CHAPTER 4. BANK DEPOSITS AND COLLECTIONS
IC 26-1-4
Chapter 4. Bank Deposits and Collections
IC 26-1-4-101
Short title
Sec. 101. IC 26-1-4 may be cited as Uniform Commercial Code
. Bank Deposits and Collections.
(Formerly: Acts 1963, c.317, s.4-101.) As amended by P.L.152-1986,
SEC.205; P.L.222-1993, SEC.6.
IC 26-1-4-102
Applicability
Sec. 102. (a) To the extent that items within IC 26-1-4 are also
within IC 26-1-3.1 and IC 26-1-8.1, they are subject to IC 26-1-3.1
and IC 26-1-8.1. If there is conflict, IC 26-1-4 governs IC 26-1-3.1,
but IC 26-1-8.1 governs IC 26-1-4.
(b) 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.
(Formerly: Acts 1963, c.317, s.4-102.) As amended by P.L.152-1986,
SEC.206; P.L.222-1993, SEC.7; P.L.247-1995, SEC.5.
IC 26-1-4-102.5
Application of bank provisions to supervised financial
organizations
Sec. 102.5. (a) As used in this section, "supervised financial
organization" means a person, other than an insurance company or
other organization primarily engaged in an insurance business, that
is:
(1) organized, chartered, or holding an authorization certificate
under the laws of a state or of the United States that authorizes
the person to make loans and to receive deposits, including a
savings, share, certificate, or deposit account; and
(2) subject to supervision by an official or agency of a state or
of the United States.
(b) The provisions of IC 26-1-4 which apply to a bank apply
equally to any supervised financial organization which is authorized
by state or federal law to permit persons to make withdrawals or
payments from accounts by negotiable instruments.
As added by Acts 1981, P.L.231, SEC.2. Amended by P.L.152-1986,
SEC.207; P.L.35-2010, SEC.95.
IC 26-1-4-103
Variation by agreement; measure of damages; action constituting
ordinary care
Sec. 103. (a) The effect of the provisions of IC 26-1-4 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.
(b) 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.
(c) Action or nonaction approved by IC 26-1-4 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 IC 26-1-4 is prima facie
the exercise of ordinary care.
(d) The specification or approval of certain procedures by
IC 26-1-4 is not disapproval of other procedures that may be
reasonable under the circumstances.
(e) 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.
(Formerly: Acts 1963, c.317, s.4-103.) As amended by P.L.152-1986,
SEC.208; P.L.222-1993, SEC.8.
IC 26-1-4-104
Definitions and index of definitions
Sec. 104. (a) In IC 26-1-4, unless the context otherwise requires:
(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, but does not include Saturday, Sunday, or a legal
holiday.
(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 (IC 26-1-8.1-102), or instructions for uncertificated
securities (IC 26-1-8.1-102) 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 IC 26-1-3.1-104) or an
item, other than an instrument, that is an order.
(8) "Drawee" means a person ordered in a draft to make
payment.
(9) "Good faith" means honesty in fact in the conduct or
transaction concerned.
(10) "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 IC 26-1-4.1 or a
credit or debit card slip.
(11) "Midnight deadline" with respect to a bank is 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.
(12) "Settle" means to pay in cash, by clearing-house
settlement, in a charge or credit, or by remittance, or otherwise
as instructed. A settlement may be either provisional or final.
(13) "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 IC 26-1-4 and the sections in
which they appear are:
"Agreement for electronic presentment". IC 26-1-4-110.
"Bank". IC 26-1-4-105.
"Collecting bank". IC 26-1-4-105.
"Depositary bank". IC 26-1-4-105.
"Intermediary bank". IC 26-1-4-105.
"Payor bank". IC 26-1-4-105.
"Presenting bank". IC 26-1-4-105.
"Presentment notice". IC 26-1-4-110.
(c) "Control" as provided in IC 26-1-7-106 and the following
definitions in IC 26-1-3.1 apply to IC 26-1-4:
"Acceptance". IC 26-1-3.1-409.
"Alteration". IC 26-1-3.1-407.
"Cashier's check". IC 26-1-3.1-104.
"Certificate of deposit". IC 26-1-3.1-104.
"Certified check". IC 26-1-3.1-409.
"Check". IC 26-1-3.1-104.
"Holder in due course". IC 26-1-3.1-302.
"Instrument". IC 26-1-3.1-104.
"Notice of dishonor". IC 26-1-3.1-503.
"Order". IC 26-1-3.1-103.
"Ordinary care". IC 26-1-3.1-103.
"Person entitled to enforce". IC 26-1-3.1-301.
"Presentment". IC 26-1-3.1-501.
"Promise". IC 26-1-3.1-103.
"Prove". IC 26-1-3.1-103.
"Record". IC 26-1-1-201(33b).
"Remotely-created consumer item". IC 26-1-3.1-103.
"Teller's check". IC 26-1-3.1-104.
"Unauthorized signature". IC 26-1-3.1-403.
(d) In addition, IC 26-1-1 contains general definitions and
principles of construction and interpretation applicable throughout
IC 26-1-4.
