# Title 41 — Uniform Commercial Code

## Chapter 41-04 — Bank Deposits and Collections

[Note: Previous Chapter 41-04 was repealed and replaced by S.L. 1991, ch. 448, § 22]
### § 41-04-01. (4-101) Short title.

This chapter shall be known and may be cited as Uniform Commercial Code - Bank
Deposits and Collections.
### § 41-04-02. (4-102) Applicability.

1. To the extent that items within this chapter are also within the scope of chapters 41-03
and 41-08, they are subject to the provisions of those chapters. In the event of conflict,
the provisions of this chapter govern those of chapter 41-03 but the provisions of
chapter 41-08 govern those of this chapter.
2. The liability of a bank for action or nonaction with respect to any 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 nonaction 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.
### § 41-04-03. (4-103) Variation by agreement - Measure of damages - Action constituting

ordinary care.
1. The effect of the provisions of this chapter may be varied by agreement, but the parties
to the agreement may not disclaim a bank's responsibility for its own lack of good faith
or failure to exercise ordinary care or limit the measure of damages for the lack or
failure. The parties may, however, determine by agreement the standards by which the
bank's responsibility is to be measured if those standards are not manifestly
unreasonable.
2. Federal reserve regulations and operating circulars, clearinghouse rules, and the like
have the effect of agreements under subsection 1, whether or not specifically assented
to by all parties interested in items handled.
3. Action or nonaction approved by this chapter or under federal reserve regulations or
operating circulars constitutes the exercise of ordinary care and, in the absence of
special instructions, action or nonaction consistent with clearinghouse and similar rules
or with a general banking usage not disapproved by this chapter, constitutes prima
facie the exercise of ordinary care.
4. The specification or approval of certain procedures by this chapter does not constitute
disapproval of other procedures that may be reasonable under the circumstances.
5. The measure of damages for failure to exercise ordinary care in handling an item is
the amount of the item reduced by an amount that could not have been realized by the
exercise of ordinary care. If there is also bad faith, it includes any other damages the
party suffered as a proximate consequence.
### § 41-04-04. (4-104) Definitions and index of definitions.

1. In this chapter, unless the context otherwise requires:
a. "Account" means any deposit or credit account with a bank and includes a
demand, time, savings, passbook, share draft, or like account, other than an
account evidenced by a certificate of deposit.
b. "Afternoon" means the period of a day between noon and midnight.
c. "Banking day" means the part of a day on which a bank is open to the public for
carrying on substantially all of its banking functions.
d. "Clearinghouse" means an association of banks or other payors regularly clearing
items.
e. "Customer" means a person having an account with a bank or for whom a bank
has agreed to collect items and includes a bank maintaining an account at
another bank.

