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 alsowithin IC 26-1-3.1 and IC 26-1-8.1, they are subject to IC 26-1-3.1and 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 toan item handled by it for purposes of presentment, payment, orcollection is governed by the law of the place where the bank islocated. In the case of action or nonaction by or at a branch orseparate office of a bank, its liability is governed by the law of theplace 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 financialorganizations
Sec. 102.5. (a) As used in this section, "supervised financialorganization" means a person, other than an insurance company orother organization primarily engaged in an insurance business, thatis:
(1) organized, chartered, or holding an authorization certificateunder the laws of a state or of the United States that authorizesthe person to make loans and to receive deposits, including asavings, share, certificate, or deposit account; and
(2) subject to supervision by an official or agency of a state orof the United States.
(b) The provisions of IC 26-1-4 which apply to a bank applyequally to any supervised financial organization which is authorizedby state or federal law to permit persons to make withdrawals orpayments 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 constitutingordinary care
Sec. 103. (a) The effect of the provisions of IC 26-1-4 may bevaried by agreement, but the parties to the agreement cannot disclaim
a bank's responsibility for its lack of good faith or failure to exerciseordinary care or limit the measure of damages for the lack or failure.However, the parties may determine by agreement the standards bywhich the bank's responsibility is to be measured if those standardsare not manifestly unreasonable.
(b) Federal reserve regulations and operating circulars,clearing-house rules, and the like have the effect of agreements undersubsection (a), whether or not specifically assented to by all partiesinterested in items handled.
(c) Action or nonaction approved by IC 26-1-4 or pursuant tofederal reserve regulations or operating circulars is the exercise ofordinary care and, in the absence of special instructions, action ornonaction consistent with clearing-house rules and the like or witha general banking usage not disapproved by IC 26-1-4 is prima faciethe exercise of ordinary care.
(d) The specification or approval of certain procedures byIC 26-1-4 is not disapproval of other procedures that may bereasonable under the circumstances.
(e) The measure of damages for failure to exercise ordinary carein handling an item is the amount of the item reduced by an amountthat could not have been realized by the exercise of ordinary care. Ifthere is also bad faith it includes any other damages the partysuffered 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 likeaccount, other than an account evidenced by a certificate ofdeposit.
(2) "Afternoon" means the period of a day between noon andmidnight.
(3) "Banking day" means the part of a day on which a bank isopen to the public for carrying on substantially all of its bankingfunctions, but does not include Saturday, Sunday, or a legalholiday.
(4) "Clearing house" means an association of banks or otherpayors regularly clearing items.
(5) "Customer" means a person having an account with a bankor for whom a bank has agreed to collect items, including abank that maintains an account at another bank.
(6) "Documentary draft" means a draft to be presented foracceptance or payment if specified documents, certificatedsecurities (IC 26-1-8.1-102), or instructions for uncertificatedsecurities (IC 26-1-8.1-102) or other certificates, statements, orthe like are to be received by the drawee or other payor beforeacceptance or payment of the draft. (7) "Draft" means a draft (as defined in IC 26-1-3.1-104) or anitem, other than an instrument, that is an order.
(8) "Drawee" means a person ordered in a draft to makepayment.
(9) "Good faith" means honesty in fact in the conduct ortransaction concerned.
(10) "Item" means an instrument or a promise or order to paymoney handled by a bank for collection or payment. The termdoes not include a payment order governed by IC 26-1-4.1 or acredit or debit card slip.
(11) "Midnight deadline" with respect to a bank is midnight onits next banking day following the banking day on which itreceives the relevant item or notice or from which the time fortaking action commences to run, whichever is later.
(12) "Settle" means to pay in cash, by clearing-housesettlement, in a charge or credit, or by remittance, or otherwiseas instructed. A settlement may be either provisional or final.
(13) "Suspends payments" with respect to a bank means that ithas been closed by order of the supervisory authorities, that apublic officer has been appointed to take it over, or that itceases or refuses to make payments in the ordinary course ofbusiness.