(Formerly: Acts 1963, c.317, s.4-104.) As amended by P.L.152-1986,
SEC.209; P.L.263-1987, SEC.1; P.L.222-1993, SEC.9;
P.L.247-1995, SEC.6; P.L.143-2007, SEC.22; P.L.135-2009,
SEC.15.
IC 26-1-4-105
"Bank"; "depositary bank"; "payor bank"; "intermediary bank";
"collecting bank"; "presenting bank"
Sec. 105. In IC 26-1-4:
(1) "Bank" means a person engaged in the business of banking,
including a savings bank, savings association, credit union, or
trust company.
(2) "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.
(3) "Payor bank" means a bank that is the drawee of a draft.
(4) "Intermediary bank" means a bank to which an item is
transferred in course of collection except the depositary or
payor bank.
(5) "Collecting bank" means a bank handling an item for
collection except the payor bank.
(6) "Presenting bank" means a bank presenting an item except
a payor bank.
(Formerly: Acts 1963, c.317, s.4-105.) As amended by P.L.152-1986,
SEC.210; P.L.222-1993, SEC.10; P.L.79-1998, SEC.28.
IC 26-1-4-106
Payable through or payable at bank; collecting bank
Sec. 106. (a) If an item states that it is "payable through" a bank
identified in the item:
(1) the item designates the bank as a collecting bank and does
not by itself authorize the bank to pay the item; and
(2) the item may be presented for payment only by or through
the bank.
(b) If an item states that it is "payable at" a bank identified in the
item:
(1) the item designates the bank as a collecting bank and does
not by itself authorize the bank to pay the item; and
(2) the item may be presented for payment only by or through
the bank.
(c) If a draft names a nonbank drawee and it is unclear whether a
bank named in the draft is a co-drawee or a collecting bank, the bank
is a collecting bank.
(Formerly: Acts 1963, c.317, s.4-106.) As amended by P.L.152-1986,
SEC.211; P.L.222-1993, SEC.11.
IC 26-1-4-107
Separate office of bank
Sec. 107. A branch or separate office of a bank is a separate bank
for the purpose of computing the time within which and determining
the place at or to which action may be taken or notices or orders must
be given under IC 26-1-4 and under IC 26-1-3.1.
(Formerly: Acts 1963, c.317, s.4-107.) As amended by Acts 1977,
P.L.278, SEC.1; P.L.263-1987, SEC.2; P.L.222-1993, SEC.12.
IC 26-1-4-108
Time of receipt of items
Sec. 108. (a) 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 2:00 p.m. or later as a cutoff hour for the handling of money and
items and the making of entries on its books.
(b) 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.
(Formerly: Acts 1963, c.317, s.4-108.) As amended by P.L.152-1986,
SEC.212; P.L.222-1993, SEC.13.
IC 26-1-4-109
Delays
Sec. 109. (a) 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 IC 26-1 for a period not exceeding two (2) additional
banking days without discharge of drawers or endorsers or liability
to its transferor or a prior party.
(b) Delay by a collecting bank or payor bank beyond time limits
prescribed or permitted by IC 26-1 or by instructions is excused if:
(1) 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
(2) the bank exercises such diligence as the circumstances
require.
(Formerly: Acts 1963, c.317, s.4-109.) As amended by P.L.222-1993,
SEC.14.
IC 26-1-4-110
Electronic presentment
Sec. 110. (a) "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.
(b) Presentment of an item under an agreement for presentment is
made when the presentment notice is received.
(c) If presentment is made by presentment notice, a reference to
"item" or "check" in IC 26-1-4 means the presentment notice unless
the context otherwise indicates.
As added by P.L.222-1993, SEC.15.
IC 26-1-4-111
Statute of limitations
Sec. 111. An action to enforce an obligation, duty, or right arising
under IC 26-1-4 must be commenced within three (3) years after the
cause of action accrues.
As added by P.L.222-1993, SEC.16.
IC 26-1-4-201
Status of collecting banks as agent and provisional status of
credits; applicability of chapter; item endorsed "pay any bank"
Sec. 201. (a) Unless a contrary intent clearly appears and before
the time that a settlement given by a collecting bank for an item is or
becomes final, the bank, with respect to the item, is an agent or
subagent of the owner of the item, and any settlement given for the
item is provisional. This provision applies regardless of the form of
endorsement or lack of endorsement and even though credit given for
the item is subject to immediate withdrawal as of right or is in fact
withdrawn, but the continuance of ownership of an item by its owner
and any rights of the owner to proceeds of the item are subject to
rights of a collecting bank, such as those resulting from outstanding
advances on the item and rights of recoupment or setoff. If an item
is handled by banks for purposes of presentment, payment,
collection, or return, the relevant provisions of IC 26-1-4 apply, even
though action of the parties clearly establishes that a particular bank
has purchased the item and is the owner of it.
(b) After an item has been endorsed with the words "pay any
bank" or the like, only a bank may acquire the rights of a holder until
the item has been:
(1) returned to the customer initiating collection; or
(2) specially endorsed by a bank to a person who is not a bank.
(Formerly: Acts 1963, c.317, s.4-201.) As amended by P.L.152-1986,
SEC.213; P.L.222-1993, SEC.17.
