(a) In this article, unless the context otherwise requires, the term:
(1) “Account” means any deposit or credit account with a bank, including a demand, time, savings, passbook, share draft, or like account, other than an account evidenced by a certificate of deposit.
(2) “Afternoon” means the period of a day between noon and midnight.
(3) “Banking day” means the part of a day on which a bank is open to the public for carrying on substantially all of its banking functions.
(4) “Clearing house” means an association of banks or other payors regularly clearing items.
(5) “Customer” means a person having an account with a bank or for whom a bank has agreed to collect items, including a bank that maintains an account at another bank.
(6) “Documentary draft” means a draft to be presented for acceptance or payment if specified documents, certificated securities (section 28:8-102) or instructions for uncertificated securities (section 28:8-102), or other certificates, statements, or the like are to be received by the drawee or other payor before acceptance or payment of the draft.
(7) “Draft” means a draft as defined in section 28:3-104 or an item, other than an instrument, that is an order.
(8) “Drawee” means a person ordered in a draft to make payment.
(9) “Item” means an instrument or a promise or order to pay money handled by a bank for collection or payment. The term does not include a payment order governed by Article 4A or a credit or debit card slip.
(10) “Midnight deadline”, with respect to a bank, means midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.
(11) “Settle” means to pay in cash, by clearing-house settlement, in a charge or credit or by remittance, or otherwise as agreed. A settlement may be either provisional or final.
(12) “Suspends payments”, with respect to a bank, means that it has been closed by order of the supervisory authorities, that a public officer has been appointed to take it over, or that it ceases or refuses to make payments in the ordinary course of business.
(b) Other definitions applying to this article and the sections in which they appear are:
(c) The following definitions in other articles apply to this article:
(d) In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout this article.
CREDIT(S)
(Dec. 30, 1963, 77 Stat. 696, Pub. L. 88-243, § 1; Mar. 23, 1995, D.C. Law 10-249, § 2(e), 42 DCR 467; Apr. 9, 1997, D.C. Law 11-240, § 3(d), 44 DCR 1087.)
1. Paragraph (a)(1): “Account” is defined to include both asset accounts in which a customer has deposited money and accounts from which a customer may draw on a line of credit. The limiting factor is that the account must be in a bank.
2. Paragraph (a)(3): “Banking day.” Under this definition that part of a business day when a bank is open only for limited functions, e.g., to receive deposits and cash checks, but with loan, bookkeeping and other departments closed, is not part of a banking day.
3. Paragraph (a)(4): “Clearing house.” Occasionally express companies, governmental agencies and other nonbanks deal directly with a clearing house; hence the definition does not limit the term to an association of banks.
4. Paragraph (a)(5): “Customer.” It is to be noted that this term includes a bank carrying an account with another bank as well as the more typical nonbank customer or depositor.
5. Paragraph (a)(6): “Documentary draft” applies even though the documents do not accompany the draft but are to be received by the drawee or other payor before acceptance or payment of the draft.
6. Paragraph (a)(7): “Draft” is defined in Section 3-104 as a form of instrument. Since Article 4 applies to items that may not fall within the definition of instrument, the term is defined here to include an item that is a written order to pay money, even though the item may not qualify as an instrument. The term “order” is defined in Section 3-103.
7. Paragraph (a)(8): “Drawee” is defined in Section 3-103 in terms of an Article 3 draft which is a form of instrument. Here “drawee” is defined in terms of an Article 4 draft which includes items that may not be instruments.
8. Paragraph (a)(9): “Item” is defined broadly to include an instrument, as defined in Section 3-104, as well as promises or orders that may not be within the definition of “instrument.” The terms “promise” and “order” are defined in Section 3-103. A promise is a written undertaking to pay money. An order is a written instruction to pay money. But see Section 4-110(c). Since bonds and other investment securities under Article 8 may be within the term “instrument” or “promise,” they are items and when handled by banks for collection are subject to this Article. See Comment 1 to Section 4-102. The functional limitation on the meaning of this term is the willingness of the banking system to handle the instrument, undertaking or instruction for collection or payment.
9. Paragraph (a)(10): “Midnight deadline.” The use of this phrase is an example of the more mechanical approach used in this Article. Midnight is selected as a termination point or time limit to obtain greater uniformity and definiteness than would be possible from other possible terminating points, such as the close of the banking day or business day.