f. "Documentary draft" means a draft to be presented for acceptance or payment if
specified documents, certificated securities (section 41-08-02), or instructions for
uncertificated securities (section 41-08-02), or other certificates, statements, or
the like are to be received by the drawee or other payor before acceptance or
payment of the draft.
g. "Draft" means a draft as defined in section 41-03-04 or an item, other than an
instrument, that is an order.
h. "Drawee" means a person ordered in a draft to make payment.
i. "Item" means an instrument or a promise or order to pay money handled by a
bank for collection or payment. The term does not include a payment order
governed by chapter 41-04.1 or a credit or debit card slip.
j. "Midnight deadline" with respect to a bank is midnight on its next banking day
following the banking day on which it receives the relevant item or notice or from
which the time for taking action commences to run, whichever is later.
k. "Settle" means to pay in cash, by clearinghouse settlement, in a charge or credit,
or by remittance, or otherwise as agreed. A settlement may be either provisional
or final.
l. "Suspends payments" with respect to a bank means that it has been closed by
order of the supervisory authorities, that a public officer has been appointed to
take it over, or that it ceases or refuses to make payments in the ordinary course
of business.
2. Other definitions applying to this chapter and the sections in which they appear are:
a. "Bank". Section 41-04-05.
b. "Collecting bank". Section 41-04-05.
c. "Depositary bank". Section 41-04-05.
d. "Electronic presentment agreement". Section 41-04-10.
e. "Intermediary bank". Section 41-04-05.
f. "Payor bank". Section 41-04-05.
g. "Presenting bank". Section 41-04-05.
h. "Presentment notice". Section 41-04-10.
3. "Control" as provided under section 41-07-06 and the following definitions in other
chapters apply to this chapter:
a. "Acceptance". Section 41-03-46.
b. "Alteration". Section 41-03-44.
c. "Cashier's check". Section 41-03-04.
d. "Certificate of deposit". Section 41-03-04.
e. "Certified check". Section 41-03-45.
f. "Check". Section 41-03-04.
g. "Holder in due course". Section 41-03-28.
h. "Instrument". Section 41-03-04.
i. "Notice of dishonor". Section 41-03-60.
j. "Order". Section 41-03-03.
k. "Ordinary care". Section 41-03-03.
l. "Person entitled to enforce". Section 41-03-27.
m. "Presentment". Section 41-03-58.
n. "Promise". Section 41-03-03.
o. "Prove". Section 41-03-03.
p. "Teller's check". Section 41-03-04.
q. "Unauthorized signature". Section 41-03-40.
4. In addition, chapter 41-01 contains general definitions and principles of construction
and interpretation applicable throughout this chapter.
### § 41-04-05. (4-105) Bank - Collecting bank - Depositary bank - Payor bank - Presenting

bank.
In this chapter, unless the context otherwise requires:

1. "Bank" means any person engaged in the business of banking, including a savings
bank, savings and loan association, credit union, or trust company.
2. "Collecting bank" means a bank handling an item for collection except the payor bank.
3. "Depositary bank" means the first bank to take an item even though it is also the payor
bank, unless the item is presented for immediate payment over the counter.
4. "Intermediary bank" means a bank to which an item is transferred in course of
collection except the depositary or payor bank.
5. "Payor bank" means a bank that is the drawee of a draft.
6. "Presenting bank" means a bank presenting an item except a payor bank.
### § 41-04-06. (4-106) Payable through or payable at bank - Collecting bank.

1. If an item states that it is "payable through" a bank identified in the item, the item
designates the bank as a collecting bank and does not by itself authorize the bank to
pay the item, and the item may be presented for payment only by or through the bank.
2. If an item states that it is "payable at" a bank identified in the item, the item is
equivalent to a draft drawn on the bank.
3. If a draft names a nonbank drawee and it is unclear whether a bank named in the draft
is a codrawee or a collecting bank, the bank is a collecting bank.
### § 41-04-07. (4-107) Separate office of bank.

A branch or separate office of a bank is a separate bank for the purpose of computing the
time within which and determining the place at or to which action may be taken or notice or
orders must be given under this chapter and under chapter 41-03.
### § 41-04-08. (4-108) Time of receipt of items.

1. For the purpose of allowing time to process items, prove balances, and make the
necessary entries on its books to determine its position for the day, a bank may fix an
afternoon hour of two p.m. or later as a cutoff hour for the handling of money and
items and the making of entries on its books.
2. Any item or deposit of money received on any day after a cutoff hour so fixed or after
the close of the banking day may be treated as being received at the opening of the
next banking day.
### § 41-04-09. (4-109) Delays.

1. Unless otherwise instructed, a collecting bank in a good-faith effort to secure payment
of a specific item drawn on a payor other than a bank, and with or without the approval
of any person involved, may waive, modify, or extend time limits imposed or permitted
by this chapter for a period not exceeding two additional banking days without
discharge of drawers or endorsers or liability to its transferor or a prior party.
2. Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by
this chapter or by instructions is excused if the delay is caused by interruption of
communication or computer facilities, suspension of payments by another bank, war,
emergency conditions, failure of equipment, or other circumstances beyond the control
of the bank, and if the bank exercises such diligence as the circumstances require.
### § 41-04-10. (4-110) Electronic presentment.