(b) Other definitions applying to IC 26-1-4 and the sections inwhich 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 followingdefinitions 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 andprinciples of construction and interpretation applicable throughoutIC 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, ortrust company.
(2) "Depositary bank" means the first bank to take an item eventhough it is also the payor bank, unless the item is presented forimmediate 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 istransferred in course of collection except the depositary orpayor bank.
(5) "Collecting bank" means a bank handling an item forcollection except the payor bank.
(6) "Presenting bank" means a bank presenting an item excepta 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 bankidentified in the item:
(1) the item designates the bank as a collecting bank and doesnot by itself authorize the bank to pay the item; and
(2) the item may be presented for payment only by or throughthe bank.
(b) If an item states that it is "payable at" a bank identified in theitem:
(1) the item designates the bank as a collecting bank and doesnot by itself authorize the bank to pay the item; and
(2) the item may be presented for payment only by or throughthe bank.
(c) If a draft names a nonbank drawee and it is unclear whether abank named in the draft is a co-drawee or a collecting bank, the bankis 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 bankfor the purpose of computing the time within which and determiningthe place at or to which action may be taken or notices or orders mustbe 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 todetermine its position for the day, a bank may fix an afternoon hourof 2:00 p.m. or later as a cutoff hour for the handling of money anditems and the making of entries on its books.
(b) An item or deposit of money received on any day after a cutoffhour so fixed or after the close of the banking day may be treated asbeing 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 agood faith effort to secure payment of a specific item drawn on apayor other than a bank, and with or without the approval of anyperson involved, may waive, modify, or extend time limits imposedor permitted by IC 26-1 for a period not exceeding two (2) additionalbanking days without discharge of drawers or endorsers or liabilityto its transferor or a prior party.
(b) Delay by a collecting bank or payor bank beyond time limitsprescribed or permitted by IC 26-1 or by instructions is excused if:
(1) the delay is caused by interruption of communication orcomputer facilities, suspension of payments by another bank,war, emergency conditions, failure of equipment, or othercircumstances beyond the control of the bank; and
(2) the bank exercises such diligence as the circumstancesrequire.
(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 anagreement, clearing-house rule, or Federal Reserve regulation oroperating circular, providing that presentment of an item may bemade by transmission of an image of an item or information
describing the item ("presentment notice") rather than delivery of theitem itself. The agreement may provide for procedures governingretention, presentment, payment, dishonor, and other mattersconcerning items subject to the agreement.
(b) Presentment of an item under an agreement for presentment ismade 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 unlessthe 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 arisingunder IC 26-1-4 must be commenced within three (3) years after thecause 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 ofcredits; applicability of chapter; item endorsed "pay any bank"
Sec. 201. (a) Unless a contrary intent clearly appears and beforethe time that a settlement given by a collecting bank for an item is orbecomes final, the bank, with respect to the item, is an agent orsubagent of the owner of the item, and any settlement given for theitem is provisional. This provision applies regardless of the form ofendorsement or lack of endorsement and even though credit given forthe item is subject to immediate withdrawal as of right or is in factwithdrawn, but the continuance of ownership of an item by its ownerand any rights of the owner to proceeds of the item are subject torights of a collecting bank, such as those resulting from outstandingadvances on the item and rights of recoupment or setoff. If an itemis handled by banks for purposes of presentment, payment,collection, or return, the relevant provisions of IC 26-1-4 apply, eventhough action of the parties clearly establishes that a particular bankhas purchased the item and is the owner of it.
(b) After an item has been endorsed with the words "pay anybank" or the like, only a bank may acquire the rights of a holder untilthe 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 anitem other than a documentary draft to the bank's transferor
after learning that the item has not been paid or accepted, as thecase 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 withina reasonable time after discovery thereof.