IC 26-1-4-202
Responsibility for collection or return; when action timely
Sec. 202. (a) A collecting bank must exercise ordinary care in:
(1) presenting an item or sending it for presentment;
(2) sending notice of dishonor or nonpayment or returning an
item other than a documentary draft to the bank's transferor
after learning that the item has not been paid or accepted, as the
case may be;
(3) settling for an item when the bank receives final settlement;
and
(4) notifying its transferor of any loss or delay in transit within
a reasonable time after discovery thereof.
(b) A collecting bank exercises ordinary care under subsection (a)
by taking proper action before its midnight deadline following
receipt of an item, notice, or settlement. Taking proper action within
a reasonably longer time may constitute the exercise of ordinary care,
but the bank has the burden of establishing timeliness.
(c) Subject to subsection (a)(1), a bank is not liable for the
insolvency, neglect, misconduct, mistake, or default of another bank
or person or for loss or destruction of an item in the possession of
others or in transit.
(Formerly: Acts 1963, c.317, s.4-202.) As amended by P.L.152-1986,
SEC.214; P.L.222-1993, SEC.18.
IC 26-1-4-203
Effect of instructions
Sec. 203. Subject to of IC 26-1-3.1-420 concerning conversion of
instruments and the provisions of both IC 26-1-3.1 and IC 26-1-4
concerning restrictive endorsements (IC 26-1-3.1-206), only a
collecting bank's transferor can give instructions that affect the bank
or constitute notice to it, and a collecting bank is not liable to prior
parties for any action taken pursuant to the instructions or in
accordance with any agreement with its transferor.
(Formerly: Acts 1963, c.317, s.4-203.) As amended by P.L.152-1986,
SEC.215; P.L.222-1993, SEC.19.
IC 26-1-4-204
Methods of sending and presenting; sending directly to payor bank
Sec. 204. (a) A collecting bank shall send items by reasonably
prompt method, taking into consideration relevant instructions, the
nature of the item, the number of those items on hand, the cost of
collection involved, and the method generally used by it or others to
present those items.
(b) A collecting bank may send:
(1) an item directly to the payor bank;
(2) an item to a nonbank payor if authorized by its transferor;
and
(3) an item other than documentary drafts to a nonbank payor,
if authorized by Federal Reserve regulation or operating
circular, clearing-house rule, or the like.
(c) Presentment may be made by a presenting bank at a place
where the payor bank or other payor has requested that presentment
be made.
(Formerly: Acts 1963, c.317, s.4-204.) As amended by P.L.222-1993,
SEC.20.
IC 26-1-4-205
Depositary bank holder of unendorsed items
Sec. 205. If a customer delivers an item to a depositary bank for
collection:
(1) the depositary bank becomes a holder of the item at the time
it receives the item for collection if the customer at the time of
delivery was a holder of the item, whether or not the customer
endorses the item, and, if the bank satisfies the other
requirements of IC 26-1-3.1-302, it is a holder in due course;
and
(2) the depositary bank warrants to collecting banks, the payor
bank or other payor, and the drawer that the amount of the item
was paid to the customer or deposited to the customer's account.
(Formerly: Acts 1963, c.317, s.4-205.) As amended by P.L.222-1993,
SEC.21.
IC 26-1-4-206
Transfer between banks
Sec. 206. Any agreed method that identifies the transferor bank is
sufficient for the item's further transfer to another bank.
(Formerly: Acts 1963, c.317, s.4-206.) As amended by P.L.222-1993,
SEC.22.
IC 26-1-4-207
Transfer warranties
Sec. 207. (a) A customer or collecting bank that transfers an item
and receives a settlement or other consideration warrants to the
transferee and to any subsequent collecting bank that:
(1) the warrantor is a person entitled to enforce the item;
(2) all signatures on the item are authentic and authorized;
(3) the item has not been altered;
(4) the item is not subject to a defense or claim in recoupment
(IC 26-1-3.1-305(a)) of any party that can be asserted against
the warrantor;
(5) the warrantor has no knowledge of any insolvency
proceeding commenced with respect to the maker or acceptor
or, in the case of an unaccepted draft, the drawer; and
(6) with respect to a remotely-created consumer item, the
person on whose account the item is drawn authorized the
issuance of the item in the amount for which the item is drawn.
(b) If an item is dishonored, a customer or collecting bank
transferring the item and receiving settlement or other consideration
is obliged to pay the amount due on the item:
(1) according to the terms of the item at the time it was
transferred; or
(2) if the transfer was of an incomplete item, according to its
terms when completed as stated in IC 26-1-3.1-115 and
IC 26-1-3.1-407.
The obligation of a transferor is owed to the transferee and to any
subsequent collecting bank that takes the item in good faith. A
transferor cannot disclaim its obligation under this subsection by an
endorsement stating that it is made "without recourse" or otherwise
disclaiming liability.
(c) A person to whom the warranties under subsection (a) are
made and who took the item in good faith may recover from the
warrantor as damages for breach of warranty an amount equal to the
loss suffered as a result of the breach, but not more than the amount
of the item plus expenses and loss of interest incurred as a result of
the breach.
(d) The warranties stated in subsection (a) cannot be disclaimed
with respect to checks. Unless notice of a claim for breach of
warranty is given to the warrantor within thirty (30) days after the
claimant has reason to know of the breach and the identity of the
warrantor, the warrantor is discharged to the extent of any loss
caused by the delay in giving notice of the claim.
