Subject to Article 3 concerning conversion of instruments (Section 55-3-420 NMSA 1978) and restrictive indorsements (Section 55-3-206 NMSA 1978) 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.

History: 1953 Comp., § 50A-4-203, enacted by Laws 1961, ch. 96, § 4-203; 1992, ch. 114, § 169.

OFFICIAL COMMENTS

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

This section adopts a "chain of command" theory which renders it unnecessary for an intermediary or collecting bank to determine whether its transferor is "authorized" to give the instructions. Equally the bank is not put on notice of any "revocation of authority" or "lack of authority" by notice received from any other person. The desirability of speed in the collection process and the fact that, by reason of advances made, the transferor may have the paramount interest in the item requires the rule.

The section is made subject to the provisions of Article 3 concerning conversion of instruments (Section 3-420) [55-3-420 NMSA 1978] and restrictive indorsements (Section 3-206) [55-3-206 NMSA 1978]. Of course instructions from or an agreement with its transferor does not relieve a collecting bank of its general obligation to exercise good faith and ordinary care. See Section 4-103(a) [55-4-103 NMSA 1978]. If in any particular case a bank has exercised good faith and ordinary care and is relieved of responsibility by reason of instructions of or an agreement with its transferor, the owner of the item may still have a remedy for loss against the transferor (another bank) if such transferor has given wrongful instructions.

The rules of the section are applied only to collecting banks. Payor banks always have the problem of making proper payment of an item; whether such payment is proper should be based upon all of the rules of Articles 3 and 4 and all of the facts of any particular case, and should not be dependent exclusively upon instructions from or an agreement with a person presenting the item.

The 1992 amendment, effective July 1, 1992, made section reference substitutions and minor stylistic changes throughout the section.

Collection letter should not be considered in determining whether bank was payor bank. The status of a negotiable instrument is to be determined from its face - from the language used or authorized to be used thereon by its drawer or maker - and not from documents attached thereto by other parties. 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 § 703.

What conduct by drawee of check, before receipt of stop-payment order, renders order ineffectual, 10 A.L.R.2d 428.

9 C.J.S. Banks and Banking § 383 et seq.