1. "Electronic presentment agreement" means an agreement, clearinghouse rule, or
federal reserve regulation or operating circular, providing that presentment of an item
may be made by transmission of an image of an item or information describing the
item ("presentment notice") rather than delivery of the item itself. The agreement may
provide for procedures governing retention, presentment, payment, dishonor, and
other matters concerning items subject to the agreement.
2. Presentment of an item under an electronic presentment agreement is made when the
presentment notice is received.

3. If presentment is made by presentment notice, a reference to "item" or "check" in this
chapter means the presentment notice unless the context otherwise indicates.
### § 41-04-11. (4-111) Statute of limitations.

An action to enforce an obligation, duty, or right arising under this chapter must be
commenced within three years after the cause of action accrues.
### § 41-04-12. Construction of chapter - Branch banking.

This chapter may not be construed to permit branch banking.
### § 41-04-13. (4-201) Agency status of collecting banks and provisional status of credit -

Applicability of chapter - Item endorsed pay any bank.
1. 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 endorsement or lack of
endorsement 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 valid 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
chapter apply even though action of the parties clearly establishes that a particular
bank has purchased the item and is the owner of it.
2. After an item has been endorsed with the words "pay any bank" or the like, only a
bank may acquire the rights of a holder until:
a. The item has been returned to the customer initiating collection; or
b. The item has been specially endorsed by a bank to a person who is not a bank.
### § 41-04-14. (4-202) Responsibility for collection or return - When action timely.

1. A collecting bank must exercise ordinary care in the following matters:
a. Presenting an item or sending it for presentment.
b. 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.
c. Settling for an item when the bank receives final settlement.
d. Notifying its transferor of any loss or delay in transit within a reasonable time after
discovery thereof.
2. A collecting bank exercises ordinary care under subsection 1 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 so establishing.
3. Subject to subdivision a of subsection 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 transit or in the possession of others.
### § 41-04-15. (4-203) Effect of instructions.

Subject to the provisions of chapter 41-03 concerning conversion of instruments (section
41-03-57) and restrictive endorsements (section 41-03-25), only a collecting bank's transferor
may give instructions which affect the bank or constitute notice to it, and a collecting bank is not
liable to prior parties for any action taken under those instructions or any agreement with its
transferor.

### § 41-04-16. (4-204) Methods of sending and presenting - Sending directly to payor bank.

1. A collecting bank shall send items by a reasonably prompt method taking into
consideration any 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.
2. A collecting bank may send:
a. An item directly to the payor bank.
b. An item to any nonbank payor if authorized by its transferor.
c. An item other than a documentary draft to a nonbank payor, if authorized by
federal reserve regulation or operating circular, clearinghouse rule, or the like.
3. Presentment may be made by a presenting bank at a place where the payor bank or
other payor has requested that presentment be made.
### § 41-04-17. (4-205) Depositary bank holder of unendorsed item.

If a customer delivers an item to a depositary bank for collection:
1. 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 endorses, and, if it satisfies the other requirements of section
41-03-28, it may be a holder in due course.
2. The depositary bank warrants to subsequent 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.
### § 41-04-18. (4-206) Transfer between banks.

Any agreed method that identifies the transferor bank is sufficient for further transfer of the
item to another bank.
### § 41-04-19. (4-207) Transfer warranties.

1. 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:
a. The warrantor is a person entitled to enforce the item.
b. All signatures on the item are authentic and authorized.
c. The item has not been altered.
d. The item is not subject to a defense or claim in recoupment (subsection 1 of
section 41-03-31) of any party that can be asserted against the warrantor.
e. 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.
f. 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.
2. 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 according to the terms of the item at the time it was transferred, or, if the transfer
was of an incomplete item, according to its terms when completed as stated in
sections 41-03-15 and 41-03-44. 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 may not disclaim its obligation under this subsection by an endorsement
stating that it is made "without recourse" or otherwise disclaiming liability.
3. A person to whom the warranties under subsection 1 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.
4. The warranties stated in subsection 1 cannot be disclaimed with respect to checks.
Unless notice of a claim for breach of warranty is given to the warrantor within thirty

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.
5. A cause of action for breach of warranty under this section accrues when the claimant
has reason to know of the breach.
6. If the warranty in subdivision f of subsection 1 is not given by a transferor or collecting
bank under applicable conflict of law rules, the warranty is not given to that transferor
when that transferor is a transferee nor to any prior collecting bank of that transferee.
### § 41-04-20. (4-208) Presentment warranties.

