- Consolidated Laws - Uniform Commercial Code
PART 4
RELATIONSHIP BETWEEN PAYOR BANK AND ITS
CUSTOMER
Section 4--401. When Bank May Charge Customer`s Account.
(1) As against its customer, a bank may charge against his account any
item which is otherwise properly payable from that account even though
the charge creates an overdraft.
(2) A bank which in good faith makes payment to a holder may charge
the indicated account of its customer according to
(a) the original tenor of his altered item; or
(b) the tenor of his completed item, even though the bank knows
the item has been completed unless the bank has notice that
the completion was improper.
Section 4--402. Bank`s Liability to Customer for Wrongful Dishonor.
A payor bank is liable to its customer for damages proximately caused
by the wrongful dishonor of an item. When the dishonor occurs through
mistake liability is limited to actual damages proved. If so proximately
caused and proved damages 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.
Section 4--403. Customer`s Right to Stop Payment; Burden of Proof of
Loss.
(1) A customer may by order to his bank stop payment of any item
payable for his account but the order must be received at such time and
in such manner as to afford the bank a reasonable opportunity to act on
it prior to any action by the bank with respect to the item described in
Section 4--303.
(2) A remitter or payee of a cashier`s check or certified check may by
order to the obligated bank stop payment of such a check, and a remitter
or payee of a teller`s check may order the obligated bank to order the
payor bank to stop payment of such a check, at any time after ninety
days from the date of issuance of either a cashier`s check or teller`s
check, and date of certification of a certified check. The stop payment
is effective if either the remitter or payee delivers to the obligated
bank at a time and in a manner affording a reasonable opportunity to act
before any of the actions described in Section 4-303 (1) are taken: (i)
a written order to stop payment, which shall describe the item with
reasonable certainty, and (ii) an affidavit of the remitter or payee
containing an averment that the check was destroyed, its whereabouts
cannot be determined, or it is in the wrongful possession of an unknown
person or a person that cannot be found or is not amenable to service of
process.
(3) An oral order is binding upon the bank only for fourteen calendar
days unless confirmed in writing within that period. A written order is
effective for only six months unless renewed in writing.
(4) The burden of establishing the fact and amount of loss resulting
from the payment of an item contrary to a binding stop payment order is
on the customer, remitter or payee.
Section 4--404. Bank Not Obligated 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.
Section 4--405. Death or Incompetence of Customer.
(1) 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 such 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.
(2) Even with knowledge a bank may for ten days after the date of
death pay or certify checks drawn on or prior to that date unless
ordered to stop payment by a person claiming an interest in the account.
Section 4--406. Customer`s Duty to Discover and Report Unauthorized
Signature or Alteration.
(1) When a bank sends to its customer a statement of account
accompanied by items paid in good faith in support of the debit entries
or holds the statement and items pursuant to a request or instructions
of its customer or otherwise in a reasonable manner makes the statement
and items available to the customer, the customer must exercise
reasonable care and promptness to examine the statement and items to
discover his unauthorized signature or any alteration on an item and
must notify the bank promptly after discovery thereof.
(2) If the bank establishes that the customer failed with respect to
an item to comply with the duties imposed on the customer by subsection
(1) the customer is precluded from asserting against the bank
(a) his unauthorized signature or any alteration on the item if
the bank also establishes that it suffered a loss by reason
of such failure; and
(b) an unauthorized signature or alteration by the same wrongdoer
on any other item paid in good faith by the bank after the
first item and statement was available to the customer for a
reasonable period not exceeding fourteen calendar days and
before the bank receives notification from the customer of
any such unauthorized signature or alteration.
(3) The preclusion under subsection (2) does not apply if the customer
establishes lack of ordinary care on the part of the bank in paying the
item(s).
(4) Without regard to care or lack of care of either the customer or
the bank a customer who does not within one year from the time the
statement and items are made available to the customer (subsection (1))
discover and report his unauthorized signature or any alteration on the
face or back of the item or does not within three years from that time
discover and report any unauthorized indorsement is precluded from
asserting against the bank such unauthorized signature or indorsement or
such alteration.
(5) If under this section a payor bank has a valid defense against a
claim of a customer upon or resulting from payment of an item and waives
or fails upon request to assert the defense the bank may not assert
against any collecting bank or other prior party presenting or
transferring the item a claim based upon the unauthorized signature or
alteration giving rise to the customer`s claim.
Section 4--407. Payor Bank`s Right to Subrogation on Improper Payment.
If a payor bank has paid an item over the stop payment order of the
drawer or maker 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 shall be subrogated to the rights
(a) of any holder in due course on the item against the drawer or
maker; and
(b) 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
(c) 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.
Section 4-408. Rights and Liabilities of Remitter or Payee With Respect
to Cashier`s Check, Teller`s Check and Certified Check.
(1) This section applies if a cashier`s check, teller`s check or
certified check is not presented for payment on or before ninety days
from the date of issuance of a cashier`s check or teller`s check, or the
date of certification of a certified check.
(2) The remitter or payee that causes payment of a cashier`s check,
teller`s check or certified check to be stopped pursuant to Section
4--403 (2) engages that upon dishonor of the check and any necessary
notice of dishonor he will pay, subject to defenses, the amount of the
check to any subsequent holder or indorser who takes it up.
(3) When a stop payment order pursuant to Section 4--403 (2) becomes
effective the obligated bank shall refund the amount of the item to the
remitter or payee that issued the stop payment order, and shall have no
further liability on the item.
