Complete Home & Office Legal Guide/Complete Home and Office Legal Guide (Chestnut) (1993).ISO/stat/ucc/ucc4.asc

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ARTICLE 4
BANK DEPOSITS AND COLLECTIONS
PART 1. GENERAL PROVISIONS AND DEFINITIONS
Section

4-101.  Short Title.

4-102.  Applicability.

4-103.  Variation by Agreement; Measure of Damages; Action
Constituting Ordinary Care.

4-104.  Definitions and Index of Definitions.

4-105. "Bank"; "Depositary Bank"; "Payor Bank"; Intermediary
Bank"; "Collecting Bank"; "Presenting Bank."

4-106.  Payable Through or Payable at Bank; Collecting Bank.

4-107.  Separate Office of Bank.

4-108.  Time of Receipt of Items.

4-109.  Delays.

4-110.  Electronic Presentment.

4-111.  Statute of Limitations.

PART 2. COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING RANKS

4-201.  Status of Collecting Bank as Agent and Provisional Status
of Credits; Applicability of Article; Item Indorsed "Pay Any
Bank".

4-202.  Responsibility  for Collection or Return; When Action
Timely.

4-203.  Effect of Instructions.

4-204.  Methods of Sending and Presenting; Sending Directly to
Payor Bank.

4-205.  Depositary Bank Holder of Unindorsed Item.

4-206.  Transfer Between Banks.

4-207.  Transfer Warranties.

4-208.  Presentment Warranties.

4-209.  Encoding and Retention Warranties.

4-210.  Security Interest of Collecting Bank in Item,
Accompanying Documents and Proceeds.


4-211.  When Bank Gives Value for Purposes of Holder in Due
Course.

4-212.  Presentment by Notice of Item Not Payable by, Through, or
at Bank; Liability of Drawer or Indorser.

4-213.  Medium and Time of Settlement by Bank.

4-214.  Right of ChargeBack or Refund; Liability of Collecting
Bank; Return of Item.

4-215.  Final Payment of Item by Payor Bank; When Provisional
Debits and Credits Become Final; When Certain Credits Become
Available for Withdrawal.

4-216.  Insolvency and Preference.

Part 3. COLLECTION OF ITEMS: PAYOR BANKS

4-301.  Deferred Posting; Recovery of Payment by Return of Items;
Time of Dishonor; Return of Items by Payor Bank.

4-302.  Payor Bank's Responsibility for Late Return of Item.

4-303.  When Items Subject to Notice, Stop-Payment Order, Legal
Process, or Setoff; Order in Which Items May Be Charged or
Certified.

PART 4. RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER

4-401.  When Bank May Charge Customer's Account.

4-402.  Bank's Liability to Customer for Wrongful Dishonor; Time
of Determining Insufficiency of Account.

4-403.  Customer's Right to Stop Payment; Burden of Proof of
Loss.

4-404.  Bank Not Obliged to Pay Check More Than Six Months Old.

4-405.  Death or Incompetence of Customer.

4-406.  Customer's Duty to Discover and Report Unauthorized
Signature or Alteration.

4-407.  Payor Bank's Right to Subrogation on Improper Payment.

PART 5. COLLECTION OF DOCUMENTARY DRAFTS

4-501.  Handling of Documentary Drafts; Duty to Send For
Presentment and to Notify Customer of Dishonor.

4-502.  Presentment of "On Arrival" Drafts.

4-503.  Responsibility of Presenting Bank for Documents and
Goods; Report of Reasons for Dishonor; Referee in Case of Need.

4-504.  Privilege of Presenting Bank to Deal With Goods; Security
Interest for Expenses.

ARTICLE 4
BANK DEPOSITS AND COLLECTIONS
PART 1
GENERAL PROVISIONS AND DEFINITIONS

4-101. Short Title.

 This Article may be cited as Uniform Commercial Code Bank
Deposits and Collections.

 4-102. Applicability.

     (a) To the extent that items within this Article are also
within Articles 3 and 8, they are subject to those Articles. If
there is conflict, this Article governs Article 3, but Article 8
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.

 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,
cIearinghouse rules, and the like have the effect of agreement
under subsection (a), 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.

 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 (Section 8-102) or instructions for uncertificated
securities (Section 8-308), 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 Section 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 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"                  Section 4-110.

"Bank"                         Section 4-105.

"Collecting bank"             Section 4-105.

"Depositary bank"             Section 4-105.

"Intermediary bank"           Section 4-105.

"Payor bank"                  Section 4-105.

"Presenting bank"             Section 4-105.

"Presentment notice"          Section 4-110.

     (c) The following definitions in other Articles apply to
this Article:

"Acceptance"                  Section 3-409.

"Alteration"                  Section 3-407.

"Cashiers check"              Section 3-104.

"Certificate of deposit"      Section 3-104.