(e) A cause of action for breach of warranty under this section
accrues when the claimant has reason to know of the breach.
(Formerly: Acts 1963, c.317, s.4-207.) As amended by P.L.222-1993,
SEC.23; P.L.135-2009, SEC.16.
IC 26-1-4-208
Presentment warranties
Sec. 208. (a) If an unaccepted draft is presented to the drawee for
payment or acceptance and the drawee pays or accepts the draft, (i)
the person obtaining payment or acceptance, at the time of
presentment, and (ii) a previous transferor of the draft, at the time of
transfer, warrant to the drawee that pays or accepts the draft in good
faith that:
(1) the warrantor is, or was, at the time the warrantor
transferred the draft, a person entitled to enforce the draft or
authorized to obtain payment or acceptance of the draft on
behalf of a person entitled to enforce the draft;
(2) the draft has not been altered;
(3) the warrantor has no knowledge that the signature of the
purported drawer of the draft is unauthorized; and
(4) with respect to a remotely-created consumer item, the
person on whose account the item is drawn authorized the
issuance of the item in the amount for which the item is drawn.
(b) A drawee making payment may recover from a warrantor
damages for breach of warranty equal to the amount paid by the
drawee less the amount the drawee received or is entitled to receive
from the drawer because of the payment. In addition, the drawee is
entitled to compensation for expenses and loss of interest resulting
from the breach. The right of the drawee to recover damages under
this subsection is not affected by any failure of the drawee to
exercise ordinary care in making payment. If the drawee accepts the
draft:
(1) breach of warranty is a defense to the obligation of the
acceptor; and
(2) if the acceptor makes payment with respect to the draft, the
acceptor is entitled to recover from a warrantor for breach of
warranty the amounts stated in this subsection.
(c) If a drawee asserts a claim for breach of warranty under
subsection (a) based on an unauthorized endorsement of the draft or
an alteration of the draft, the warrantor may defend by proving that
the endorsement is effective under IC 26-1-3.1-404 or
IC 26-1-3.1-405 or the drawer is precluded under IC 26-1-3.1-406 or
IC 26-1-4-406 from asserting against the drawee the unauthorized
endorsement or alteration.
(d) If:
(1) a dishonored draft is presented for payment to the drawer or
an endorser; or
(2) any other item is presented for payment to a party obliged to
pay the item;
and the item is paid, the person obtaining payment and a prior
transferor of the item warrant to the person making payment in good
faith that the warrantor is, or was, at the time the warrantor
transferred the item, a person entitled to enforce the item or
authorized to obtain payment on behalf of a person entitled to
enforce the item. The person making payment may recover from any
warrantor for breach of warranty an amount equal to the amount paid
plus expenses and loss of interest resulting from the breach.
(e) The warranties stated in subsections (a) and (d) cannot be
disclaimed with respect to checks. Unless notice of a claim for
breach of warranty is given to the warrantor within thirty (30) days
after the claimant has reason to know of the breach and the identity
of the warrantor, the warrantor is discharged to the extent of any loss
caused by the delay in giving notice of the claim.
(f) A cause of action for breach of warranty under this section
accrues when the claimant has reason to know of the breach.
(Formerly: Acts 1963, c.317, s.4-208.) As amended by P.L.152-1986,
SEC.216; P.L.222-1993, SEC.24; P.L.135-2009, SEC.17.
IC 26-1-4-209
Encoding and retention warranties
Sec. 209. (a) A person who encodes information on or with
respect to an item after issue warrants to any subsequent collecting
bank and to the payor bank or other payor that the information is
correctly encoded. If the customer of a depositary bank encodes, that
bank also makes the warranty.
(b) A person who undertakes to retain an item pursuant to an
agreement for electronic presentment warrants to any subsequent
collecting bank and to the payor bank or other payor that retention
and presentment of the item comply with the agreement. If a
customer of a depositary bank undertakes to retain an item, that bank
also makes this warranty.
(c) A person to whom warranties are made under this section and
who took the item in good faith may recover from the warrantor as
damages for breach of warranty an amount equal to the loss suffered
as a result of the breach, plus expenses and loss of interest incurred
as a result of the breach.
(Formerly: Acts 1963, c.317, s.4-209.) As amended by P.L.152-1986,
SEC.217; P.L.222-1993, SEC.25.
IC 26-1-4-210
Security interest of collecting bank in items, accompanying
documents, and proceeds
Sec. 210. (a) A collecting bank has a security interest in an item
and any accompanying documents or the proceeds of either:
(1) in the case of an item deposited in an account, to the extent
to which credit given for the item has been withdrawn or
applied;
(2) in the case of an item for which it has given credit available
for withdrawal as of right, to the extent of the credit given,
whether or not the credit is drawn upon or there is a right of
charge-back; or
(3) if it makes an advance on or against the item.
(b) If credit given for several items received at one (1) time or
under a single agreement is withdrawn or applied in part, the security
interest remains upon all the items, any accompanying documents, or
the proceeds of either. For the purpose of this section, credits first
given are first withdrawn.
