Colorado § 4-4-215 - Final payment of item by payor bank - when provisional debits and credits become final - when certain credits become available for withdrawal.

§ 4-4-215. Final payment of item by payor bank - when provisional debits and credits become final - when certain credits become available for withdrawal.

(a) An item is finally paid by a payor bank when the bank has first done any of the following:

(1) Paid the item in cash;

(2) Settled for the item without having a right to revoke the settlement under statute, clearing-house rule, or agreement; or

(3) Made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute, clearing-house rule, or agreement.

(b) If provisional settlement for an item does not become final, the item is not finally paid.

(c) If provisional settlement for an item between the presenting and payor banks is made through a clearing house 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 item by the payor bank.

(d) 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.

(e) Subject to (i) applicable law stating a time for availability of funds and (ii) 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:

(1) If the bank has received a provisional settlement for the item, when the settlement becomes final and the bank has had a reasonable time to receive return of the item and the item has not been received within that time;

(2) 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.

(f) Subject to any 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.

Source: L. 94: Entire article amended with relocations, p. 895, § 2, effective January 1, 1995.

Editor's note: This section is similar to former § 4-4-213 as it existed prior to 1994.

ANNOTATION

Law reviews. For article, "Payee v. Depository Bank: What is the UCC Defense to Handling Checks Bearing Forged Indorsements?", see 45 U. Colo. L. Rev. 281 (1974). For article, "Setoff and Security Interests In Deposit Accounts", see 17 Colo. Law. 2107 (1988).

Annotator's note. The following annotations include cases decided under former provisions similar to this section.

The rule that a payor bank is "accountable" for an item does not mean that there has been a final settlement which would preclude a depositary bank from charging the amount of the item back to its depositor, for this section sets forth the circumstances under which a provisional settlement becomes final, and there is no provision that mere accountability of a payor bank for a check is a final settlement unless the check is actually paid by the payor bank. Mercantile Bank & Trust Co. v. Hunter, 31 Colo. App. 200, 501 P.2d 486 (1972).

Hence, where payor bank retains a demand item beyond its midnight deadline without settling it, nothing occurs to cause the provisional settlement between depositor and depositary bank to become final, and the depositary bank still has a right of refund from the depositor. Mercantile Bank & Trust Co. v. Hunter, 31 Colo. App. 200, 501 P.2d 486 (1972).

Final settlement of a demand item occurs when an item is deemed "finally paid" as a result of payor's bank failure to revoke a provisional settlement before the midnight deadline. Kimberly A. Allen Trust v. FirstBank of Lakewood, 989 P.2d 203 (Colo. App. 1999) (disagreeing with Mercantile Bank & Trust Co. v. Hunter cited above).

Section and comments, when read together with § 4-3-418 and comments, treat a cashier's check as the equivalent of cash and preclude issuing banks from dishonoring them at any time. Flatiron Linen, Inc. v. First Amer. State Bank, 23 P.3d 1209 (Colo. 2001).

Cashier's checks represent the unconditional obligation of the issuing bank to pay, and therefore, banks may not dishonor their cashier's checks once issued. Flatiron Linen, Inc. v. First Amer. State Bank, 23 P.3d 1209 (Colo. 2001).