NMSA 55-4-301. Deferred posting; recovery of payment by return of items;

55-4-301. 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; (2) returns an image of the item, if the party to which the return is made has entered into an agreement to accept an image as a return of the item and the image is returned in accordance with that agreement; or (3) sends a record providing 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books, it may return the item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer if it acts within the time limit and in the manner specified in Subsection (a) of this section. (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 is 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 clearing-house rules; or (2) in all other cases, when it is sent or delivered to the bank's customer or transferor or pursuant to the customer's instructions. History: 1953 Comp., § 50A-4-301, enacted by Laws 1961, ch. 96, § 4-301; 1992, ch. 114, § 183; 2009, ch. 234, § 15. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 1. The term "deferred posting" appears in the caption of Section 4-301 [55-4-301 NMSA 1978]. 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 [55-4-301 NMSA 1978] 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 an 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, clearing-house 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; therefore, 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) [55-4-301 NMSA 1978] to final settlement and final payment under Section 4-215 [55-4-215 NMSA 1978] 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) [55-4-301 NMSA 1978], 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) [55-4-213 NMSA 1978] and no final payment under Section 4-215(b) [55-4-215 NMSA 1978]. Since the Payor Bank has neither paid the item nor made timely return, it is accountable for the item under Section 4-302(a) [55-4-302 NMSA 1978]. 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 [55-3-503 NMSA 1978]. 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) [55-1-201 NMSA 1978]. Obviously the subsection assumes that the item has not been "finally paid" under Section 4-215(a) [55-4-215 NMSA 1978]. If it has been, this provision has no operation. 7. The fact that an item has been paid under proposed Section 4-215 [55-4-215 NMSA 1978] does not preclude the payor bank from asserting rights of restitution or revocation under Section 3-418 [55-3-218 NMSA 1978]. 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. 8. Paragraph (a)(2) is designed to facilitate electronic check-processing by authorizing the payor bank to return an image of the item instead of the actual item. It applies only when the payor bank and the party to which the return has been made have agreed that the payor bank can make such a return and when the return complies with the agreement. The purpose of the paragraph is to prevent third parties (such as the depositor of the check) from contending that the payor bank missed its midnight deadline because it failed to return the actual item in a timely manner. If the payor bank missed its midnight deadline, payment would have become final under Section 4-215 [55-4-215 NMSA 1978] and the depositary bank would have lost its right of chargeback under Section 4-214 [55-4-214 NMSA 1978]. Of course, the depositary bank might enter into an agreement with its depositor to resolve that problem, but it is not clear that agreements by banks with their customers can resolve all such issues. In any event, paragraph (a)(2) should eliminate the need for such agreements. The provision rests on the premise that it is inappropriate to penalize a payor bank simply because it returns the actual item a few business days after the midnight deadline of the payor bank sent notice before that deadline to a collecting bank that had agreed to accept such notices. Nothing in paragraph (a)(2) authorizes the payor bank to destroy the check.