1. If an unaccepted draft is presented to the drawee for payment or acceptance and the
drawee pays or accepts the draft, the person obtaining payment or acceptance, at the
time of presentment, and 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:
a. 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.
b. The draft has not been altered.
c. The warrantor has no knowledge that the signature of the purported drawer of the
draft is unauthorized.
d. 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.
2. A drawee making payment may recover from any 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 subsection is not
affected by any failure of the drawee to exercise ordinary care in making payment. If
the drawee accepts the draft, breach of warranty is a defense to the obligation of the
acceptor and, if the acceptor makes payment with respect to the draft, the acceptor is
entitled to recover from any warrantor for breach of warranty the amounts stated in the
first two sentences of this subsection.
3. If a drawee asserts a claim for breach of warranty under subsection 1 based on an
unauthorized endorsement of the draft or an alteration of the draft, the warrantor may
defend by proving that the endorsement is effective under section 41-03-41 or
asserting against the drawee the unauthorized endorsement or alteration.
4. This subsection applies if a dishonored draft is presented for payment to the drawer or
an endorser or if 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.
5. The warranties stated in subsections 1 and 4 may not be disclaimed with respect to
checks. Unless notice of a claim for breach of warranty is given to the warrantor within
thirty 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.
6. A cause of action for breach of warranty under this section accrues when the claimant
has reason to know of the breach.
7. A demand draft is a check as provided in subsection 6 of section 41-03-04.

8. If the warranty in subdivision d of subsection 1 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.
### § 41-04-21. (4-209) Encoding and retention warranties.

1. A person that 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.
2. A person that undertakes to retain an item under an electronic presentment agreement
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.
3. 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.
### § 41-04-22. (4-210) Security interest of collecting bank in items, accompanying

documents, and proceeds.
1. A collecting bank has a security interest in an item and any accompanying documents
or the proceeds of either:
a. In case of an item deposited in an account, to the extent to which credit given for
the item has been withdrawn or applied.
b. 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.
c. If it makes an advance on or against the item.
2. If credit given for several items received at one time or under 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.
3. 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. To the extent
and 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 and is subject to the
provisions of chapter 41-09, except that:
a. No security agreement is necessary to make the security interest enforceable
(paragraph 1 of subdivision c of subsection 2 of section 41-09-13).
b. No filing is required to perfect the security interest.
c. The security interest has priority over conflicting perfected security interest in the
item, accompanying documents, or proceeds.
### § 41-04-23. (4-211) When bank gives value for purposes of holder in due course.

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, provided the bank otherwise complies with the
requirements of section 41-03-28.
### § 41-04-24. (4-212) Presentment by notice of item not payable by, through, or at bank -

Liability of drawer or endorser.
1. 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 must be sent in time to be
received on or before the day when presentment is due and the bank must meet any

requirement of the party to accept or pay under section 41-03-58 by the close of the
bank's next banking day after it knows of the requirement.
2. If presentment is made by notice and neither payment, acceptance, nor request for
compliance with a requirement under section 41-03-58 is 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 endorser by sending it notice of the
facts.
### § 41-04-25. (4-213) Medium and time of settlement by bank.

