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books, it may return the item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified in subsection (a).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 clearinghouse, when it is delivered to the presenting or last collecting bank or to the clearinghouse 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.
Source:Laws 1963, c. 544, Art. IV, § 4-301, p. 1827; Laws 1991, LB 161, § 99.
Midnight of day following receipt of check held deadline for payor bank to revoke earlier provisional settlement. Berman v. United States Nat. Bank, 197 Neb. 268, 249 N.W.2d 187 (1976).
Payor bank must provisionally settle demand drafts on day of receipt, unless it timely returns or dishonors draft with notice. Berman v. United States Nat. Bank, 197 Neb. 268, 249 N.W.2d 187 (1976).
1. The term "deferred posting" appears in the caption of section 4-301. This refers to the practice permitted by statute in most of the states before the UCC under which a payor bank receives items on one day but does not post the items to the customer's account until the next day. Items dishonored were then returned after the posting on the day after receipt. Under section 4-301 the concept of "deferred posting" merely allows a payor bank that has settled for an item on the day of receipt to return a dishonored item on the next day before its midnight deadline, without regard to when the item was actually posted. With respect to checks Regulation CC section 229.30(c) extends the midnight deadline under the UCC under certain circumstances. See the commentary to Regulation CC section 229.38(d) on the relationship between the UCC and Regulation CC on settlement.
2. The function of this section is to provide the circumstances under which a payor bank that has made timely settlement for an item may return the item and revoke the settlement so that it may recover any settlement made. These circumstances are: (1) The item must be a demand item other than a documentary draft; (2) the item must be presented otherwise than for immediate payment over the counter; and (3) the payor bank must return the item (or give notice if the item is unavailable for return) before its midnight deadline and before it has paid the item. With respect to checks, see Regulation CC section 229.31(f) on notice in lieu of return and Regulation CC section 229.33 as to the different requirement of notice of nonpayment. An instance of when an item may be unavailable for return arises under a collecting bank check retention plan under which presentment is made by a presentment notice and the item is retained by the collecting bank. Subsection 4-215(a)(2) provides that final payment occurs if the payor bank has settled for an item without a right to revoke the settlement under statute, clearinghouse rule, or agreement. In any case in which section 4-301(a) is applicable, the payor bank has a right to revoke the settlement by statute; therefor, section 4-215(a)(2) is inoperable, and the settlement is provisional. Hence, if the settlement is not over the counter and the payor bank settles in a manner that does not constitute final payment, the payor bank can revoke the settlement by returning the item before its midnight deadline.
3. The relationship of section 4-301(a) to final settlement and final payment under section 4-215 is illustrated by the following case. Depositary Bank sends by mail an item to Payor Bank with instructions to settle by remitting a teller's check drawn on a bank in the city where Depositary Bank is located. Payor Bank sends the teller's check on the day the item was presented. Having made timely settlement, under the deferred posting provisions of section 4-301(a), Payor Bank may revoke that settlement by returning the item before its midnight deadline. If it fails to return the item before its midnight deadline, it has finally paid the item if the bank on which the teller's check was drawn honors the check. But if the teller's check is dishonored there has been no final settlement under section 4-213(c) and no final payment under section 4-215(b). Since the Payor Bank has neither paid the item nor made timely return, it is accountable for the item under section 4-302(a).
4. The time limits for action imposed by subsection (a) are adopted by subsection (b) for cases in which the payor bank is also the depositary bank, but in this case the requirement of a settlement on the day of receipt is omitted.
5. Subsection (c) fixes a base point from which to measure the time within which notice of dishonor must be given. See section 3-503.
6. Subsection (d) leaves banks free to agree upon the manner of returning items but establishes a precise time when an item is "returned". For definition of "sent" as used in paragraphs (1) and (2) see section 1-201(38). Obviously the subsection assumes that the item has not been "finally paid" under section 4-215(a). If it has been, this provision has no operation.
7. The fact that an item has been paid under proposed section 4-215 does not preclude the payor bank from asserting rights of restitution or revocation under section 3-418. National Savings and Trust Co. v. Park Corp., 722 F.2d 1303 (6th Cir. 1983), cert. denied, 466 U.S. 939 (1984), is the correct interpretation of the present law on this issue.