Chapter 404

404.301 404.301 Deferred posting; recovery of payment by return of items; time of dishonor; return of items by payer bank.

404.301(1) (1) If a payer bank settles for a demand item other than a documentary draft presented otherwise than for immediate payment over the counter before midnight of the banking day of receipt, the payer bank may revoke the settlement and recover the settlement if, before it has made final payment and before its midnight deadline, it does any of the following:

404.301(1)(a) (a) Returns the item.

404.301(1)(b) (b) Sends written notice of dishonor or nonpayment if the item is unavailable for return.

404.301(2) (2) If a demand item is received by a payer bank for credit on its books, it may return the item or send notice of dishonor and may revoke any credit given or recover the amount thereof withdrawn by its customer, if it acts within the time limit and in the manner specified in sub. (1).

404.301(3) (3) Unless previous notice of dishonor has been sent, an item is dishonored at the time when for purposes of dishonor it is returned or notice sent in accordance with this section.

404.301(4) (4) An item is returned:

404.301(4)(a) (a) 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.

404.301(4)(b) (b) In all other cases, when it is sent or delivered to the bank’s customer or transferor or pursuant to instructions.

404.301 History History: 1991 a. 304 s. 51; 1991 a. 316; 1995 a. 449.

404.302 404.302 Payer bank’s responsibility for late return of item.

404.302(1) (1) If an item is presented to and received by a payer bank, the bank is accountable for the amount of any of the following:

404.302(1)(a) (a) A demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline.

404.302(1)(b) (b) Any other properly payable item, unless within the time allowed for acceptance or payment of that item, the bank either accepts or pays the item or returns it and accompanying documents.

404.302(2) (2) The liability of a payer bank to pay an item under sub. (1) is subject to defenses based on breach of a presentment warranty or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payer bank.

404.302 History History: 1983 a. 192; 1995 a. 449.

404.302 Annotation When a provisional settlement was not revoked by the payor bank before the midnight deadline under s. 404.301 (1), the payor bank became accountable under s. 404.302 for the value of the presented checks. Under the facts of the case, the payor bank had no defenses under s. 401.203, 403.418, or 403.511 (2) (b). Northwestern National Insurance Co. v. Midland National Bank, 96 Wis. 2d 155, 292 N.W.2d 591 (1980).

404.302 Annotation Bank required to disburse funds after final payment. 64 MLR 408 (1980).

404.303 404.303 When items subject to notice, stop-payment order, legal process or setoff; order in which items may be charged or certified.

404.303(1) (1) Any knowledge, notice or stop-payment order received by, legal process served upon or setoff exercised by a payer bank comes too late to terminate, suspend or modify the bank’s right or duty to pay an item or to charge its customer’s account for the item if the knowledge, notice, stop-payment order or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the earliest of the following:

404.303(1)(a) (a) The bank accepts or certifies the item.

404.303(1)(b) (b) The bank pays the item in cash.

404.303(1)(c) (c) The bank settles for the item without having a right to revoke the settlement under statute, clearinghouse rule or agreement.

404.303(1)(d) (d) The bank becomes accountable for the amount of the item under s. 404.302 dealing with the payer bank’s responsibility for late return of items.

404.303(1)(e) (e) With respect to checks, a cutoff hour no earlier than one hour after the opening of the next banking day after the banking day on which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.

404.303(2) (2) Subject to sub. (1), items may be accepted, paid, certified or charged to the indicated account of its customer in any order.

404.303 History History: 1991 a. 304 s. 51; 1995 a. 449.

subch. IV of ch. 404 SUBCHAPTER IV

RELATIONSHIP BETWEEN PAYER BANK AND ITS CUSTOMER

404.401 404.401 When bank may charge customer’s account.

404.401(1) (1) A bank may charge against the account of a customer an item that is properly payable from that account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.

404.401(2) (2) A customer is not liable for the amount of an overdraft if the customer neither signed the item nor benefited from the proceeds of the item.