"Certified check"             Section 3-409.

"Check"                       Section 3-104.

"Good faith"                  Section 3-103.

"Holder in due course"        Section 3-302.

"Instrument"                  Section 3-104.

"Notice of dishonor"          Section 3-503.

"Order"                       Section 3-103.

"Ordinary care"               Section 3-103.

"Person entitled to enforce"  Section 3-301.

"Presentment"                 Section 3-501.

"Promise"                     Section 3-103.

"Prove"                       Section 3-103.

"Teller's check"              Section 3-104.

"Unauthorized signature"      Section 3-403.

     (d) In addition, Article 1 contains general definitions
and principles of construct and interpretation applicable
throughout this Article.

 4-105. "Bank"; "Depositary Bank"; "Payor Bank";
Intermediary bank"; "Collecting 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) "Depositary 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.

 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.

Alternative A

     (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.

Alternative B

     (c) if a draft names a non bank 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.

 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
notice or orders must be given under this Article and under
Article 3.

 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.

 4-109. Delays.

     (a) Unless otherwise instructed, a collecting bank in a
good faith effort to secure payment of a specific item drawn on 3
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 [Act] 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 [Act] 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.

 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.

 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.

/* These sections tend to be non-uniform between states. */


PART 2
 COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANKS
 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.

 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 fur 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) 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), 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.

 4-203. Effect of Instructions.

      Subject to Article 3 concerning conversion of instruments
(Section 3-420) and restrictive indorsements (Section 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.

 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 non bank 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, clearinghouse 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.

 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, 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.

 4-206. Transfer Between Banks.

 Any agreed method that identifies the transferor bank is
sufficient for the item's further transfer to another bank.

 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 (Section 3305(a)) of any party that can be asserted
against the warrantor; and

     (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.

     (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. 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)
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) 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.

 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 accep tance, at the time of
presentment, and

(ii) 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:

     (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 accep.  tance of the draft on
behalf of a person entitled to enforce the draft;

     (2) the draft has not been altered; and

     (3) the warrantor has no knowledge that the signature of
the purported drawer of the draft is unauthorized.

     (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) 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 or the drawer is precluded under Section 3-406 or 4-406
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)
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.

 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 warran ty 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.

 4-210. Security Interest of Collecting Bank in Items,
Accompanying Documents and Proceeds.

     (a) A 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 chargeback; 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 accompanying documents for purposes other than
collection, the security interest continues to that extent and is
subject to Article 9, but:

no security agreement is necessary to make the security interest
enforceable (9-203(1)(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.

 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 on what constitutes a holder in due
course.

 4-212. Presentment by Notice of Item Not Payable by, Through, or
at 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 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 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.

 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, clearinghouse 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) 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.

 4-214. Right of ChargeBack 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 settlemen,t given by it, charge back the amount of any
credit given for the item to its customer 5 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 (Section
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 chargeback or refund must 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.

 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, clearinghouse 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 items 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 receipt of the deposit.

 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,
tu or agent in charge of the closed bank to the presenting bank
or the closed 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.


PART 3
COLLECTION OF ITEMS: PAYOR BANKS
 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).

     (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
clearinghouse rules; or

     (2) in all other cases, when it is sent or delivered to
the bank's customer or transferor or pursuant to instructions.

 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 accep tance 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) is subject to defenses based on breach of a
presentment warranty (Section 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.

 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 stature, clearinghouse rule, or
agreement.

     (4) the bank becomes accountable for the amount of the
item under Section 4-302 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), items may be accepted,
paid, certified, or charged to the indicated account of its
customer in any order.

/* This final section was added because of cases in which banks
were presented with multiple checks, all of which could not be
paid without overdrawing the account and were then sued by the
account holder or the check holders (or both) claiming that a
different order of payment would have changed the result. This
section ratifies court rulings that the bank could pay items in
an order which it selected. */


PART 4
 RELATIONSHIP BETWEEN PAYOR BANK AND ITS CUSTOMER
 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 that 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) 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. 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.

     (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 hank
knows the item has been completed unless the bank has notice that
the completion was improper.

 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.

 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. 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.

 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.

/* After a year the check is no longer good. */


 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.

4-406. Customer's Duty to Discover and Report Unauthorized
Signature or Alteration.

     (a) A bank that sends or makes available to a customer a
statement of account showing payment of items for the account
shall either return or make available to the customer the items
paid or provide information in the statement of account
sufficient to allow the customer reasonably to identify the items
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), 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), 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) 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) 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) 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
alteration. If there is a preclusion under this subsection, the
payor bank may not recover for breach of warranty under Section
4-208 with respect to the unauthorized signature or alteration to
which the preclusion applies.

 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.

PART 5

COLLECTION OF DOCUMENTARY DRAFTS

 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.

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.

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, 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.

 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), 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.