(b) A collecting bank exercises ordinary care under subsection (a)by taking proper action before its midnight deadline followingreceipt of an item, notice, or settlement. Taking proper action withina 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 theinsolvency, neglect, misconduct, mistake, or default of another bankor person or for loss or destruction of an item in the possession ofothers 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 ofinstruments and the provisions of both IC 26-1-3.1 and IC 26-1-4concerning restrictive endorsements (IC 26-1-3.1-206), only acollecting bank's transferor can give instructions that affect the bankor constitute notice to it, and a collecting bank is not liable to priorparties for any action taken pursuant to the instructions or inaccordance 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 reasonablyprompt method, taking into consideration relevant instructions, thenature of the item, the number of those items on hand, the cost ofcollection involved, and the method generally used by it or others topresent 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 operatingcircular, clearing-house rule, or the like.
(c) Presentment may be made by a presenting bank at a placewhere the payor bank or other payor has requested that presentmentbe 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 forcollection:
(1) the depositary bank becomes a holder of the item at the timeit receives the item for collection if the customer at the time ofdelivery was a holder of the item, whether or not the customerendorses the item, and, if the bank satisfies the otherrequirements of IC 26-1-3.1-302, it is a holder in due course;and
(2) the depositary bank warrants to collecting banks, the payorbank or other payor, and the drawer that the amount of the itemwas 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 issufficient 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 itemand receives a settlement or other consideration warrants to thetransferee 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 againstthe warrantor;
(5) the warrantor has no knowledge of any insolvencyproceeding commenced with respect to the maker or acceptoror, in the case of an unaccepted draft, the drawer; and
(6) with respect to a remotely-created consumer item, theperson on whose account the item is drawn authorized theissuance of the item in the amount for which the item is drawn.
(b) If an item is dishonored, a customer or collecting banktransferring the item and receiving settlement or other considerationis obliged to pay the amount due on the item:
(1) according to the terms of the item at the time it wastransferred; or
(2) if the transfer was of an incomplete item, according to itsterms when completed as stated in IC 26-1-3.1-115 andIC 26-1-3.1-407.
The obligation of a transferor is owed to the transferee and to anysubsequent collecting bank that takes the item in good faith. A
transferor cannot disclaim its obligation under this subsection by anendorsement stating that it is made "without recourse" or otherwisedisclaiming liability.
(c) A person to whom the warranties under subsection (a) aremade and who took the item in good faith may recover from thewarrantor as damages for breach of warranty an amount equal to theloss suffered as a result of the breach, but not more than the amountof the item plus expenses and loss of interest incurred as a result ofthe breach.
(d) The warranties stated in subsection (a) cannot be disclaimedwith respect to checks. Unless notice of a claim for breach ofwarranty is given to the warrantor within thirty (30) days after theclaimant has reason to know of the breach and the identity of thewarrantor, the warrantor is discharged to the extent of any losscaused by the delay in giving notice of the claim.
(e) A cause of action for breach of warranty under this sectionaccrues 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 forpayment or acceptance and the drawee pays or accepts the draft, (i)the person obtaining payment or acceptance, at the time ofpresentment, and (ii) a previous transferor of the draft, at the time oftransfer, warrant to the drawee that pays or accepts the draft in goodfaith that:
(1) the warrantor is, or was, at the time the warrantortransferred the draft, a person entitled to enforce the draft orauthorized to obtain payment or acceptance of the draft onbehalf 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 thepurported drawer of the draft is unauthorized; and
(4) with respect to a remotely-created consumer item, theperson on whose account the item is drawn authorized theissuance of the item in the amount for which the item is drawn.
(b) A drawee making payment may recover from a warrantordamages for breach of warranty equal to the amount paid by thedrawee less the amount the drawee received or is entitled to receivefrom the drawer because of the payment. In addition, the drawee isentitled to compensation for expenses and loss of interest resultingfrom the breach. The right of the drawee to recover damages underthis subsection is not affected by any failure of the drawee toexercise ordinary care in making payment. If the drawee accepts thedraft:
(1) breach of warranty is a defense to the obligation of theacceptor; and
(2) if the acceptor makes payment with respect to the draft, the
acceptor is entitled to recover from a warrantor for breach ofwarranty the amounts stated in this subsection.