(c) Receipt by a collecting bank of a final settlement for an item
is a realization on its security interest in the item, accompanying
documents, and proceeds. So long as the bank does not receive final
settlement for the item or give up possession of the item or
possession or control of the accompanying documents for purposes
other than collection, the security interest continues to that extent
and is subject to IC 26-1-9.1, but:
(1) no security agreement is necessary to make the security
interest enforceable (IC 26-1-9.1-203(b)(3)(A));
(2) no filing is required to perfect the security interest; and
(3) the security interest has priority over conflicting perfected
security interests in the item, accompanying documents, or
proceeds.
(Formerly: Acts 1963, c.317, s.4-210.) As amended by P.L.152-1986,
SEC.218; P.L.222-1993, SEC.26; P.L.57-2000, SEC.29; P.L.1-2002,
SEC.100; P.L.143-2007, SEC.23.
IC 26-1-4-211
When bank gives value for purposes of holder in due course
Sec. 211. For purposes of determining its status as a holder in due
course, a bank has given value to the extent it has a security interest
in an item, if the bank otherwise complies with the requirements of
IC 26-1-3.1-302 on what constitutes a holder in due course.
(Formerly: Acts 1963, c.317, s.4-211.) As amended by P.L.222-1993,
SEC.27.
IC 26-1-4-212
Presentment by notice of item not payable by, through, or at bank;
liability of drawer or endorser
Sec. 212. (a) Unless otherwise instructed, a collecting bank may
present an item not payable by, through, or at a bank by sending to
the party to accept or pay a record providing notice that the bank
holds the item for acceptance or payment. The notice must be sent in
time to be received on or before the day when presentment is due and
the bank must meet any requirement of the party to accept or pay
under IC 26-1-3.1-501 by the close of the bank's next banking day
after it knows of the requirement.
(b) If presentment is made by notice and payment, acceptance, or
request for compliance with a requirement under IC 26-1-3.1-501 is
not received by the close of business on the day after maturity or, in
the case of demand items, by the close of business on the third
banking day after notice was sent, the presenting bank may treat the
item as dishonored and charge any drawer or endorser by sending it
notice of the facts.
(Formerly: Acts 1963, c.317, s.4-212.) As amended by P.L.152-1986,
SEC.219; P.L.222-1993, SEC.28; P.L.135-2009, SEC.18.
IC 26-1-4-213
Medium and time of settlement by bank
Sec. 213. (a) With respect to settlement by a bank, the medium
and time of settlement may be prescribed by Federal Reserve
regulations or circulars, clearing-house rules, and the like, or
agreement. In the absence of such prescription:
(1) the medium of settlement is cash or credit to an account in
a Federal Reserve bank of or specified by the person to receive
settlement; and
(2) the time of settlement is:
(A) with respect to tender of settlement by cash, a cashier's
check, or teller's check, when the cash or check is sent or
delivered;
(B) with respect to tender of settlement by credit in an
account in a Federal Reserve Bank, when the credit is made;
(C) with respect to tender of settlement by a credit or debit
to an account in a bank, when the credit or debit is made or,
in the case of tender of settlement by authority to charge an
account, when the authority is sent or delivered; or
(D) with respect to tender of settlement by a funds transfer,
when payment is made under IC 26-1-4.1-406(a) to the
person receiving settlement.
(b) If the tender of settlement is not by a medium authorized by
subsection (a) or the time of settlement is not fixed by subsection (a),
no settlement occurs until the tender of settlement is accepted by the
person receiving settlement.
(c) If settlement for an item is made by cashier's check or teller's
check and the person receiving settlement, before its midnight
deadline:
(1) presents or forwards the check for collection, settlement is
final when the check is finally paid; or
(2) fails to present or forward the check for collection,
settlement is final at the midnight deadline of the person
receiving settlement.
(d) If settlement for an item is made by giving authority to charge
the account of the bank giving settlement in the bank receiving
settlement, settlement is final when the charge is made by the bank
receiving settlement if there are funds available in the account for the
amount of the item.
(Formerly: Acts 1963, c.317, s.4-213.) As amended by P.L.152-1986,
SEC.220; P.L.243-1989, SEC.1; P.L.222-1993, SEC.29.
IC 26-1-4-214
Right of charge-back or refund; liability of collecting bank; return
of item
Sec. 214. (a) If a collecting bank has made provisional settlement
with its customer for an item and fails by reason of dishonor, suspen
sion of payments by a bank, or otherwise to receive settlement for the
item which is or becomes final, the bank may revoke the settlement
given by it, charge back the amount of any credit given for the item
to its customer's account, or obtain refund from its customer, whether
or not it is able to return the item, if by its midnight deadline or
within a longer reasonable time after it learns the facts it returns the
item or sends notification of the facts. If the return or notice is
delayed beyond the bank's midnight deadline or a longer reasonable
time after it learns the facts, the bank may revoke the settlement,
charge back the credit, or obtain refund from its customer, but it is
liable for any loss resulting from the delay. These rights to revoke,
charge back, and obtain refund terminate if and when a settlement for
the item received by the bank is or becomes final.
(b) A collecting bank returns an item when it is sent or delivered
to the bank's customer or transferor or under its instructions.
