Opinion ID: 3013502
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Heading: Pennsylvania UCC Provisions Governing

Text: Check-Return Procedures Article 4 of the UCC as adopted by Pennsylvania defines the rights between parties with respect to bank deposits and collections involving banks located in Pennsylvania. See 13 Pa. Cons. Stat. Ann. § 4102(b). To the extent not preempted or superseded by federal law, Article 4 governs the process by which banks present checks for 11 payment, settle on checks, and, if necessary, dishonor and return checks. NBT notes three interrelated UCC provisions that establish the circumstances under which a bank may return a dishonored check. The first key provision is § 4301. Section 4301(a) provides that a bank may dishonor or return a check or other disputed item if, before the bank’s midnight deadline, it either (1) returns the item; or (2) sends written notice of dishonor or nonpayment if the item is unavailable for return. 13 Pa. Cons. Stat. Ann. § 4301(a)(1)-(2). Section 4301(d) defines the ways in which a bank may “return” an item for purposes of compliance with § 4301(a)(1). Section 4301(d) provides: Acts constituting return of item. – An item is returned: (1) as to an item presented through a clearinghouse, when it is delivered to the presenting or last collecting bank or to the clearinghouse or is sent or delivered in accordance with clearinghouse rules; or (2) in all other cases, when it is sent or delivered to the bank’s customer or transferor or pursuant to his instructions. 13 Pa. Cons. Stat. Ann. § 4301(d)(1)-(2). Notably, the UCC defines the terms “delivery” and “send.” “Delivery” with respect to “instruments, documents of title, chattel paper or 12 certificated securities means voluntary transfer of possession.” 13 Pa. Cons. Stat. Ann. § 1201. “Send,” [i]n connection with any writing or notice, means to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and[,] in the case of an instrument[,] to an address specified thereon or otherwise agreed, or[,] if there be none[,] to any address reasonable under the circumstances. The receipt of an item or notice within the time at which it would have arrived if properly sent has the effect of a proper sending. Id. The second key UCC provision with respect to a payor bank’s attempt to dishonor a check is § 4302. Section 4302 provides in relevant part that: [i]f an item is presented to and received by a payor bank[,] the bank is accountable for the amount of [the item], whether properly payable or not, if the bank . . . retains the item beyond midnight of the banking day of receipt without settling for it or . . . does not pay or return the item or send notice of dishonor until after its midnight deadline. 13 Pa. Cons. Stat. Ann. § 4302(a)(1). Section 4302 thus imposes strict accountability on a payor bank (subject to two 13 enumerated defenses not relevant here) that fails to revoke its provisional settlement on a dishonored check prior to the midnight deadline. See Chrysler Credit Corp. v. First Nat’l Bank & Trust Co. of Wash., 746 F.2d 200, 201 (3d Cir. 1984) (per curiam) (interpreting Pennsylvania law); Lombardo v. Mellon Bank, N.A., 685 A.2d 595, 598 (Pa. Super. Ct. 1996); Nat’l Check v. First Fid. Bank, 658 A.2d 1375, 1378 (Pa. Super. Ct. 1995);; see also First Union Nat’l Bank of Fla. v. First Fla. Bank, N.A., 616 So.2d 1168, 1171 (Fla. Dist. Ct. App. 1993) (noting that in most states “it is well established that sections 4-301 and 4-302 of the Uniform Commercial Code create a statutory doctrine of strict accountability by the payor bank to the presenting bank if notice is not accomplished within the midnight deadline”) (citing L.A. Nat’l Bank v. Bank of Canton of California, 280 Cal. Rptr. 831 (Cal. Ct. App. 1991); First State Bank of Sherwood v. Twin City Bank of North Little Rock, 720 S.W.2d 295 (Ark. 1986); Northwestern Nat’l Insurance Co. v. Midland Nat’l Bank, 292 N.W .2d 591 (Wis. 1980)). The third UCC provision invoked by NBT is § 4215, which addresses when a check is “finally paid.” Upon “final payment” a provisional settlement by the payor bank becomes final, and the payor bank is accountable for the face amount of the check. Under § 4215, a check “is finally paid by a payor bank when the bank has . . . made a provisional settlement for the item and fail[s] to revoke the settlement in the time and manner permitted by statute, clearinghouse rule 14 or agreement.” 13 Pa. Con. Stat. Ann. § 4214 (a)(3). Official Comment 4 to § 4215 states that “[a] primary example of a statutory right on the part of the payor bank to revoke a settlement is the right to revoke conferred by Section 4-301.” 7