(c) If a drawee asserts a claim for breach of warranty undersubsection (a) based on an unauthorized endorsement of the draft oran alteration of the draft, the warrantor may defend by proving thatthe endorsement is effective under IC 26-1-3.1-404 orIC 26-1-3.1-405 or the drawer is precluded under IC 26-1-3.1-406 orIC 26-1-4-406 from asserting against the drawee the unauthorizedendorsement or alteration.
(d) If:
(1) a dishonored draft is presented for payment to the drawer oran endorser; or
(2) any other item is presented for payment to a party obliged topay the item;
and the item is paid, the person obtaining payment and a priortransferor of the item warrant to the person making payment in goodfaith that the warrantor is, or was, at the time the warrantortransferred the item, a person entitled to enforce the item orauthorized to obtain payment on behalf of a person entitled toenforce the item. The person making payment may recover from anywarrantor for breach of warranty an amount equal to the amount paidplus expenses and loss of interest resulting from the breach.
(e) The warranties stated in subsections (a) and (d) cannot bedisclaimed with respect to checks. Unless notice of a claim forbreach of warranty is given to the warrantor within thirty (30) daysafter the claimant has reason to know of the breach and the identityof the warrantor, the warrantor is discharged to the extent of any losscaused by the delay in giving notice of the claim.
(f) A cause of action for breach of warranty under this sectionaccrues 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 withrespect to an item after issue warrants to any subsequent collectingbank and to the payor bank or other payor that the information iscorrectly encoded. If the customer of a depositary bank encodes, thatbank also makes the warranty.
(b) A person who undertakes to retain an item pursuant to anagreement for electronic presentment warrants to any subsequentcollecting bank and to the payor bank or other payor that retentionand presentment of the item comply with the agreement. If acustomer of a depositary bank undertakes to retain an item, that bankalso makes this warranty.
(c) A person to whom warranties are made under this section andwho took the item in good faith may recover from the warrantor asdamages for breach of warranty an amount equal to the loss sufferedas 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, accompanyingdocuments, and proceeds
Sec. 210. (a) A collecting bank has a security interest in an itemand any accompanying documents or the proceeds of either:
(1) in the case of an item deposited in an account, to the extentto which credit given for the item has been withdrawn orapplied;
(2) in the case of an item for which it has given credit availablefor withdrawal as of right, to the extent of the credit given,whether or not the credit is drawn upon or there is a right ofcharge-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 orunder a single agreement is withdrawn or applied in part, the securityinterest remains upon all the items, any accompanying documents, orthe proceeds of either. For the purpose of this section, credits firstgiven are first withdrawn.
(c) Receipt by a collecting bank of a final settlement for an itemis a realization on its security interest in the item, accompanyingdocuments, and proceeds. So long as the bank does not receive finalsettlement for the item or give up possession of the item orpossession or control of the accompanying documents for purposesother than collection, the security interest continues to that extentand is subject to IC 26-1-9.1, but:
(1) no security agreement is necessary to make the securityinterest 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 perfectedsecurity interests in the item, accompanying documents, orproceeds.
(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 duecourse, a bank has given value to the extent it has a security interestin an item, if the bank otherwise complies with the requirements ofIC 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 maypresent an item not payable by, through, or at a bank by sending tothe party to accept or pay a record providing notice that the bankholds the item for acceptance or payment. The notice must be sent intime to be received on or before the day when presentment is due andthe bank must meet any requirement of the party to accept or payunder IC 26-1-3.1-501 by the close of the bank's next banking dayafter it knows of the requirement.