(c) A depositary bank that is also the payor may charge back the
amount of an item to its customer's account or obtain refund in
accordance with the section governing return of an item received by
a payor bank for credit on its books (IC 26-1-4-301).
(d) The right to charge back is not affected by:
(1) previous use of a credit given for the item; or
(2) failure by any bank to exercise ordinary care with respect to
the item, but a bank so failing remains liable.
(e) A failure to charge back or claim refund does not affect other
rights of the bank against the customer or any other party.
(f) If credit is given in dollars as the equivalent of the value of an
item payable in foreign money, the dollar amount of any charge-back
or refund must be calculated on the basis of the bank-offered spot
rate for the foreign money prevailing on the day when the person
entitled to the charge-back or refund learns that it will not receive
payment in ordinary course.
(Formerly: Acts 1963, c.317, s.4-214.) As amended by P.L.152-1986,
SEC.221; P.L.222-1993, SEC.30.
IC 26-1-4-215
Final payment of item by payor bank; when provisional debits and
credits become final; when certain credits become available for
withdrawal
Sec. 215. (a) An item is finally paid by a payor bank when the
bank has first done any of the following:
(1) Paid the item in cash.
(2) Settled for the item without having a right to revoke the
settlement under statute, clearing-house rule, or agreement.
(3) Made a provisional settlement for the item and failed to
revoke the settlement in the time and manner permitted by
statute, clearing-house rule, or agreement.
(b) If provisional settlement for an item does not become final, the
item is not finally paid.
(c) If provisional settlement for an item between the presenting
and payor banks is made through a clearing house or by debits or
credits in an account between them, then to the extent that
provisional debits or credits for the item are entered in accounts
between the presenting and payor banks or between the presenting
and successive prior collecting banks seriatim, they become final
upon final payment of the items by the payor bank.
(d) If a collecting bank receives a settlement for an item which is
or becomes final, the bank is accountable to its customer for the
amount of the item and any provisional credit given for the item in
an account with its customer becomes final.
(e) Subject to (i) applicable law stating a time for availability of
funds and (ii) any right of the bank to apply the credit to an
obligation of the customer, credit given by a bank for an item in a
customer's account becomes available for withdrawal as of right:
(1) if the bank has received a provisional settlement for the
item, when the settlement becomes final and the bank has had
a reasonable time to receive return of the item and the item has
not been received within that time; or
(2) if the bank is both the depositary bank and the payor bank,
and the item is finally paid, at the opening of the bank's second
banking day following receipt of the item.
(f) Subject to applicable law stating a time for availability of
funds and any right of a bank to apply a deposit to an obligation of
the depositor, a deposit of money becomes available for withdrawal
as of right at the opening of the bank's next banking day after receipt
of the deposit.
As added by P.L.222-1993, SEC.31.
IC 26-1-4-216
Insolvency and preference
Sec. 216. (a) If an item is in or comes into the possession of a
payor or collecting bank that suspends payment and the item has not
been finally paid, the item must be returned by the receiver, trustee,
or agent in charge of the closed bank to the presenting bank or the
closed bank's customer.
(b) If a payor bank finally pays an item and suspends payments
without making a settlement for the item with its customer or the
presenting bank which settlement is or becomes final, the owner of
the item has a preferred claim against the payor bank.
(c) If a payor bank gives or a collecting bank gives or receives a
provisional settlement for an item and thereafter suspends payments,
the suspension does not prevent or interfere with the settlement's
becoming final if the finality occurs automatically upon the lapse of
certain time or the happening of certain events.
(d) If a collecting bank receives from subsequent parties
settlement for an item, which settlement is or becomes final and the
bank suspends payments without making a settlement for the item
with its customer which settlement is or becomes final, the owner of
the item has a preferred claim against the collecting bank.
As added by P.L.222-1993, SEC.32.
IC 26-1-4-301
Deferred posting; recovery of payment by return of items; time of
dishonor; return of items by payor bank
Sec. 301. (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).
(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 sent in accordance with this section.
(d) An item is returned:
(1) as to an item received 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 its
rules; or
(2) in all other cases, when it is sent or delivered to the bank's
customer or transferor or pursuant to instructions.
(Formerly: Acts 1963, c.317, s.4-301.) As amended by P.L.152-1986,
SEC.222; P.L.222-1993, SEC.33; P.L.135-2009, SEC.19.
IC 26-1-4-302
Payor bank's responsibility for late return of item
Sec. 302. (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 under subsection
(a) is subject to defenses based on breach of a presentment warranty
(IC 26-1-4-208) or proof that the person seeking enforcement of the
liability presented or transferred the item for the purpose of
defrauding the payor bank.
(Formerly: Acts 1963, c.317, s.4-302.) As amended by P.L.152-1986,
SEC.223; P.L.222-1993, SEC.34.
IC 26-1-4-303
When items subject to notice, stop-payment order, legal process, or
setoff; order in which items may be charged or certified
Sec. 303. (a) Any knowledge, notice, or stop-payment order
received by, legal process served upon, or setoff exercised by a payor
bank comes too late to terminate, suspend, or modify the bank's right
or duty to pay an item or to charge its customer's account for the item
if the knowledge, notice, stop-payment order, or legal process is
received or served and a reasonable time for the bank to act thereon
expires or the setoff is exercised after the earliest of the following:
(1) The bank accepts or certifies the item.
