Title 4. Bank Deposits and Collections — Subtitle 1. General Provisions and Definitions

To the extent that items within this title are also within Titles 3 and 8, they are subject to those titles. If there is conflict, this title governs Title 3, but Title 8 governs this title.

The liability of a bank for action or nonaction 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 nonaction 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.

The effect of the provisions of this title 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.

Federal Reserve regulations and operating circulars, clearing-house rules, and the like have the effect of agreements under subsection (a), whether or not specifically assented to by all parties interested in items handled.

Action or nonaction approved by this title or pursuant to Federal Reserve regulations or operating circulars is the exercise of ordinary care and, in the absence of special instructions, action or nonaction consistent with clearing-house rules and the like or with a general banking usage not disapproved by this title, is prima facie the exercise of ordinary care.

The specification or approval of certain procedures by this title is not disapproval of other procedures that may be reasonable under the circumstances.

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.

In this title, unless the context otherwise requires:

Other definitions applying to this title and the sections in which they appear are:

The following definitions in other titles apply to this title:

In addition Title 1 contains general definitions and principles of construction and interpretation applicable throughout this title.

“Bank” means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union, or trust company;

“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;

“Payor bank” means a bank that is the drawee of a draft;

“Intermediary bank” means a bank to which an item is transferred in course of collection except the depositary or payor bank;

“Collecting bank” means a bank handling an item for collection except the payor bank; and

“Presenting bank” means a bank presenting an item except a payor bank.

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.

If an item states that it is “payable at” a bank identified in the item:

If a draft names a nonbank drawee and it is unclear whether a bank named in the draft is a codrawee or a collecting bank, the bank is a collecting bank.

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 two p.m. or later as a cutoff hour for the handling of money and items and the making of entries on its books.

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.

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 Titles 1 through 10 of this article for a period not exceeding two additional banking days without discharge of drawers or indorsers or liability to its transferor or a prior party.

Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this article, 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.

“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.

Presentment of an item pursuant to an agreement for presentment is made when the presentment notice is received.

If presentment is made by presentment notice, a reference to “item” or “check” in this title means the presentment notice unless the context otherwise indicates.