4201-4216

COMMERCIAL CODE
SECTION 4201-4216




4201.  (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
indorsement or lack of indorsement 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withdrawn; but the continuance of ownership of an item by its owner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 this division 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 indorsed with the words "pay any bank"
or the like, only a bank may acquire the rights of a holder until the
item has been either of the following:
   (1) Returned to the customer initiating collection.
   (2) Specially indorsed by a bank to a person who is not a bank.




4202.  (a) A collecting bank shall exercise ordinary care in all of
the following:
   (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.
   (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 subdivision
(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 paragraph (1) of subdivision (a), 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.



4203.  Subject to Division 3 (commencing with Section 3101)
concerning conversion of instruments (Section 3420) and restrictive
indorsements (Section 3206), 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.



4204.  (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.
   (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.




4205.  If a customer delivers an item to a depositary bank for
collection both of the following apply:
   (a) 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
indorses the item, and, if the bank satisfies the other requirements
of Section 3302, it is a holder in due course.
   (b) 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.



4206.  Any agreed method that identifies the transferor bank is
sufficient for the item's further transfer to another bank.



4207.  (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 all of the
following are applicable:
   (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
(subdivision (a) of Section 3305) 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.
   (6) If the item is a demand draft, creation of the item according
to the terms on its face was authorized by the person identified as
drawer.
   (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 Sections 3115 and 3407. 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 subdivision by an indorsement stating that
it is made "without recourse" or otherwise disclaiming liability.
   (c) A person to whom the warranties under subdivision (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 subdivision (a) cannot be disclaimed
with respect to checks. Unless notice of a claim for breach of
warranty is given to the warrantor within 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.
   (f) If the warranty in paragraph (6) of subdivision (a) is not
given by a transferor or collecting bank under applicable conflict of
law rules, then the warranty is not given to that transferor when
that transferor is a transferee nor to any prior collecting bank of
that transferee.



4208.  (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 all of the following apply:
   (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.
   (4) If the draft is a demand draft, creation of the demand draft
according to the terms on its face was authorized by the person
identified as drawer.
   (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
subdivision 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 subdivision.
   (c) If a drawee asserts a claim for breach of warranty under
subdivision (a) based on an unauthorized indorsement of the draft or
an alteration of the draft, the warrantor may defend by proving that
the indorsement is effective under Section 3404 or 3405 or the drawer
is precluded under Section 3406 or 4406 from asserting against the
drawee the unauthorized indorsement or alteration.
   (d) If (1) a dishonored draft is presented for payment to the
drawer or an indorser 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 subdivisions (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 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.
   (g) A demand draft is a check, as provided in subdivision (f) of
Section 3104.
   (h) If the warranty in paragraph (4) of subdivision (a) is not
given by a transferor under applicable conflict of law rules, then
the warranty is not given to that transferor when that transferor is
a transferee.


4209.  (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.



4210.  (a) A collecting bank has a security interest in an item and
any accompanying documents or the proceeds of either:
   (1) In 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 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 chargeback.
   (3) If it makes an advance on or against the item.
   (b) If credit given for several items received at one time or
pursuant to 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 Division 9 (commencing with Section 9101), but all
of the following are applicable:
   (1) No security agreement is necessary to make the security
interest enforceable (subparagraph (A) of paragraph (3) of
subdivision (b) of Section 9203).
   (2) No filing is required to perfect the security interest.
   (3) The security interest has priority over conflicting perfected
security interests in the item, accompanying documents, or proceeds.



4211.  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 Section 3302 on what constitutes a holder in due
course.



4212.  (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 written notice that the bank holds the
item for acceptance or payment. The notice shall be sent in time to
be received on or before the day when presentment is due and the bank
shall meet any requirement of the party to accept or pay under
Section 3501 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 Section 3501 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 indorser by sending it
notice of the facts.



4213.  (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 that prescription, the following are applicable:
   (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.
   (2) The time of settlement is any of the following:
   (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.
   (D) With respect to tender of settlement by a funds transfer, when
payment is made pursuant to subdivision (a) of Section 11406 to the
person receiving settlement.
   (b) If the tender of settlement is not by a medium authorized by
subdivision (a) or the time of settlement is not fixed by subdivision
(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 either:
   (1) Presents or forwards the check for collection, settlement is
final when the check is finally paid.
   (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.



4214.  (a) If a collecting bank has made provisional settlement with
its customer for an item and fails by reason of dishonor, suspension
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 pursuant to 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 (Section 4301).
   (d) The right to charge back is not affected by either of the
following:
   (1) Previous use of a credit given for the item.
   (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 shall 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.


4215.  (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.
   (2) If the bank is both the depositary bank and the payor bank,
and the item is finally paid, 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.



4216.  (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 shall 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.