(2) The bank pays the item in cash.
(3) The bank settles for the item without having a right to
revoke the settlement under statute, clearing-house rule, or
agreement.
(4) The bank becomes accountable for the amount of the item
under IC 26-1-4-302 dealing with the payor bank's
responsibility for late return of items.
(5) With respect to checks, a cutoff hour not earlier than one (1)
hour after the opening of the next banking day after the banking
day on which the bank received the check and not later than the
close of that next banking day or, if no cutoff hour is fixed, the
close of the next banking day after the banking day on which
the bank received the check.
(b) Subject to subsection (a), items may be accepted, paid,
certified, or charged to the indicated account of its customer in any
order.
(Formerly: Acts 1963, c.317, s.4-303.) As amended by P.L.152-1986,
SEC.224; P.L.222-1993, SEC.35.
IC 26-1-4-401
When bank may charge customer's account
Sec. 401. (a) A bank may charge against the account of a customer
an item that is properly payable from that account even though the
charge creates an overdraft. An item is properly payable if it is
authorized by the customer and is in accordance with any agreement
between the customer and the bank.
(b) A customer is not liable for the amount of an overdraft if the
customer neither signed the item nor benefited from the proceeds of
the item.
(c) A bank may charge against the account of a customer a check
that is otherwise properly payable from the account, even though
payment was made before the date of the check, unless the customer
has given notice to the bank of the postdating describing the check
with reasonable certainty. The notice is effective for the period stated
in IC 26-1-4-403(b) for stop-payment orders, and must be received
at such time and in such manner as to afford the bank a reasonable
opportunity to act on it before the bank takes any action with respect
to the check described in IC 26-1-4-303. If a bank charges against the
account of a customer a check before the date stated in the notice of
postdating, the bank is liable for damages for the loss resulting from
its act. The loss may include damages for dishonor of subsequent
items under IC 26-1-4-402.
(d) A bank that in good faith makes payment to a holder may
charge the indicated account of its customer according to:
(1) the original terms of the altered item; or
(2) the terms of the completed item, even though the bank
knows the item has been completed unless the bank has notice
that the completion was improper.
(Formerly: Acts 1963, c.317, s.4-401.) As amended by P.L.222-1993,
SEC.36.
IC 26-1-4-402
Bank's liability to customer for wrongful dishonor; time of
determining insufficiency of account
Sec. 402. (a) Except as otherwise provided in IC 26-1-4, a payor
bank wrongfully dishonors an item if it dishonors an item that is
properly payable, but a bank may dishonor an item that would create
an overdraft unless it has agreed to pay the overdraft.
(b) A payor bank is liable to its customer for damages proximately
caused by the wrongful dishonor of an item. Liability is limited to
actual damages proved and 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.
(c) A payor bank's determination of the customer's account
balance on which a decision to dishonor for insufficiency of
available funds is based may be made at any time between the time
the item is received by the payor bank and the time that the payor
bank returns the item or gives notice in lieu of return, and no more
than one (1) determination need be made. If, at the election of the
payor bank, a subsequent balance determination is made for the
purpose of reevaluating the bank's decision to dishonor the item, the
account balance at that time is determinative of whether a dishonor
for insufficiency of available funds is wrongful.
(Formerly: Acts 1963, c.317, s.4-402.) As amended by P.L.222-1993,
SEC.37.
IC 26-1-4-403
Customer's right to stop payment; burden of proof of loss
Sec. 403. (a) A customer or any person authorized to draw on the
account if there is more than one (1) person may stop payment of any
item drawn on the customer's account or close the account by an
order to the bank describing the item or account with reasonable
certainty received at a time and in a manner that affords the bank a
reasonable opportunity to act on it before any action by the bank with
respect to the item described in IC 26-1-4-303. If the signature of
more than one (1) person is required to draw on an account, any of
these persons may stop payment or close the account.
(b) A stop-payment order is effective for six (6) months, but it
lapses after fourteen (14) calendar days if the original order was oral
and was not confirmed in a record within that period. A
stop-payment order may be renewed for additional six (6) month
periods by a record given to the bank within a period during which
the stop-payment order is effective.
(c) The burden of establishing the fact and amount of loss
resulting from the payment of an item contrary to a stop-payment
order or order to close an account is on the customer. The loss from
payment of an item contrary to a stop-payment order may include
damages for dishonor of subsequent items under IC 26-1-4-402.
(Formerly: Acts 1963, c.317, s.4-403.) As amended by P.L.152-1986,
SEC.225; P.L.222-1993, SEC.38; P.L.135-2009, SEC.20.
IC 26-1-4-404
Bank not obligated to pay check more than six months old
Sec. 404. 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 (6) months after its date, but it may charge
its customer's account for a payment made thereafter in good faith.
(Formerly: Acts 1963, c.317, s.4-404.)
IC 26-1-4-405
Death or incompetence of customer
Sec. 405. (a) 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 the mental
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 mental
incompetence of a customer revokes the 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.
(b) Even with knowledge, a bank may for ten (10) days after the
date of death pay or certify checks drawn on or before that date
unless ordered to stop payment by a person claiming an interest in
the account.