1. With respect to settlement by a bank, the medium and time of settlement may be
prescribed by federal reserve regulations or circulars, clearinghouse rules, and the
like, or agreement. In the absence of such prescription:
a. 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.
b. The time of settlement is:
(1) With respect to tender of settlement by cash, cashier's check, or teller's
check, when the cash or check is sent or delivered.
(2) With respect to tender of settlement by credit in an account in a federal
reserve bank, when the credit is made.
(3) 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.
(4) With respect to tender of settlement by a funds transfer, when payment is
made under subsection 1 of section 41-04.1-31 to the person receiving
settlement.
2. If the tender of settlement is not by a medium authorized by or the time of settlement is
not fixed by subsection 1, no settlement occurs until the tender of settlement is
accepted by the person receiving settlement.
3. If settlement for an item is made by cashier's check or teller's check and the person
receiving settlement, before its midnight deadline:
a. Presents or forwards the check of collection, settlement is final when the check is
finally paid.
b. Fails to present or forward the check for collection, settlement is final at the
midnight deadline of the person receiving settlement.
4. 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.
### § 41-04-26. (4-214) Right of chargeback or refund - Liability of collecting bank - Return

of item.
1. 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 items
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 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.
2. A collecting bank returns an item when it is sent or delivered to the bank's customer or
transferor or under its instructions.

3. A depositary bank which is also the payor may charge back the amount of an item to
its customer's account or obtain refund under the section governing return of an item
received by a payor bank for credit on its books (section 41-04-29).
4. The right to charge back is not affected by:
a. Previous use of a credit given for the item.
b. Failure by any bank to exercise ordinary care with respect to the item, but any
bank so failing remains liable.
5. A failure to charge back or claim refund does not affect other rights of the bank against
the customer of any other party.
6. If credit is given in dollars as the equivalent of the value of an item payable in foreign
money, the dollar amount of any chargeback or refund must 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 chargeback or refund learns that it will not receive payment in
ordinary course.
### § 41-04-27. (4-215) Final payment of item by payor bank - When provisional debits and

credits become final - When certain credits become available for withdrawal.
1. An item is finally paid by a payor bank when the bank has done any of the following,
whichever happens first:
a. Paid the item in cash.
b. Settled for the item without having a right to revoke the settlement under statute,
clearinghouse rule, or agreement.
c. Made a provisional settlement for the item and failed to revoke the settlement in
the time and manner permitted by statute, clearinghouse rule, or agreement.
2. If provisional settlement for an item does not become final, the item is not finally paid.
3. If provisional settlement for an item between the presenting and payor banks is made
through a clearinghouse 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.
4. 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.
5. Subject to applicable law stating a time for availability of funds and 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:
a. If the bank has received a provisional settlement for the item, when such
settlement becomes final and the bank has had a reasonable time to receive
return of the item and has not received the item within that time.
b. 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 second banking day following receipt of the
item.
6. 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.
### § 41-04-28. (4-216) Insolvency and preference.

1. Any item in or coming into the possession of a payor or collecting bank that suspends
payment and which item is not finally paid must be returned by the receiver, trustee, or
agent in charge of the closed bank to the presenting bank or the closed bank's
customer.
2. 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.

3. 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 becoming final if such finality occurs automatically upon
the lapse of certain time or the happening of certain events.
4. If a collecting bank receives from subsequent parties settlement for an item which
settlement is or becomes final and suspends payments without making a settlement
for the item with its customer which is or becomes final, the owner of the item has a
preferred claim against that collecting bank.
### § 41-04-29. (4-301) Deferred posting - Recovery of payment by return of items - Time of

dishonor - Return of items by payor bank.
1. If a payor bank settles for a demand item other than a documentary draft presented
otherwise than for immediate payment over the counter before midnight of the banking
day of receipt, the payor bank may revoke the settlement and recover any settlement if
before it has made final payment and before its midnight deadline it:
a. Returns the item.
b. Sends written notice of dishonor or nonpayment if the item is unavailable for
return.
2. If a demand item is received by a payor bank for credit on its books, it may return that
item or send notice of dishonor and may revoke any credit given or recover the
amount thereof withdrawn by its customer, if it acts within the time limit and in the
manner specified in subsection 1.
3. Unless previous notice of dishonor has been sent, an item is dishonored at the time
when for purposes of dishonor it is returned or notice sent under this section.
4. An item is returned:
a. As to an item presented through a clearinghouse, when it is delivered to the
presenting or last collecting bank or to the clearinghouse or is sent or delivered
under clearinghouse rules.
b. In all other cases, when it is sent or delivered to the bank's customer or transferor
or under instructions.
### § 41-04-30. (4-302) Payor bank's responsibility for late return of item.

