The primary reason for automatic or strict liability under this section is a need for finality and certainty in business transactions; accordingly, if a payor bank fails to fulfill its statutory duty to return or dishonor an item in a timely manner, the payor bank is subject to sanction for its tardiness. Citizens Fidelity Bank v. Southwest Bank, 238 Neb. 677, 472 N.W.2d 198 (1991).
Under former law, the statutory rule that a payor bank is accountable for a demand item presented to it and not settled for, paid, returned, or a notice of dishonor sent before the midnight deadline may be varied or waived by agreement. Stauffer Seeds, Inc. v. Nebraska Sec. Bank of Deshler, 222 Neb. 594, 386 N.W.2d 2 (1986).
Under former law, the rule that a payor bank is accountable for a demand item presented to it and not paid, settled for, returned, or a notice of dishonor sent before the midnight deadline may be varied or waived by agreement. Idaho Forest Industries, Inc. v. Minden Exch. Bank & Trust Co., 212 Neb. 820, 326 N.W.2d 176 (1982).
Under former law, a payor bank becomes obligated on an item if it does not settle provisionally or return the item on day of receipt. Berman v. United States Nat. Bank, 197 Neb. 268, 249 N.W.2d 187 (1976).
Under former law, 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. Subsection (a)(1) continues the former law distinguishing between cases in which the payor bank is not also the depositary bank and those in which the payor bank is also the depositary bank ("on us" items). For "on us" items the payor bank is accountable if it retains the item beyond its midnight deadline without settling for it. If the payor bank is not the depositary bank it is accountable if it retains the item beyond midnight of the banking day of receipt without settling for it. It may avoid accountability either by settling for the item on the day of receipt and returning the item before its midnight deadline under section 4-301 or by returning the item on the day of receipt. This rule is consistent with the deferred posting practice authorized by section 4-301 which allows the payor bank to make provisional settlement for an item on the day of receipt and to revoke that settlement by returning the item on the next day. With respect to checks, Regulation CC section 229.36(d) provides that settlements between banks for forward collection of checks are final when made. See the commentary on that provision for its effect on the UCC.
2. If the settlement given by the payor bank does not become final, there has been no payment under section 4-215(b), and the payor bank giving the failed settlement is accountable under subsection (a)(1) of section 4-302. For instance, the payor bank makes provisional settlement by sending a teller's check that is dishonored. In such a case settlement is not final under section 4-213(c) and no payment occurs under section 4-215(b). The payor bank is accountable on the item. The general principle is that unless settlement provides the presenting bank with usable funds, settlement has failed and the payor bank is accountable for the amount of the item.
3. Subsection (b) is an elaboration of the deleted introductory language of former section 4-302: "In the absence of a valid defense such as breach of a presentment warranty (subsection (1) of section 4-207), settlement effected or the like ...". A payor bank can defend an action against it based on accountability by showing that the item contained a forged indorsement or a fraudulent alteration. Subsection (b) drops the ambiguous "or the like" language and provides that the payor bank may also raise the defense of fraud. Decisions that hold an accountable bank's liability to be "absolute" are rejected. A payor bank that makes a late return of an item should not be liable to a defrauder operating a check-kiting scheme. In Bank of Leumi Trust Co. v. Bally's Park Place Inc., 528 F.Supp. 349 (S.D.N.Y. 1981), and American National Bank v. Foodbasket, 497 P.2d 546 (Wyo. 1972), banks that were accountable under section 4-302 for missing their midnight deadline were successful in defending against parties who initiated collection knowing that the check would not be paid. The "settlement effected" language is deleted as unnecessary. If a payor bank is accountable for an item it is liable to pay it. If it has made final payment for an item, it is no longer accountable for the item.