(Formerly: Acts 1963, c.317, s.4-405.) As amended by P.L.33-1989,
SEC.25; P.L.222-1993, SEC.39.
IC 26-1-4-406
Customer's duty to discover and report unauthorized signature or
alteration
Sec. 406. (a) A bank that sends or makes available to a customer
a statement of account showing payment of items for the account
shall either return or make available to the customer the items paid
or provide information in the statement of account sufficient to allow
the customer reasonably to identify the items paid. The statement of
account provides sufficient information if the item is described by
item number, amount, and date of payment.
(b) If the items are not returned to the customer, the person
retaining the items shall either retain the items or, if the items are
destroyed, maintain the capacity to furnish legible copies of the items
until the expiration of seven (7) years after receipt of the items. A
customer may request an item from the bank that paid the item, and
that bank must provide in a reasonable time either the item or, if the
item has been destroyed or is not otherwise obtainable, a legible copy
of the item.
(c) If a bank sends or makes available a statement of account or
items under subsection (a), the customer must exercise reasonable
promptness in examining the statement or the items to determine
whether any payment was not authorized because of an alteration of
an item or because a purported signature by or on behalf of the
customer was not authorized. If, based on the statement or items
provided, the customer should reasonably have discovered the
unauthorized payment, the customer must promptly notify the bank
of the relevant facts.
(d) If the bank proves that the customer failed, with respect to an
item, to comply with the duties imposed on the customer by
subsection (c) the customer is precluded from asserting against the
bank:
(1) the customer's unauthorized signature or any alteration on
the item, if the bank also proves that it suffered a loss by reason
of the failure; and
(2) the customer's unauthorized signature or alteration by the
same wrongdoer on any other item paid in good faith by the
bank if the payment was made before the bank received notice
from the customer of the unauthorized signature or alteration
and after the customer had been afforded a reasonable period of
time, not exceeding thirty (30) days, in which to examine the
item or statement of account and notify the bank.
(e) If subsection (d) applies and the customer proves that the bank
failed to exercise ordinary care in paying the item and that the failure
substantially contributed to loss, the loss is allocated between the
customer precluded and the bank asserting the preclusion according
to the extent to which the failure of the customer to comply with
subsection (c) and the failure of the bank to exercise ordinary care
contributed to the loss. If the customer proves that the bank did not
pay the item in good faith, the preclusion under subsection (d) does
not apply.
(f) Without regard to care or lack of care of either the customer or
the bank, a customer who does not within one (1) year after the
statement or items are made available to the customer (subsection
(a)) discover and report the customer's unauthorized signature on or
any alteration on the item is precluded from asserting against the
bank the unauthorized signature or alteration. If there is a preclusion
under this subsection, the payor bank may not recover for breach of
warranty under IC 26-1-4-208 with respect to the unauthorized
signature or alteration to which the preclusion applies.
(Formerly: Acts 1963, c.317, s.4-406.) As amended by P.L.222-1993,
SEC.40.
IC 26-1-4-407
Payor bank's right to subrogation on improper payment
Sec. 407. If a payor bank has paid an item over the order of the
drawer or maker to stop payment, or after an account has been
closed, 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 is subrogated to the rights:
(1) of any holder in due course on the item against the drawer
or maker;
(2) 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
(3) 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.
(Formerly: Acts 1963, c.317, s.4-407.) As amended by P.L.222-1993,
SEC.41.
IC 26-1-4-501
Handling of documentary drafts; duty to send for presentment and
to notify customer of dishonor
Sec. 501. A bank that takes a documentary draft for collection
shall present or send the draft and accompanying documents for
presentment and, upon learning that the draft has not been paid or
accepted in due course, shall seasonably notify its customer of the
fact even though it may have discounted or bought the draft or
extended credit available for withdrawal as of right.
(Formerly: Acts 1963, c.317, s.4-501.) As amended by P.L.222-1993,
SEC.42.
IC 26-1-4-502
Presentment of "on arrival" drafts
Sec. 502. If a draft or the relevant instructions require presentment
"on arrival", "when goods arrive" or the like, the collecting bank
need not present until in its judgment a reasonable time for arrival of
the goods has expired. Refusal to pay or accept because the goods
have not arrived is not dishonor; the bank must notify its transferor
of the refusal but need not present the draft again until it is instructed
to do so or learns of the arrival of the goods.
(Formerly: Acts 1963, c.317, s.4-502.) As amended by P.L.222-1993,
SEC.43.
IC 26-1-4-503
Responsibility of presenting bank for documents and goods; report
of reasons for dishonor; referee in case needed
Sec. 503. Unless otherwise instructed and except as provided in
IC 26-1-5.1, a bank presenting a documentary draft:
(1) must deliver the documents to the drawee on acceptance of
the draft if it is payable more than three (3) days after
presentment; otherwise, only on payment; and
(2) upon dishonor, either in the case of presentment for
acceptance or presentment for payment, may seek and follow
instructions from any referee in case of need designated in the
draft, or if the presenting bank does not choose to utilize the
referee's services, it must use diligence and good faith to
ascertain the reason for dishonor, must notify its transferor of
the di