CHAPTER 2. Collection of Items: Depositary and Collecting Banks [4201. - 4216.]

Cal. Commercial Code - COM 2.

in effect

Cal. Commercial Code - COM § 4201. Section 4201.

(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 subagent 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of indorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner to proceeds of the item are subject to rights of a collecting bank, such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 purposes of presentment, payment, collection, or return, the relevant provisions of this division 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 either of the following: (1) Returned to the customer initiating collection. (2) Specially indorsed by a bank to a person who is not a bank.

Cal. Commercial Code - COM § 4202. Section 4202.

(a) A collecting bank shall exercise ordinary care in all of the following: (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. (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 subdivision (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 paragraph (1) of subdivision (a), 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.

Cal. Commercial Code - COM § 4203. Section 4203.

Subject to Division 3 (commencing with Section 3101) concerning conversion of instruments (Section 3420) and restrictive indorsements (Section 3206), only a collecting bank’s transferor can give instructions that 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.

Cal. Commercial Code - COM § 4204. Section 4204.

(a) A collecting bank shall send items by 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 transferor. (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. (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.

Cal. Commercial Code - COM § 4205. Section 4205.

If a customer delivers an item to a depositary bank for collection both of the following apply: (a) 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 3302, it is a holder in due course. (b) 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.

Cal. Commercial Code - COM § 4206. Section 4206.

Any agreed method that identifies the transferor bank is sufficient for the item’s further transfer to another bank.

Cal. Commercial Code - COM § 4207. Section 4207.

(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 all of the following are applicable: (1) The warrantor is a person entitled to enforce the item. (2) All signatures on the item are authentic and authorized. (3) The item has not been altered. (4) The item is not subject to a defense or claim in recoupment (subdivision (a) of Section 3305) of any party that can be asserted against the warrantor. (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. (6) 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. (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 (1) according to the terms of the item at the time it was transferred, or (2) if the transfer was of an incomplete item, according to its terms when completed as stated in Sections 3115 and 3407. 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 cannot disclaim its obligation under this subdivision by an indorsement stating that it is made “without recourse” or otherwise disclaiming liability. (c) A person to whom the warranties under subdivision (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 subdivision (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. (f) If the warranty in paragraph (6) of subdivision (a) is not given by a transferor or collecting bank under applicable conflict of law rules, then the warranty is not given to that transferor when that transferor is a transferee nor to any prior collecting bank of that transferee.

Cal. Commercial Code - COM § 4208. Section 4208.

(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 all of the following apply: (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. (2) The draft has not been altered. (3) The warrantor has no knowledge that the signature of the purported drawer of the draft is unauthorized. (4) 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. (b) A drawee making payment may recover from a 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 subdivision is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft (1) breach of warranty is a defense to the obligation of the acceptor, and (2) if the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from a warrantor for breach of warranty the amounts stated in this subdivision. (c) If a drawee asserts a claim for breach of warranty under subdivision (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 3404 or 3405 or the drawer is precluded under Section 3406 or 4406 from asserting against the drawee the unauthorized indorsement or alteration. (d) If (1) a dishonored draft is presented for payment to the drawer or an indorser or (2) 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 subdivisions (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. (g) A demand draft is a check, as provided in subdivision (f) of Section 3104. (h) If the warranty in paragraph (4) of subdivision (a) 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.

Cal. Commercial Code - COM § 4209. Section 4209.

(a) A person who 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.

Cal. Commercial Code - COM § 4210. Section 4210.

(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. (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 chargeback. (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 Division 9 (commencing with Section 9101), but all of the following are applicable: (1) No security agreement is necessary to make the security interest enforceable (subparagraph (A) of paragraph (3) of subdivision (b) of Section 9203). (2) No filing is required to perfect the security interest. (3) The security interest has priority over conflicting perfected security interests in the item, accompanying documents, or proceeds.

Cal. Commercial Code - COM § 4211. Section 4211.

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 3302 on what constitutes a holder in due course.

Cal. Commercial Code - COM § 4212. Section 4212.

(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 shall be sent in time to be received on or before the day when presentment is due and the bank shall meet any requirement of the party to accept or pay under Section 3501 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 3501 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.

Cal. Commercial Code - COM § 4213. Section 4213.

(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 that prescription, the following are applicable: (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. (2) The time of settlement is any of the following: (A) 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. (B) With respect to tender of settlement by credit in an account in a federal reserve bank, when the credit is made. (C) 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. (D) With respect to tender of settlement by a funds transfer, when payment is made pursuant to subdivision (a) of Section 11406 to the person receiving settlement. (b) If the tender of settlement is not by a medium authorized by subdivision (a) or the time of settlement is not fixed by subdivision (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 either: (1) Presents or forwards the check for collection, settlement is final when the check is finally paid. (2) Fails to present or forward the check for collection, settlement is final at the midnight deadline of the person receiving settlement. (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.

Cal. Commercial Code - COM § 4214. Section 4214.

(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 it 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 4301). (d) The right to charge back is not affected by either of the following: (1) Previous use of a credit given for the item. (2) Failure by any bank to exercise ordinary care with respect to the item, but a bank so failing remains liable. (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 shall 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.

Cal. Commercial Code - COM § 4215. Section 4215.

(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. (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 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) 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, the opening of the bank’s second banking day following receipt of the item. (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.

Cal. Commercial Code - COM § 4216. Section 4216.

(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 shall 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: CA Legislative Counsel Bulk DataURL: https://downloads.leginfo.legislature.ca.gov/pubinfo_2025.zipFetched: 6/27/2026