(b) If presentment is made by notice and payment, acceptance, orrequest for compliance with a requirement under IC 26-1-3.1-501 isnot received by the close of business on the day after maturity or, inthe case of demand items, by the close of business on the thirdbanking day after notice was sent, the presenting bank may treat theitem as dishonored and charge any drawer or endorser by sending itnotice 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 mediumand time of settlement may be prescribed by Federal Reserveregulations or circulars, clearing-house rules, and the like, oragreement. In the absence of such prescription:
(1) the medium of settlement is cash or credit to an account ina Federal Reserve bank of or specified by the person to receivesettlement; and
(2) the time of settlement is:
(A) with respect to tender of settlement by cash, a cashier'scheck, or teller's check, when the cash or check is sent ordelivered;
(B) with respect to tender of settlement by credit in anaccount in a Federal Reserve Bank, when the credit is made;
(C) with respect to tender of settlement by a credit or debitto an account in a bank, when the credit or debit is made or,in the case of tender of settlement by authority to charge anaccount, 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 theperson receiving settlement.
(b) If the tender of settlement is not by a medium authorized bysubsection (a) or the time of settlement is not fixed by subsection (a),no settlement occurs until the tender of settlement is accepted by theperson receiving settlement.
(c) If settlement for an item is made by cashier's check or teller'scheck and the person receiving settlement, before its midnightdeadline:
(1) presents or forwards the check for collection, settlement isfinal 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 personreceiving settlement.
(d) If settlement for an item is made by giving authority to chargethe account of the bank giving settlement in the bank receivingsettlement, settlement is final when the charge is made by the bankreceiving settlement if there are funds available in the account for theamount 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; returnof item
Sec. 214. (a) If a collecting bank has made provisional settlementwith its customer for an item and fails by reason of dishonor, suspension of payments by a bank, or otherwise to receive settlement for theitem which is or becomes final, the bank may revoke the settlementgiven by it, charge back the amount of any credit given for the itemto its customer's account, or obtain refund from its customer, whetheror not it is able to return the item, if by its midnight deadline orwithin a longer reasonable time after it learns the facts it returns theitem or sends notification of the facts. If the return or notice isdelayed beyond the bank's midnight deadline or a longer reasonabletime after it learns the facts, the bank may revoke the settlement,charge back the credit, or obtain refund from its customer, but it isliable for any loss resulting from the delay. These rights to revoke,charge back, and obtain refund terminate if and when a settlement forthe item received by the bank is or becomes final.
(b) A collecting bank returns an item when it is sent or deliveredto the bank's customer or transferor or under its instructions.
(c) A depositary bank that is also the payor may charge back theamount of an item to its customer's account or obtain refund inaccordance with the section governing return of an item received bya 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 tothe item, but a bank so failing remains liable.
(e) A failure to charge back or claim refund does not affect otherrights of the bank against the customer or any other party.
(f) If credit is given in dollars as the equivalent of the value of anitem payable in foreign money, the dollar amount of any charge-backor refund must be calculated on the basis of the bank-offered spotrate for the foreign money prevailing on the day when the personentitled to the charge-back or refund learns that it will not receivepayment 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 andcredits become final; when certain credits become available forwithdrawal
Sec. 215. (a) An item is finally paid by a payor bank when thebank has first done any of the following:
(1) Paid the item in cash.
(2) Settled for the item without having a right to revoke thesettlement under statute, clearing-house rule, or agreement.
(3) Made a provisional settlement for the item and failed torevoke the settlement in the time and manner permitted bystatute, clearing-house rule, or agreement.
(b) If provisional settlement for an item does not become final, theitem is not finally paid.
(c) If provisional settlement for an item between the presentingand payor banks is made through a clearing house or by debits orcredits in an account between them, then to the extent thatprovisional debits or credits for the item are entered in accountsbetween the presenting and payor banks or between the presentingand successive prior collecting banks seriatim, they become finalupon final payment of the items by the payor bank.
(d) If a collecting bank receives a settlement for an item which isor becomes final, the bank is accountable to its customer for theamount of the item and any provisional credit given for the item inan account with its customer becomes final.