10. Paragraph (a)(11): The term “settle” has substantial importance throughout Article 4. In the American Bankers Association Bank Collection Code, in deferred posting statutes, in Federal Reserve regulations and operating circulars, in clearing-house rules, in agreements between banks and customers and in legends on deposit tickets and collection letters, there is repeated reference to “conditional” or “provisional” credits or payments. Tied in with this concept of credits or payments being in some way tentative, has been a related but somewhat different problem as to when an item is “paid” or “finally paid” either to determine the relative priority of the item as against attachments, stop-payment orders and the like or in insolvency situations. There has been extensive litigation in the various states on these problems. To a substantial extent the confusion, the litigation and even the resulting court decisions fail to take into account that in the collection process some debits or credits are provisional or tentative and others are final and that very many debits or credits are provisional or tentative for awhile but later become final. Similarly, some cases fail to recognize that within a single bank, particularly a payor bank, each item goes through a series of processes and that in a payor bank most of these processes are preliminary to the basic act of payment or “final payment.”
The term “settle” is used as a convenient term to characterize a broad variety of conditional, provisional, tentative and also final payments of items. Such a comprehensive term is needed because it is frequently difficult or unnecessary to determine whether a particular action is tentative or final or when a particular credit shifts from the tentative class to the final class. Therefore, its use throughout the Article indicates that in that particular context it is unnecessary or unwise to determine whether the debit or the credit or the payment is tentative or final. However, if qualified by the adjective “provisional” its tentative nature is intended, and if qualified by the adjective “final” its permanent nature is intended.
Examples of the various types of settlement contemplated by the term include payments in cash; the efficient but somewhat complicated process of payment through the adjustment and offsetting of balances through clearing houses; debit or credit entries in accounts between banks; the forwarding of various types of remittance instruments, sometimes to cover a particular item but more frequently to cover an entire group of items received on a particular day.
11. Paragraph (a)(12): “Suspends payments.” This term is designed to afford an objective test to determine when a bank is no longer operating as a part of the banking system.
Reason for 1990 Change [D.C. Law 10-249]
The definition of “account” is amended to make clear that it includes both asset accounts in which a customer has deposited money and accounts from which a customer may draw on a line of credit. The remainder of the definition is amended to bring it more into conformity with the definition of “deposit account” in Section 9-105(1)(e).
The definition of “documentary draft” is amended to recognize the existence of uncertificated securities. The reference to “accompanying documents” is deleted as obsolete. It is enough that the documents are to be received by the drawee or other payor before acceptance or payment of the draft.
The definition of “draft” is new and is explained in the Official Comment.
The definition of “drawee” is new and is explained in the Official Comment.
The definition of “item” is amended because the term “instrument” as defined in Section 3-104 and as used in Article 4 is narrower than the term “item.” See the Official Comment.
The definition of “properly payable” is deleted. In former Article 4 there is no affirmative definition of the term “properly payable.” Former Section 4-104(1)(i) merely implies that if the customer's account is insufficient to pay the item the item is not properly payable. The phrase is defined in proposed Section 4-401(1) in terms of the items authorized by the customer and in accordance with the bank-customer agreement. This is done to give meaning to “properly payable” in Sections 4-401(1) and 4-402(1). The latter provision makes clear that a bank that fails to pay an overdraft has not wrongfully dishonored unless it had agreed to pay the overdraft.
The definition of “settle” is amended in changing “instructed” to “agreed” to conform to Section 4-213.
The terms “remitting bank,” “protest,” and “second party” are deleted because they are not used in Article 4.
The other modifications are made to conform with current legislative drafting practices, with no intent to change substance.
HISTORICAL AND STATUTORY NOTES
Prior Codifications
1981 Ed., § 28:4-104.
1973 Ed., § 28:4-104.
Legislative History of Laws
For legislative history of D.C. Law 10-249, see Historical and Statutory Notes following § 28:4-101.
Law 11-240, the “Uniform Commercial Code Investment Securities Revision Act of 1996,” was introduced in Council and assigned Bill No. 11-576, which was referred to the Committee on Consumer and Regulatory Affairs. The Bill was adopted on first and second readings on November 7, 1996, and December 3, 1996, respectively. Signed by the Mayor on December 24, 1996, it was assigned Act No. 11-500 and transmitted to both Houses of Congress for its review. D.C. Law 11-240 became effective on April 9, 1997.