404.401(3) (3) A bank may charge against the account of a customer a check that is otherwise properly payable from the account, even though payment was made before the date of the check, unless the customer has given notice to the bank of the postdating describing the check with reasonable certainty. The notice is effective for the period stated in s. 404.403 (2) for stop-payment orders, and must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it before the bank takes any action with respect to the check described in s. 404.303. If a bank charges against the account of a customer a check before the date stated in the notice of postdating, the bank is liable for damages for the loss resulting from its act. The loss may include damages for dishonor of subsequent items under s. 404.402.

404.401(4) (4) A bank that in good faith makes payment to a holder may charge the indicated account of its customer according to any of the following:

404.401(4)(a) (a) The original terms of the altered item.

404.401(4)(b) (b) The terms of the completed item, even though the bank knows the item has been completed unless the bank has notice that the completion was improper.

404.401 History History: 1991 a. 316; 1995 a. 449.

404.402 404.402 Bank’s liability to customer for wrongful dishonor; time of determining insufficiency of account.

404.402(1) (1) Except as otherwise provided in this chapter, a payer bank wrongfully dishonors an item if it dishonors an item that is properly payable, but a bank may dishonor an item that would create an overdraft unless it has agreed to pay the overdraft.

404.402(2) (2) A payer bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. Liability is limited to actual damages proved and may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.

404.402(3) (3) A payer bank’s determination of the customer’s account balance on which a decision to dishonor for insufficiency of available funds is based may be made at any time between the time the item is received by the payer bank and the time that the payer bank returns the item or gives notice in lieu of return, and no more than one determination need be made. If, at the election of the payer bank, a subsequent balance determination is made for the purpose of reevaluating the bank’s decision to dishonor the item, the account balance at that time is determinative of whether a dishonor for insufficiency of available funds is wrongful.

404.402 History History: 1995 a. 449.

404.402 Annotation Absent an agreement to the contrary, a bank retains discretion to dishonor a check creating an overdraft even when it has previously honored that customer’s overdrafts. Schaller v. Marine National Bank, 131 Wis. 2d 389, 388 N.W.2d 645 (Ct. App. 1986).

404.403 404.403 Customer’s right to stop payment; burden of proof of loss.

404.403(1) (1) A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer’s account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the item described in s. 404.303. If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.

404.403(2) (2) A stop-payment order is effective for 6 months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in writing within that period. A stop-payment order may be renewed for additional 6-month periods by a writing given to the bank within a period during which the stop-payment order is effective.

404.403(3) (3) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under s. 404.402.

404.403 History History: 1991 a. 316; 1995 a. 449.

404.404 404.404 Bank not obligated to pay check more than 6 months old. A bank is under no obligation to a customer having a checking account to pay a check, other than a certified check, which is presented more than 6 months after its date, but it may charge its customer’s account for a payment made thereafter in good faith.

404.405 404.405 Death or incompetence of customer.

404.405(1) (1) A payer or collecting bank’s authority to accept, pay or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes the authority to accept, pay, collect or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.

404.405(2) (2) Even with knowledge, a bank may for 10 days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.

404.405 History History: 1995 a. 449.

404.406 404.406 Customer’s duty to discover and report unauthorized signature or alteration.

404.406(1) (1) A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer reasonably to identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount and date of payment.

404.406(2) (2) If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of 7 years after receipt of the items. A customer may request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item.

404.406(3) (3) If a bank sends or makes available a statement of account or items under sub. (1), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.

404.406(4) (4) If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by sub. (3), the customer is precluded from asserting all of the following against the bank:

404.406(4)(a) (a) The customer’s unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason of the failure.

404.406(4)(b) (b) The customer’s unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.

404.406(5) (5) If sub. (4) applies and the customer proves that the bank failed to exercise ordinary care in paying the item and that the failure substantially contributed to loss, the loss is allocated between the customer precluded and the bank asserting the preclusion according to the extent to which the failure of the customer to comply with sub. (3) and the failure of the bank to exercise ordinary care contributed to the loss. If the customer proves that the bank did not pay the item in good faith, the preclusion under sub. (4) does not apply.

404.406(6) (6) Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer discover and report the customer’s unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payer bank may not recover for breach of warranty under s. 404.208 with respect to the unauthorized signature or alteration to which the preclusion applies.