(e) Subject to (i) applicable law stating a time for availability offunds and (ii) any right of the bank to apply the credit to anobligation of the customer, credit given by a bank for an item in acustomer's account becomes available for withdrawal as of right:
(1) if the bank has received a provisional settlement for theitem, when the settlement becomes final and the bank has hada reasonable time to receive return of the item and the item hasnot 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 secondbanking day following receipt of the item.
(f) Subject to applicable law stating a time for availability offunds and any right of a bank to apply a deposit to an obligation ofthe depositor, a deposit of money becomes available for withdrawalas of right at the opening of the bank's next banking day after receiptof 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 apayor or collecting bank that suspends payment and the item has notbeen finally paid, the item must be returned by the receiver, trustee,or agent in charge of the closed bank to the presenting bank or theclosed bank's customer. (b) If a payor bank finally pays an item and suspends paymentswithout making a settlement for the item with its customer or thepresenting bank which settlement is or becomes final, the owner ofthe item has a preferred claim against the payor bank.
(c) If a payor bank gives or a collecting bank gives or receives aprovisional settlement for an item and thereafter suspends payments,the suspension does not prevent or interfere with the settlement'sbecoming final if the finality occurs automatically upon the lapse ofcertain time or the happening of certain events.
(d) If a collecting bank receives from subsequent partiessettlement for an item, which settlement is or becomes final and thebank suspends payments without making a settlement for the itemwith its customer which settlement is or becomes final, the owner ofthe 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 ofdishonor; return of items by payor bank
Sec. 301. (a) If a payor bank settles for a demand item other thana documentary draft presented otherwise than for immediate paymentover the counter before midnight of the banking day of receipt, thepayor 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 returnis made has entered into an agreement to accept an image as areturn of the item and the image is returned in accordance withthat agreement; or
(3) sends a record providing notice of dishonor or nonpaymentif the item is unavailable for return.
(b) If a demand item is received by a payor bank for credit on itsbooks, it may return the item or send notice of dishonor and mayrevoke any credit given or recover the amount thereof withdrawn byits customer, if it acts within the time limit and in the mannerspecified in subsection (a).
(c) Unless previous notice of dishonor has been sent, an item isdishonored at the time when for purposes of dishonor it is returnedor notice sent in accordance with this section.
(d) An item is returned:
(1) as to an item received through a clearing-house, when it isdelivered to the presenting or last collecting bank or to theclearing-house or is sent or delivered in accordance with itsrules; or
(2) in all other cases, when it is sent or delivered to the bank'scustomer 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 payorbank, the bank is accountable for the amount of:
(1) a demand item, other than a documentary draft, whetherproperly payable or not, if the bank, in any case in which it isnot also the depositary bank, retains the item beyond midnightof the banking day of receipt without settling for it or, whetheror not it is also the depositary bank, does not pay or return theitem or send notice of dishonor until after its midnight deadline;or
(2) any other properly payable item unless, within the timeallowed for acceptance or payment of that item, the bank eitheraccepts or pays the item or returns it and accompanyingdocuments.
(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 theliability presented or transferred the item for the purpose ofdefrauding 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, orsetoff; order in which items may be charged or certified
Sec. 303. (a) Any knowledge, notice, or stop-payment orderreceived by, legal process served upon, or setoff exercised by a payorbank comes too late to terminate, suspend, or modify the bank's rightor duty to pay an item or to charge its customer's account for the itemif the knowledge, notice, stop-payment order, or legal process isreceived or served and a reasonable time for the bank to act thereonexpires 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 torevoke the settlement under statute, clearing-house rule, oragreement.
(4) The bank becomes accountable for the amount of the itemunder IC 26-1-4-302 dealing with the payor bank'sresponsibility 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 bankingday on which the bank received the check and not later than theclose of that next banking day or, if no cutoff hour is fixed, theclose of the next banking day after the banking day on whichthe 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 anyorder.
