NMSA 55-4-302. Payor bank's responsibility for late return of item

55-4-302. Payor bank's responsibility for late return of item. (a) If an item is presented to and received by a payor bank, the bank is accountable for the amount of: (1) a demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline; or (2) any other properly payable item unless within the time allowed for acceptance or payment of that item the bank either accepts or pays the item or returns it and accompanying documents. (b) The liability of a payor bank to pay an item pursuant to Subsection (a) is subject to defenses based on breach of a presentment warranty (Section 55-4-208 NMSA 1978) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank. History: 1953 Comp., § 50A-4-302, enacted by Laws 1961, ch. 96, § 4-302; 1992, ch. 114, § 184. OFFICIAL COMMENTS UCC Official Comments © by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved. 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 [55-4-301 NMSA 1978] or by returning the item on the day of receipt. This rule is consistent with the deferred posting practice authorized by Section 4-301 [55-4-301 NMSA 1978] 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) [55-4-215 NMSA 1978], and the payor bank giving the failed settlement is accountable under subsection (a)(1) of Section 4-302 [55-4-302 NMSA 1978]. 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) [55-4-213 NMSA 1978] and no payment occurs under Section 4-215(b). 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. On the other hand, if the payor bank makes a settlement for the item that becomes final under Section 4-215, the item has been paid and thus the payor bank is not accountable for the item under this Section. 3. Subsection (b) is an elaboration of the deleted introductory language of former Section 4-302 [55-4-302 NMSA 1978]: "In the absence of a valid defense such as breach of a presentment warranty (subsection (1) of Section 4-207) [55-4-207 NMSA 1978], 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 checkkiting 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 [55-4-302 NMSA 1978] 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.