder in due course; and
(2) the depositary bank 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—206. Transfer between banks
Any agreed method that identifies the transferor bank is sufficient for the item’s
further transfer to another bank. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 (§ 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) 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 drawer.
(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 of this title. 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.
(c) A person to whom the warranties under subsection (a) of this section are 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) of this section 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 in subsection (a)(6) of this section 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 nor to any prior collecting
bank of that transferee. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995; 2003, No. 87 (Adj. Sess.), § 6.)
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§ 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, warrants 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) if the draft is a demand draft, creation of the draft according to the terms on its
face was authorized by the person identified as drawer.
(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 (i) breach of warranty is a defense to the obligation of the acceptor, and (ii)
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.
(c) If a drawee asserts a claim for breach of warranty under subsection (a) of this section
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 of this title or the drawer is precluded under section 3—406 or 4—406 of this title 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) of this section 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) A demand draft is a check as provided in subsection 3—104(k) of this title.
(h) If the warranty in subsection (a)(4) of this section is not given by a transferor
under applicable conflict of law rules, the warranty is not given to that transferor
when that transferor is a transferee. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995; amended 2003, No. 87 (Adj. Sess.), § 7.)
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§ 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.
(c) A person to whom warranties are made under this section 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, plus expenses and loss of interest
incurred as a result of the breach. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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.
(c) Receipt by a collecting bank of a final settlement for an 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 article
9 of this title, but:
(1) no security agreement is necessary to make the security interest enforceable (§ 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995; amended 1999, No. 106 (Adj. Sess.), § 14, eff. July 1, 2001; 2015, No. 51, § B.7, eff. June 3, 2015.)
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§ 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 of this title on what constitutes a holder in due course. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 written 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 of this title 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 of this title 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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
agreement. In the absence of such 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:
(i) with respect to tender of settlement by cash, a cashier’s check, or teller’s check,
when the cash or check is sent or delivered;
(ii) with respect to tender of settlement by credit in an account in a Federal Reserve
Bank, when the credit is made;
(iii) with respect to tender of settlement by a credit or debit to 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
(iv) with respect to tender of settlement by a funds transfer, when payment is made pursuant
to section 4A—406(a) of this title 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), no settlement occurs until the
tender of settlement is accepted by the person receiving settlement.
(c) If settlement for an item is made by cashier’s check or 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 which 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 customer, 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.
(c) A depositary bank that is also the payor may charge back the 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 (§ 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 shall 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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.
(c) If provisional settlement for an item between the presenting 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 which 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:
(1) if the bank 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;
(2) if the bank 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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.
(c) If a payor bank gives or a collecting bank gives or receives 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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; or
(2) sends written 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) of this section.
(c) Unless previous notice of dishonor has been sent, an item is 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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) of this section is subject to defenses based on breach of a presentment warranty (§ 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 of this title dealing with the payor bank’s responsibility for late return of items; or
(5) with respect to checks, a cutoff hour no earlier than one hour after the opening of
the next banking day after the banking day on which the bank received the check and
no 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) of this section, items may be accepted, paid, certified,
or charged to the indicated account of its customer in any order. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 the 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 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.
(c) A bank may charge against the account of a customer a check 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) of this title 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 of this title. 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 of this title.
(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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—402. Bank’s liability to customer for wrongful dishonor; time of determining insufficiency
of account
(a) Except as otherwise provided in this article, 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.
(c) A payor bank’s determination of the customer’s account 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 of this title. If the signature of more than one person is required to draw on an account, any
of these persons may stop payment or close the account.
(b) A stop-payment order is effective for six months, but it lapses after 14 calendar
days if the original order was oral and was not confirmed in writing within that period.
A stop-payment order may be renewed for additional six-month periods by a writing
given to the bank within a period during which the stop-payment order is effective.
(c) The burden of establishing the fact and amount of loss 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 of this title. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—404. Bank not obliged 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, which 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 4—406. Customer’s duty to discover and report unauthorized signature or alteration
(a) Upon the request of a customer, the bank shall return to a customer items shown as
paid on a statement of accounts, or copies thereof. If the customer does not request
that the items, or copies thereof, be returned, the bank shall provide information
in the statement of account sufficient to allow the customer to reasonably identify
the items that have been paid. The statement of account provides sufficient information
if the item is described by item number, amount, and date of payment.
(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.
(c) If a bank sends or makes available a statement of account or items pursuant to subsection
(a) of this section, 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) of this section, 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) of this section applies and the customer proves that the bank failed
to exercise ordinary care in paying the item and that the failure substantially 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) of this section 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) of this section 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 the alteration. If there is a preclusion under this subsection,
the payor bank may not recover for breach of warranty under section 4—208 of this title with respect to the unauthorized signature or alteration to which the preclusion
applies. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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 Article 5 of this title, 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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)
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§ 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) of this section,
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. (Added 1993, No. 158 (Adj. Sess.), § 13, eff. Jan. 1, 1995.)