Printable Format84-4-202. 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;
(3) settling for an item when the bank receives final settlement; and
(4) notifying its transferor of any loss or delay in transit within a reasonable time after discovery thereof.
(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.
History: L. 1965, ch. 564, § 211; L. 1991, ch. 296, § 83; February 1, 1992.
KANSAS COMMENT, 1996
This section is identical to the 1995 Official Text and has not been substantially amended. Subsection (a) deleted the optional phrase "or directly to the depositary bank under subsection (2) of 84-4-212" because that provision was deleted from 84-4-212. Subsection (b) is a redrafting of the former 84-4-202(2). The other amendments are primarily stylistic and are not meant to change the substantive law. Historical case and statutory references can be obtained from the 1965 and 1983 bound volume 7 of the Kansas Statutes Annotated.
Subsection (a) establishes the basic responsibilities of a collecting bank, to be performed under its general duty of ordinary care, defined in subsection (b). See also 84-4-103(d) for other instances of ordinary care. For a pre-UCC Kansas case dealing with this duty, see People's State Bank v. Equity Exchange Ass'n, 129 K. 38, 281 P. 899 (1929).
The measure of damages for a collecting bank's failure to exercise ordinary care is the amount of the item less the amount which could not have been realized by the exercise of ordinary care. See 84-4-103(e). This broad duty of ordinary care is coupled with the UCC's general requirement of good faith under 84-1-203. A showing of bad faith could result in recovery of damages suffered "as a proximate consequence" beyond the face amount of the item under 84-4-103(5).
Subsection (b) applies the midnight deadline as a prima facie test of when action is timely to a collecting bank. (The same time limit is applicable to a payor bank under 84-4-301 and 84-4-302.) For example, a collecting bank returning a dishonored check must charge the item back under 84-4-214 by midnight of the day after it receives it.
As noted in the Official Comment, subsection (c), which has only stylistic changes from the former subsection (3), adopts the so-called Massachusetts rule that each bank, subject to the duty of selecting proper intermediaries, is liable only for its own negligence and not for negligence or insolvency of a subsequent bank. People's State Bank v. Equity Exchange Ass'n, 129 K. 38, 281 P. 899 (1929) applied the Massachusetts rule without expressly adopting it as the rule in Kansas prior to the UCC.