1. If an item is presented to and received by a payor bank, the bank is accountable for
the amount of:
a. A demand item, other than a documentary draft, whether properly payable or not
if the bank, in any case in which it is not also the depositary bank, retains the item
beyond midnight of the banking day of receipt without settling for it or, regardless
of whether it is also the depositary bank, does not pay or return the item or send
notice of dishonor until after its midnight deadline.
b. Any other properly payable item, unless within the time allowed for acceptance or
payment of that item the bank either accepts or pays the item or returns it and
accompanying documents.
2. The liability of a payor bank to pay an item under subsection 1 is subject to defenses
based on breach of a presentment warranty (section 41-04-20) or proof that the
person seeking enforcement of the liability presented or transferred the item for the
purpose of defrauding the payor bank.
### § 41-04-31. (4-303) When items subject to notice, stop order, legal process, or setoff -

Order in which items may be charged or certified.
1. Any knowledge, notice, or stop order received by, legal process served upon, or setoff
exercised by a payor bank comes too late to terminate, suspend, or modify the bank's
right or duty to pay an item or to charge its customer's account for the item if the
knowledge, notice, stop order, or legal process is received or served and a reasonable
time for the bank to act thereon expires or the setoff is exercised after the earliest of
the following:

a. The bank accepts or certifies the item.
b. The bank pays the item in cash.
c. The bank settles for the item without having a right to revoke the settlement under
statute, clearinghouse rule, or agreement.
d. The bank becomes accountable for the amount of the item under section
e. With respect to checks, a cutoff hour no earlier than one hour after the opening of
the next banking day after the banking day on which the bank received the check
and no later than the close of that next banking day or, if no cutoff hour is fixed,
the close of the next banking day after the banking day on which the bank
received the check.
2. Subject to subsection 1, items may be accepted, paid, certified, or charged to the
indicated account of its customer in any order.
### § 41-04-32. (4-401) When bank may charge customer's account.

1. A bank may charge against the account of a customer an item which is properly
payable from that account even though the charge creates an overdraft. An item is
properly payable if it is authorized by the customer and complies with any agreement
between the customer and bank.
2. A customer is not liable for the amount of an overdraft if the customer neither signed
the item nor benefited from the proceeds of the item.
3. A bank may charge against the account of a customer a check that is otherwise
properly payable from the account, even though payment was made before the date of
the check, unless the customer has given notice to the bank of the postdating
describing the check with reasonable certainty. The notice will be effective for the
period stated in subsection 1 of section 41-04-34 for stop orders, and must be
received at a time and in a manner as to afford the bank a reasonable opportunity to
act on it before any action by the bank with respect to the check described in section
### § 41-04-31. If a bank charges against the account of a customer a check before the date

stated in the notice of postdating, the bank is liable for damages for the loss resulting
from its act. The loss may include damages for dishonor of subsequent items pursuant
to section 41-04-33.
4. A bank that in good faith makes payment to a holder may charge the indicated account
of its customer according to:
a. The original terms of the altered item; or
b. The terms of the completed item, even though the bank knows the item has been
completed unless the bank has notice that the completion was improper.
### § 41-04-33. (4-402) Bank's liability to customer for wrongful dishonor - Time of

