(810 ILCS 5/Art. 4 Pt. 2 heading)
PART 2.
COLLECTION OF ITEMS: DEPOSITARY AND COLLECTING BANKS
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(810 ILCS 5/4-201) (from Ch. 26, par. 4-201)
Sec. 4-201.
Status of collecting bank as agent and provisional status of
credits; applicability of Article; item indorsed "pay any bank".
(a) 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 sub-agent of the owner of
the item and any settlement given for the item is provisional. This
provision applies regardless of the form of indorsement or lack of
indorsement 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immediate withdrawal as of right or is in fact withdrawn; but the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
rights of recoupment or setoff. If an item is handled by banks
for purpose of presentment, payment, collection, or return, the
relevant provisions of this Article apply even though action of the parties
clearly establishes that a particular bank has purchased the item and is the
owner of it.
(b) After an item has been indorsed with the words "pay any bank" or the
like, only a bank may acquire the rights of a holder until the item has been:
(1) returned to the customer initiating collection; or
(2) specially indorsed by a bank to a person who is
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(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-202) (from Ch. 26, par. 4-202)
Sec. 4-202.
Responsibility for collection or return; when action timely.
(a) A collecting bank must exercise ordinary care in:
(1) presenting an item or sending it for presentment;
(2) 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, as the case may be;
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(3) settling for an item when the bank receives final
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(4) notifying its transferor of any loss or delay in
| | transit within a reasonable time after discovery thereof.
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(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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-203) (from Ch. 26, par. 4-203)
Sec. 4-203.
Effect of instructions.
Subject to Article
3 concerning conversion of instruments (Section 3-420) and restrictive
indorsements (Section 3-206), only a collecting bank's transferor can 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
pursuant to the instructions or in accordance with any agreement
with its transferor.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-204) (from Ch. 26, par. 4-204)
Sec. 4-204.
Methods of sending and presenting; sending directly to
payor bank.
(a) A collecting bank shall send items by a reasonably prompt method, taking
into consideration 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.
(b) A collecting bank may send:
(1) an item directly to the payor bank;
(2) an item to a nonbank payor if authorized by its
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(3) an item other than documentary drafts to a
| | nonbank payor, if authorized by Federal Reserve regulation or operating circular, clearing-house rule, or the like.
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(c) Presentment may be made by a presenting bank at a place where the
payor bank or other payor has requested that presentment be made.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-205) (from Ch. 26, par. 4-205)
Sec. 4-205.
Depositary bank holder of unindorsed 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 indorses the item, and, if the bank
satisfies the other requirements of Section 3-302, it may be a holder in due
course; and
(2) the depositary bank warrants to 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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-206) (from Ch. 26, par. 4-206)
Sec. 4-206.
Transfer between banks.
Any agreed method that identifies the
transferor bank is sufficient for the item's further transfer to another bank.
(Source: P.A. 87-582.)
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(810 ILCS 5/4-207) (from Ch. 26, par. 4-207)
Sec. 4-207.
Transfer warranties.
(a) 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:
(1) the warrantor is a person entitled to enforce the
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(2) all signatures on the item are authentic and
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(3) the item has not been altered;
(4) the item is not subject to a defense or claim in
| | recoupment (Section 3-305(a)) of any party that can be asserted against the warrantor; and
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(5) 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.
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(b) 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 (i) according to the terms of the item at the
time it was transferred, or (ii) if the transfer was of an incomplete item,
according to its terms when completed as stated in Sections 3-115 and
3-407. 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 indorsement
stating that it is made "without recourse" or otherwise disclaiming liability.
(c) A person to whom the warranties under subsection (a) 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.
(d) The warranties stated in subsection (a) cannot be disclaimed with
respect to checks. Unless notice of a claim for breach of warranty is
given to the warrantor within 30 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.
(e) A cause of action for breach of warranty under this Section accrues
when the claimant has reason to know of the breach.
(Source: P.A 87-582.)
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(810 ILCS 5/4-208) (from Ch. 26, par. 4-208)
Sec. 4-208.
Presentment warranties.
(a) If an unaccepted draft is presented to the drawee for payment or
acceptance and the drawee pays or accepts the draft, (i) the person
obtaining payment or acceptance, at the time of presentment, and (ii) 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:
(1) 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;
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(2) the draft has not been altered; and
(3) the warrantor has no knowledge that the signature
| | of the purported drawer of the draft is unauthorized.
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(b) 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 (i)
breach of warranty is a defense to the obligation of the acceptor, and (ii) 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 this
subsection.
(c) If a drawee asserts a claim for breach of warranty under subsection
(a) based on an unauthorized indorsement of the draft or an alteration of
the draft, the warrantor may defend by proving that the indorsement is
effective under Section 3-404 or 3-405 or the drawer is precluded under
Section 3-406 or 4-406 from asserting against the drawee the unauthorized
indorsement or alteration.
(d) If (i) a dishonored draft is presented for payment to the drawer or an
indorser or (ii) 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.
(e) The warranties stated in subsections (a) and (d) cannot be
disclaimed with respect to checks. Unless notice of a claim for breach of
warranty is given to the warrantor within 30 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.