(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 customeran item that is properly payable from that account even though thecharge creates an overdraft. An item is properly payable if it isauthorized by the customer and is in accordance with any agreementbetween the customer and the bank.
(b) A customer is not liable for the amount of an overdraft if thecustomer neither signed the item nor benefited from the proceeds ofthe item.
(c) A bank may charge against the account of a customer a checkthat is otherwise properly payable from the account, even thoughpayment was made before the date of the check, unless the customerhas given notice to the bank of the postdating describing the checkwith reasonable certainty. The notice is effective for the period statedin IC 26-1-4-403(b) for stop-payment orders, and must be receivedat such time and in such manner as to afford the bank a reasonableopportunity to act on it before the bank takes any action with respectto the check described in IC 26-1-4-303. If a bank charges against theaccount of a customer a check before the date stated in the notice ofpostdating, the bank is liable for damages for the loss resulting fromits act. The loss may include damages for dishonor of subsequentitems under IC 26-1-4-402.
(d) A bank that in good faith makes payment to a holder maycharge 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 bankknows the item has been completed unless the bank has noticethat 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 ofdetermining insufficiency of account
Sec. 402. (a) Except as otherwise provided in IC 26-1-4, a payorbank wrongfully dishonors an item if it dishonors an item that isproperly payable, but a bank may dishonor an item that would createan overdraft unless it has agreed to pay the overdraft.
(b) A payor bank is liable to its customer for damages proximatelycaused by the wrongful dishonor of an item. Liability is limited toactual damages proved and may include damages for an arrest orprosecution of the customer or other consequential damages.Whether any consequential damages are proximately caused by thewrongful dishonor is a question of fact to be determined in each case.
(c) A payor bank's determination of the customer's accountbalance on which a decision to dishonor for insufficiency ofavailable 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 payorbank returns the item or gives notice in lieu of return, and no morethan one (1) determination need be made. If, at the election of thepayor bank, a subsequent balance determination is made for thepurpose of reevaluating the bank's decision to dishonor the item, theaccount balance at that time is determinative of whether a dishonorfor 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 theaccount if there is more than one (1) person may stop payment of anyitem drawn on the customer's account or close the account by anorder to the bank describing the item or account with reasonablecertainty received at a time and in a manner that affords the bank areasonable opportunity to act on it before any action by the bank withrespect to the item described in IC 26-1-4-303. If the signature ofmore than one (1) person is required to draw on an account, any ofthese persons may stop payment or close the account.
(b) A stop-payment order is effective for six (6) months, but itlapses after fourteen (14) calendar days if the original order was oraland was not confirmed in a record within that period. Astop-payment order may be renewed for additional six (6) monthperiods by a record given to the bank within a period during whichthe stop-payment order is effective.
(c) The burden of establishing the fact and amount of lossresulting from the payment of an item contrary to a stop-paymentorder or order to close an account is on the customer. The loss frompayment of an item contrary to a stop-payment order may includedamages 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 achecking account to pay a check, other than a certified check, whichis presented more than six (6) months after its date, but it may chargeits 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, ifotherwise effective, is not rendered ineffective by the mentalincompetence of a customer of either bank existing at the time theitem is issued or its collection is undertaken if the bank does not
know of an adjudication of incompetence. Neither death nor mentalincompetence of a customer revokes the authority to accept, pay,collect, or account until the bank knows of the fact of death or of anadjudication of incompetence and has reasonable opportunity to acton it.
(b) Even with knowledge, a bank may for ten (10) days after thedate of death pay or certify checks drawn on or before that dateunless ordered to stop payment by a person claiming an interest inthe 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 oralteration
Sec. 406. (a) A bank that sends or makes available to a customera statement of account showing payment of items for the accountshall either return or make available to the customer the items paidor provide information in the statement of account sufficient to allowthe customer reasonably to identify the items paid. The statement ofaccount provides sufficient information if the item is described byitem number, amount, and date of payment.
