(a) A collecting bank must exercise ordinary care in:

(1) presenting an item or sending it for presentment;

(2) sending notice of dishonor or non-payment 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.

History: 1953 Comp., § 50A-4-202, enacted by Laws 1961, ch. 96, § 4-202; 1992, ch. 114, § 168.

OFFICIAL COMMENTS

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

1. Subsection (a) states the basic responsibilities of a collecting bank. Of course, under Section 1-203 a collecting bank is subject to the standard requirement of good faith. By Subsection (a) it must also use ordinary care in the exercise of its basic collection tasks. By Section 4-103(a) [55-4-103 NMSA 1978] neither requirement may be disclaimed.

2. If the bank makes presentment itself, Subsection (a)(1) requires ordinary care with respect both to the time and manner of presentment. (Sections 3-501 and 4-212.) [55-3-501 and 55-4-212 NMSA 1978, respectively] If it forwards the item to be presented the subsection requires ordinary care with respect to routing (Section 4-204) [55-4-204 NMSA 1978], and also in the selection of intermediary banks or other agents.

3. Subsection (a) describes types of basic action with respect to which a collecting bank must use ordinary care. Subsection (b) deals with the time for taking action. It first prescribes the general standard for timely action, namely, for items received on Monday, proper action (such as forwarding or presenting) on Monday or Tuesday is timely. Although under current "production line" operations banks customarily move items along on regular schedules substantially briefer than two days, the subsection states an outside time within which a bank may know it has taken timely action. To provide flexibility from this standard norm, the subsection further states that action within a reasonably longer time may be timely but the bank has the burden of proof. In the case of time items, action after the midnight deadline, but sufficiently in advance of maturity for proper presentation, is a clear example of a "reasonably longer time" that is timely. The standard of requiring action not later than Tuesday in the case of Monday items is also subject to possibilities of variation under the general provisions of Section 4-103 [55-4-103 NMSA 1978], or under the special provisions regarding time of receipt of items (Section 4-108) [55-4-108 NMSA 1978], and regarding delays (Section 4-109) [55-4-109 NMSA 1978]. This Subsection (b) deals only with collecting banks. The time limits applicable to payor banks appear in Sections 4-301 and 4-302 [55-4-301 and 55-4-302 NMSA 1978, respectively].

4. At common law the so-called New York collection rule subjected the initial collecting bank to liability for the actions of subsequent banks in the collection chain; the so-called Massachusetts rule was that each bank, subject to the duty of selecting proper intermediaries, was liable only for its own negligence. Subsection (c) adopts the Massachusetts rule. But since this is stated to be subject to Subsection (a)(1) a collecting bank remains responsible for using ordinary care in selecting properly qualified intermediary banks and agents and in giving proper instructions to them. Regulation CC Section 229.36(d) states the liability of a bank during the forward collection of checks.

The 1992 amendment, effective July 1, 1992, inserted "or return" and substituted "timely" for "seasonable" in the section catchline; revised the subsection and paragraph designations; substituted "exercise" for "use" in the introductory paragraph of Subsection (a); deleted a former paragraph of Subsection (a), which read: "making or providing for any necessary protest"; deleted "or directly to the depositary bank under Subsection (2) of Section 4-212" following "transfer or" in Subsection (a)(2); rewrote Subsection (b); and made minor stylistic changes throughout the section.

When bank not liable for negligence of subagent. — Where a bank has in good faith employed a suitable subagent, for the purpose of making a collection, it is not thereafter liable for default or negligence of that subagent. Bays v. Albuquerque Nat'l Bank, 1930-NMSC-035, 34 N.M. 656, 288 P. 17 (decided under former law).

Ordinary care obligates collecting bank to take seasonable action on the item. Engine Parts, Inc. v. Citizens Bank, 1978-NMSC-040, 92 N.M. 37, 582 P.2d 809.

Am. Jur. 2d, A.L.R. and C.J.S. references. — 10 Am. Jur. 2d Banks §§ 701, 704, 705, 710, 711, 713, 728, 731.

Negligence action against bank by depositor, admissibility of evidence of custom of banks in locality in handling and dealing with checks and other items involved, 8 A.L.R.2d 446.

Duties of collecting bank with respect to presenting draft or bill of exchange for acceptance, 39 A.L.R.2d 1296.

9 C.J.S. Banks and Banking §§ 408 et seq., 358.