(f) A cause of action for breach of warranty under this Section accrues
when the claimant has reason to know of the breach.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-209) (from Ch. 26, par. 4-209)
Sec. 4-209.
Encoding and retention warranties.
(a) 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.
(b) A person who undertakes to retain an item pursuant to an agreement for
electronic presentment 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.
(c) 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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-210) (from Ch. 26, par. 4-210)
Sec. 4-210. Security interest of collecting bank in items, accompanying
documents and proceeds.
(a) A collecting bank has a security interest in an item and any
accompanying documents or the proceeds of either:
(1) in case of an item deposited in an account, to
| | the extent to which credit given for the item has been withdrawn or applied;
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(2) 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 charge-back; or
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(3) if it makes an advance on or against the item.
(b) If credit given for several items received at one time or pursuant
to 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.
(c) 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. 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 to that extent and is subject to Article 9, but:
(1) no security agreement is necessary to make the
| | security interest enforceable (Section 9-203(b)(3)(A));
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(2) no filing is required to perfect the security
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(3) the security interest has priority over
| | conflicting perfected security interests in the item, accompanying documents, or proceeds.
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(Source: P.A. 95-895, eff. 1-1-09; 96-328, eff. 8-11-09.)
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(810 ILCS 5/4-211) (from Ch. 26, par. 4-211)
Sec. 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,
if the bank otherwise complies with the requirements of Section 3-302
on what constitutes a holder in due course.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-212) (from Ch. 26, par. 4-212)
Sec. 4-212.
Presentment by notice of item not payable by, through, or at
bank; liability of drawer or indorser.
(a) 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 3-501 by the close of the bank's next banking
day after it knows of the requirement.
(b) If presentment is made by notice and payment, acceptance,
or request for compliance with a requirement under Section 3-501 is
not 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 indorser by sending it notice of the facts.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-213) (from Ch. 26, par. 4-213)
Sec. 4-213.
Medium and time of settlement by bank.
(a) With respect to settlement by a bank, the medium and time of
settlement may be prescribed by Federal Reserve regulations or circulars,
clearing-house rules, and the like, or agreement. In the absence of such
prescription:
(1) 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; and
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(2) the time of settlement is:
(i) with respect to tender of settlement by cash,
| | a cashier's check, or teller's check, when the cash or check is sent or delivered;
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(ii) with respect to tender of settlement by
| | credit in an account in a Federal Reserve Bank, when the credit is made;
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(iii) 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; or
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(iv) with respect to tender of settlement by a
| | funds transfer, when payment is made pursuant to Section 4A-406(a) to the person receiving settlement.
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(b) If the tender of settlement is not by a medium authorized by
subsection (a) or the time of settlement is not fixed by subsection (a), no
settlement occurs until the tender of settlement is accepted by the person
receiving settlement.
(c) If settlement for an item is made by cashier's check or teller's
check and the person receiving settlement, before its midnight deadline:
(1) presents or forwards the check for collection,
| | settlement is final when the check is finally paid; or
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(2) fails to present or forward the check for
| | collection, settlement is final at the midnight deadline of the person receiving settlement.
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(d) 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.
(Source: P.A. 87-582.)
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(810 ILCS 5/4-214) (from Ch. 26, par. 4-214)
Sec. 4-214.
Right of charge-back or refund; liability of collecting
bank; return of item.
(a) 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
item, 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.
(b) A collecting bank returns an item when it is sent or delivered to the
bank's customer or transferor or pursuant to its instructions.
(c) A depositary bank that is also the payor may charge back the amount
of an item to its customer's account or obtain refund in accordance with the
Section governing return of an item received by a payor bank for credit on
its books (Section 4-301).
(d) The right to charge back is not affected by:
(1) previous use of a credit given for the item; or
(2) failure by any bank to exercise ordinary care
| | with respect to the item, but a bank so failing remains liable.
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(e) A failure to charge back or claim refund does not affect other
rights of the bank against the customer or any other party.
(f) If credit is given in dollars as the equivalent of the value of an
item payable in foreign money, the dollar amount of any charge-back 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
charge-back or refund learns that it will not receive payment in ordinary
course.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-215) (from Ch. 26, par. 4-215)
Sec. 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
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(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.
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(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 items 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) 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;
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(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.
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(f) 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.
(Source: P.A. 87-582; 87-1135.)
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(810 ILCS 5/4-216) (from Ch. 26, par. 4-216)
Sec. 4-216.
Insolvency and preference.
(a) If an item is in or comes into the possession of a payor or collecting
bank that suspends payment and the item has not been finally paid, the item
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.
(b) 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.
(c) 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's becoming final
if the finality occurs automatically upon the lapse of certain time or the
happening of certain events.
(d) If a collecting bank receives from subsequent parties settlement for
an item, which settlement is or becomes final and the bank suspends
payments without making a settlement for the item with its customer which
settlement is or becomes final, the owner of the item has a preferred claim
against the collecting bank.
(Source: P.A. 87-582; 87-1135.)
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