(b) If the items are not returned to the customer, the personretaining the items shall either retain the items or, if the items aredestroyed, maintain the capacity to furnish legible copies of the itemsuntil the expiration of seven (7) years after receipt of the items. Acustomer may request an item from the bank that paid the item, andthat bank must provide in a reasonable time either the item or, if theitem has been destroyed or is not otherwise obtainable, a legible copyof the item.
(c) If a bank sends or makes available a statement of account oritems under subsection (a), the customer must exercise reasonablepromptness in examining the statement or the items to determinewhether any payment was not authorized because of an alteration ofan item or because a purported signature by or on behalf of thecustomer was not authorized. If, based on the statement or itemsprovided, the customer should reasonably have discovered theunauthorized payment, the customer must promptly notify the bankof the relevant facts.
(d) If the bank proves that the customer failed, with respect to anitem, to comply with the duties imposed on the customer bysubsection (c) the customer is precluded from asserting against thebank:
(1) the customer's unauthorized signature or any alteration onthe item, if the bank also proves that it suffered a loss by reasonof the failure; and
(2) the customer's unauthorized signature or alteration by thesame wrongdoer on any other item paid in good faith by thebank if the payment was made before the bank received noticefrom the customer of the unauthorized signature or alteration
and after the customer had been afforded a reasonable period oftime, not exceeding thirty (30) days, in which to examine theitem or statement of account and notify the bank.
(e) If subsection (d) applies and the customer proves that the bankfailed to exercise ordinary care in paying the item and that the failuresubstantially contributed to loss, the loss is allocated between thecustomer precluded and the bank asserting the preclusion accordingto the extent to which the failure of the customer to comply withsubsection (c) and the failure of the bank to exercise ordinary carecontributed to the loss. If the customer proves that the bank did notpay the item in good faith, the preclusion under subsection (d) doesnot apply.
(f) Without regard to care or lack of care of either the customer orthe bank, a customer who does not within one (1) year after thestatement or items are made available to the customer (subsection(a)) discover and report the customer's unauthorized signature on orany alteration on the item is precluded from asserting against thebank the unauthorized signature or alteration. If there is a preclusionunder this subsection, the payor bank may not recover for breach ofwarranty under IC 26-1-4-208 with respect to the unauthorizedsignature 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 thedrawer or maker to stop payment, or after an account has beenclosed, or otherwise under circumstances giving a basis for objectionby the drawer or maker, to prevent unjust enrichment and only to theextent necessary to prevent loss to the bank by reason of its paymentof the item, the payor bank is subrogated to the rights:
(1) of any holder in due course on the item against the draweror maker;
(2) of the payee or any other holder of the item against thedrawer or maker either on the item or under the transaction outof which the item arose; and
(3) of the drawer or maker against the payee or any other holderof the item with respect to the transaction out of which the itemarose.
(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 andto notify customer of dishonor
Sec. 501. A bank that takes a documentary draft for collectionshall present or send the draft and accompanying documents forpresentment and, upon learning that the draft has not been paid oraccepted in due course, shall seasonably notify its customer of the
fact even though it may have discounted or bought the draft orextended 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 bankneed not present until in its judgment a reasonable time for arrival ofthe goods has expired. Refusal to pay or accept because the goodshave not arrived is not dishonor; the bank must notify its transferorof the refusal but need not present the draft again until it is instructedto 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; reportof reasons for dishonor; referee in case needed
Sec. 503. Unless otherwise instructed and except as provided inIC 26-1-5.1, a bank presenting a documentary draft:
(1) must deliver the documents to the drawee on acceptance ofthe draft if it is payable more than three (3) days afterpresentment; otherwise, only on payment; and
(2) upon dishonor, either in the case of presentment foracceptance or presentment for payment, may seek and followinstructions from any referee in case of need designated in thedraft, or if the presenting bank does not choose to utilize thereferee's services, it must use diligence and good faith toascertain the reason for dishonor, must notify its transferor ofthe di