determining insufficiency of account.
1. Except as otherwise provided in this chapter, a payor bank wrongfully dishonors an
item if it dishonors an item that is properly payable, but a bank may dishonor an item
that would create an overdraft unless it had agreed to pay the overdraft.
2. A payor bank is liable to its customer for damages proximately caused by the wrongful
dishonor of an item. Liability is limited to actual damages proved and may include
damages for an arrest or prosecution of the customer or other consequential
damages. Whether any consequential damages are proximately caused by the
wrongful dishonor is a question of fact.
3. A payor bank's determination of the customer's account balance on which a decision
to dishonor for insufficiency of available 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 payor
bank returns the item or gives notice in lieu of return, and no more than one such
determination need be made. If, at the election of the payor bank, a subsequent
balance determination is made for the purpose of re-evaluating the bank's decision to
dishonor the item, the account balance at that time is determinative of whether a
dishonor for insufficiency of available funds is wrongful.

### § 41-04-34. (4-403) Customer's right to stop payment - Burden of proof of loss.

1. A customer or any other person authorized to draw on the account may stop payment
of any item drawn on the customer's account or close the account by an order to the
bank describing the item or account with reasonable certainty received at such time
and in such manner as to afford the bank a reasonable opportunity to act on it before
any action by the bank with respect to the item described in section 41-04-31. If the
signature of more than one person is required to draw on an account, any of these
persons may stop payment or close the account.
2. A stop order is effective for six months after the time it is received, but it lapses after
fourteen calendar days if the original order was oral and was not confirmed in a record
within that period. A stop order may be renewed for additional six-month periods by a
record given to the bank within a period during which the stop order is effective.
3. The burden of establishing the fact and amount of loss resulting from the payment of
an item contrary to a stop payment order or order to close an account is on the
customer. The loss from payment of an item contrary to a stop payment order may
include damages for dishonor of subsequent items pursuant to section 41-04-33.
### § 41-04-35. (4-404) Bank not obliged to pay check more than six months old.

A bank is under no obligation to a customer having a checking account to pay a check,
other than a certified check, which is presented more than six months after its date, but it may
charge its customer's account for a payment made thereafter in good faith.
### § 41-04-36. (4-405) Death or incompetence of customer.

1. A payor or collecting bank's authority to accept, pay, or collect an item, or to account
for proceeds of its collection if otherwise effective is not rendered ineffective by
incompetence of a customer of either bank existing at the time the item is issued or its
collection is undertaken if the bank does not know of an adjudication of incompetence.
Neither death nor incompetence of a customer revokes the authority to accept, pay,
collect, or account until the bank knows of the fact of death or of an adjudication of
incompetence and has reasonable opportunity to act on it.
2. Even with knowledge a bank may for ten days after the date of death pay or certify
checks drawn on or before that date unless ordered to stop payment by a person
claiming an interest in the account.
### § 41-04-37. (4-406) Customer's duty to discover and report unauthorized signature or

alteration.
1. A bank that sends or makes available to a customer a statement of account showing
payment of items for the account shall either return or make available to the customer
the items paid or provide information in the statement of account sufficient to allow the
customer to identify the items paid. The statement of account provides sufficient
information if the item is described by item number, amount, and date of payment.
2. If the items are not returned to the customer, the person retaining the items shall either
retain the items or, if the items are destroyed, maintain the capacity to furnish legible
copies of the items until the expiration of seven years after receipt of the items. A
customer may request an item from the bank that paid the item, and that bank must
provide in a reasonable time either the item or, if the item has been destroyed or is not
otherwise obtainable, a legible copy of the item.
3. If a bank sends or makes available a statement of account or items under
subsection 1, the customer shall exercise reasonable promptness in examining the
statement or the items to determine whether any payment was not authorized because
of an alteration of an item or because a purported signature by or on behalf of the
customer was not authorized. If, based on the statement or items provided, the
customer should reasonably have discovered the unauthorized payment, the customer
has a duty to give prompt notification to the bank of the relevant facts.

