Colorado § 4-4-103 - Variation by agreement - measure of damages - action constituting ordinary care.

§ 4-4-103. Variation by agreement - measure of damages - action constituting ordinary care.

(a) The effect of the provisions of this article may be varied by agreement, but the parties to the agreement cannot disclaim a bank's responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank's responsibility is to be measured if those standards are not manifestly unreasonable.

(b) Federal reserve regulations and operating circulars, clearing-house rules, and the like have the effect of agreements under subsection (a) of this section, whether or not specifically assented to by all parties interested in items handled.

(c) Action or nonaction approved by this article or pursuant to federal reserve regulations or operating circulars is the exercise of ordinary care and, in the absence of special instructions, action or nonaction consistent with clearing-house rules and the like or with a general banking usage not disapproved by this article, is prima facie the exercise of ordinary care.

(d) The specification or approval of certain procedures by this article is not disapproval of other procedures that may be reasonable under the circumstances.

(e) 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.

Source: L. 94: Entire article amended with relocations, p. 880, § 2, effective January 1, 1995.

ANNOTATION

Breach of duties of "good faith" and "ordinary care". In transferring checks to a third party, a bank breaches its duty of "good faith" only if it deals dishonestly in transferring checks, and breaches its duty of "ordinary care" only if a reasonable holder in the bank's position, in the exercise of ordinary care, would not have transferred the checks. Commercial Credit Corp. v. Univ. Nat'l Bank, 590 F.2d 849 (10th Cir. 1979).

Customer's failure to prove loss. A partnership that could not meet its burden of proving that a bank's improper payment of drafts drawn on the partnership's account caused the partnership to suffer a loss could not have its account recredited for the amount of the draft payments. Isaac v. Am. Heritage Bank & Trust Co., 675 P.2d 742 (Colo. 1984).

Bad faith. Bad faith means actions in knowing or reckless disregard of customer's contractual rights and negligence alone does not constitute bad faith. Peregrine Homes v. Jefferson Bank & Trust, 713 P.2d 1342 (Colo. App. 1985).

Applied in Wheat State Serv. Corp. v. Colfax Nat'l Bank, 44 Colo. App. 376, 618 P.2d 696 (1980); Am. Heritage Bank & Trust Co. v. Isaac, 636 P.2d 1296 (Colo. App. 1981).