(a) To the extent that items within this article are also within Articles 3 and 8, they are subject to those articles. If there is conflict, this article governs Article 3, but Article 8 governs this article.

(b) The liability of a bank for action or non-action 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 non-action 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.

History: 1953 Comp., § 50A-4-102, enacted by Laws 1961, ch. 96, § 4-102; 1992, ch. 114, § 157.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

1. The rules of Article 3 governing negotiable instruments, their transfer, and the contracts of the parties thereto apply to the items collected through banking channels wherever no specific provision is found in this Article. In the case of conflict, this Article governs. See Section 3-102(b) [55-3-102 NMSA 1978].

Bonds and like instruments constituting investment securities under Article 8 may also be handled by banks for collection purposes. Various sections of Article 8 prescribe rules of transfer some of which (see Sections 8-108 [55-8-108 NMSA 1978] and 8-304 [55-8-304 NMSA 1978]) may conflict with provisions of this Article (Sections 4-205 [55-4-205 NMSA 1978], 4-207 [55-4-207 NMSA 1978], and 4-208 [55-4-208 NMSA 1978]). In the case of conflict, Article 8 governs.

Section 4-210 [55-4-210 NMSA 1978] deals specifically with overlapping problems and possible conflicts between this Article and Article 9. However, similar reconciling provisions are not necessary in the case of Articles 5 and 7. Sections 4-301 and 4-302 [55-4-301 and 55-4-302 NMSA 1978, respectively] are consistent with Section 5-112 [55-5-112 NMSA 1978]. In the case of Article 7 documents of title frequently accompany items but they are not themselves items. See Section 4-104(a)(9) [55-4-104 NMSA 1978].

In Clearfield Trust Co. v. United States, 318 U.S. 363 (1943), the Court held that if the United States is a party to an instrument, its rights and duties are governed by federal common law in the absence of a specific federal statute or regulation. In United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979), the Court stated a three-pronged test to ascertain whether the federal common-law rule should follow the state rule. In most instances courts under the Kimbell test have shown a willingness to adopt UCC rules in formulating federal common law on the subject. In Kimbell the Court adopted the priorities rules of Article 9.

In addition, applicable federal law may supersede provisions of this Article. One federal law that does so is the Expedited Funds Availability Act, 12 U.S.C. § 4001 et seq., and its implementing Regulation CC, 12 CFR Pt. 229. In some instances this law is alluded to in the statute, e.g., Section 4-215(e) and (f) [55-4-215 NMSA 1978]. In other instances, although not referred to in this Article, the provisions of the EFAA and Regulation CC control with respect to checks. For example, except between the depositary bank and its customer, all settlements are final and not provisional (Regulation CC, Section 229.36(d)), and the midnight deadline may be extended (Regulation CC, Section 229.30(c)). The Comments to this Article suggest in most instances the relevant Regulation CC provisions.

2. Subsection (b) is designed to state a workable rule for the solution of otherwise vexatious problems of the conflicts of laws:

a. The routine and mechanical nature of bank collections makes it imperative that one law govern the activities of one office of a bank. The requirement found in some cases that to hold an indorser notice must be given in accordance with the law of the place of indorsement, since that method of notice became an implied term of the indorser's contract, is more theoretical than practical.

b. Adoption of what is in essence a tort theory of the conflict of laws is consistent with the general theory of this Article that the basic duty of a collecting bank is one of good faith and the exercise of ordinary care. Justification lies in the fact that, in using an ambulatory instrument, the drawer, payee, and indorsers must know that action will be taken with respect to it in other jurisdictions. This is especially pertinent with respect to the law of the place of payment.

c. The phrase "action or non-action with respect to any item handled by it for purposes of presentment, payment, or collection" is intended to make the conflicts rule of subsection (b) apply from the inception of the collection process of an item through all phases of deposit, forwarding, presentment, payment and remittance or credit of proceeds. Specifically the subsection applies to the initial act of a depositary bank in receiving an item and to the incidents of such receipt. The conflicts rule of Weissman v. Banque de Bruxelles, 254 N.Y. 488, 173 N.E. 835 (1930), is rejected. The subsection applies to questions of possible vicarious liability of a bank for action or non-action of sub-agents (see Section 4-202(c)) [55-4-202 NMSA 1978], and tests these questions by the law of the state of the location of the bank which uses the sub-agent. The conflicts rule of St. Nicholas Bank of New York v. State Nat. Bank, 128 N.Y. 26, 27 N.E. 849, 13 L.R.A. 241 (1891), is rejected. The subsection applies to action or non-action of a payor bank in connection with handling an item (see Sections 4-215(a), 4-301, 4-302, 4-303) [55-4-215, 55-4-301, 55-4-302, 55-4-303 NMSA 1978, respectively] as well as action or non-action of a collecting bank (Sections 4-201 through 4-216) [55-4-201 to 55-4-216 NMSA 1978, respectively]; to action or non-action of a bank which suspends payment or is affected by another bank suspending payment (Section 4-216) [55-4-216 NMSA 1978]; to action or non-action of a bank with respect to an item under the rule of Part 4 of Article 4.

d. In a case in which subsection (b) makes this Article applicable, Section 4-103(a) [55-4-103 NMSA 1978] leaves open the possibility of an agreement with respect to applicable law. This freedom of agreement follows the general policy of Section 1-105 [55-1-105 NMSA 1978].

The 1992 amendment, effective July 1, 1992, substituted letters for numbers in the subsection designations and made minor stylistic changes throughout the section.

Law reviews. — For article, "Essential Attributes of Commercial Paper - Part I," see 1 N.M. L. Rev. 479 (1971).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 10 Am. Jur. 2d Banks §§ 694, 700.

Construction and effect of U.C.C. Art. 4, dealing with bank deposits and collections, 18 A.L.R.3d 1376, 97 A.L.R.3d 714, 22 A.L.R.4th 10, 29 A.L.R.4th 631, 88 A.L.R.4th 568, 88 A.L.R.4th 613, 88 A.L.R.4th 644.

9 C.J.S. Banks and Banking § 382.