4. If the bank proves that the customer failed with respect to an item to comply with the
duties imposed on the customer by subsection 3, the customer is precluded from
asserting against the bank:
a. The customer's unauthorized signature or any alteration on the item if the bank
also proves that it suffered a loss by reason of that failure.
b. The customer's unauthorized signature or alteration by the same wrongdoer on
any other item paid in good faith by the bank if the payment was made before the
bank received notification from the customer of the unauthorized signature or
alteration and after the customer had been afforded a reasonable period of time
not exceeding thirty days in which to examine the item or statement of account
and notify the bank.
5. If subsection 4 applies and the customer proves that the bank failed to exercise
ordinary care in paying the item and that the failure substantially contributed to loss,
the loss is allocated between the customer precluded and the bank asserting the
preclusion to the extent that the failure of each to exercise ordinary care contributed to
the loss. If the customer proves that the bank did not pay the item in good faith, the
preclusion under subsection 4 does not apply.
6. Without regard to care or lack of care of either the customer or the bank, a customer
who does not within one year from the time the statement or items are made available
to the customer under subsection 1 discover and report the customer's unauthorized
signature or any alteration is precluded from asserting against the bank such
unauthorized signature or alteration. If there is a preclusion under this subsection, the
payor bank may not recover for breach of warranty under section 41-04-20 with
respect to the unauthorized signature or alteration to which the preclusion applies.
### § 41-04-38. (4-407) Payor bank's right to subrogation on improper payment.

If a payor bank has paid an item over the stop payment order of the drawer or maker, or
after an account has been closed, or otherwise under circumstances giving a basis for objection
by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to
prevent loss to the bank by reason of its payment of the item, the payor bank shall be
subrogated to the rights of:
1. Any holder in due course on the item against the drawer or maker.
2. The payee or any other holder of the item against the drawer or maker either on the
item or under the transaction out of which the item arose.
3. The drawer or maker against the payee or any other holder of the item with respect to
the transaction out of which the item arose.
### § 41-04-39. (4-501) Handling of documentary drafts - Duty to send for presentment and

to notify customer of dishonor.
A bank that takes a documentary draft for collection must present or send the draft and
accompanying documents for presentment and upon learning that the draft has not been paid or
accepted in due course must seasonably notify its customer of that fact even though it may
have discounted or bought the draft or extended credit available for withdrawal as of right.
### § 41-04-40. (4-502) Presentment of on arrival drafts.

When a draft or the relevant instructions require presentment "on arrival", "when goods
arrive", or the like, the collecting bank need not present until in its judgment a reasonable time
for arrival of the goods has expired. Refusal to pay or accept because the goods have not
arrived is not dishonor. The bank must notify its transferor of the refusal but need not present
the draft again until it is instructed to do so or learns of the arrival of the goods.
### § 41-04-41. (4-503) Responsibility of presenting bank for documents and goods -

Report of reasons for dishonor - Referee in case of need.
Unless otherwise instructed and except as provided in chapter 41-05, a bank presenting a
documentary draft:

1. Must deliver the documents to the drawee either on payment or on acceptance of the
draft if it is payable more than three days after presentment.
2. Upon dishonor, either in the case of presentment for acceptance or presentment for
payment, may seek and follow instructions from any referee in case of need
designated in the draft or if the presenting bank does not choose to utilize the referee's
services it must use diligence and good faith to ascertain the reason for dishonor, must
notify its transferor of the dishonor and of the results of its effort to ascertain the
reasons therefor, and must request instructions.
But the presenting bank is under no obligation with respect to goods represented by the
documents except to follow any reasonable instructions seasonably received. It has a right to
reimbursement for any expense incurred in following instructions and to prepayment of or
indemnity for those expenses.
### § 41-04-42. (4-504) Privilege of presenting bank to deal with goods - Security interest

for expenses.
1. A presenting bank that, following the dishonor of a documentary draft, has seasonably
requested instructions but does not receive them within a reasonable time may store,
sell, or otherwise deal with the goods in any reasonable manner.
2. For its reasonable expenses incurred by action under subsection 1 the presenting
bank has a lien upon the goods or their proceeds, which may be foreclosed in the
same manner as an unpaid seller's lien.