404.406 History History: 1991 a. 316; 1995 a. 449.

404.406 Annotation If a customer directs a bank to pay only checks bearing 2 signatures, the absence of a required signature constitutes an “unauthorized signature.” Rascar, Inc. v. Bank of Oregon, 87 Wis. 2d 446, 275 N.W.2d 108 (Ct. App. 1978).

404.406 Annotation If both the maker’s and endorser’s signature are forged, the controlling defect in the check is the maker forgery. A bank’s alleged negligence in failing to inspect the endorsements was immaterial. Winkie, Inc. v. Heritage Bank, 99 Wis. 2d 616, 299 N.W.2d 829 (1981).

404.406 Annotation Interception of bank statements by a 3rd person does not relieve the customer of his or her responsibility to examine the statements or find out why they are not coming. Whether or not the bank is negligent is not material if the customer does not give timely notice. A contractual reduction of the statutory notice period to 14 days was not “manifestly unreasonable” under s. 404.103 (1). Borowski v. Firstar Bank Milwaukee, 217 Wis. 2d 565, 579 N.W.2d 247 (Ct. App. 1998), 96-3277.

404.406 Annotation Although a claim for misrepresentation may “supplement” the provisions of the UCC, it may not supplant them. A bank customer’s failure to comply with ss. 403.406 and 404.406 precluded the customer’s claim for strict-liability misrepresentation. Weber, Leicht, Gohr & Associates v. Liberty Bank, 2000 WI App 249, 239 Wis. 2d 461, 620 N.W.2d 472, 99-1557.

404.407 404.407 Payer bank’s right to subrogation on improper payment. If a payer bank has paid an item over the order of the drawer or maker to stop payment, or after an account has been closed, or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payer bank is subrogated to the rights of all of the following:

404.407(1) (1) Any holder in due course on the item against the drawer or maker.

404.407(2) (2) The payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose.

404.407(3) (3) The drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.

404.407 History History: 1995 a. 449.

subch. V of ch. 404 SUBCHAPTER V

COLLECTION OF DOCUMENTARY DRAFTS

404.501 404.501 Handling of documentary drafts; duty to send for presentment and to notify customer of dishonor. A bank that takes a documentary draft for collection shall present or send the draft and accompanying documents for presentment and, upon learning that the draft has not been paid or accepted in due course, shall seasonably notify its customer of the fact even though it may have discounted or bought the draft or extended credit available for withdrawal as of right.

404.501 History History: 1995 a. 449; 1997 a. 35.

404.502 404.502 Presentment of “on arrival” drafts. If a draft or the relevant instructions require presentment “on arrival”, “when goods arrive” or the like, the collecting bank need not present until in its judgment a reasonable time for arrival of the goods has expired. Refusal to pay or accept because the goods have not arrived is not dishonor; the bank must notify its transferor of the refusal but need not present the draft again until it is instructed to do so or learns of the arrival of the goods.

404.502 History History: 1995 a. 449.

404.503 404.503 Responsibility of presenting bank for documents and goods; report of reasons for dishonor; referee in case of need.

404.503(1) (1) Unless otherwise instructed and except as provided in ch. 405, a bank presenting a documentary draft:

404.503(1)(a) (a) Must deliver the documents to the drawee on acceptance of the draft if it is payable more than 3 days after presentment; otherwise, only on payment.

404.503(1)(b) (b) Upon dishonor, either in the case of presentment for acceptance or presentment for payment, may seek and follow instructions from any referee in case of need designated in the draft or, if the presenting bank does not choose to utilize the referee’s services, it must use diligence and good faith to ascertain the reason for dishonor, must notify its transferor of the dishonor and of the results of its effort to ascertain the reasons therefor and must request instructions.

404.503(2) (2) The presenting bank is under no obligation with respect to goods represented by the documents except to follow any reasonable instructions seasonably received; it has a right to reimbursement for any expense incurred in following instructions and to prepayment of or indemnity for those expenses.

404.503 History History: 1991 a. 316; 1995 a. 449.

404.504 404.504 Privilege of presenting bank to deal with goods; security interest for expenses.

404.504(1) (1) A presenting bank that, following the dishonor of a documentary draft, has seasonably requested instructions but does not receive them within a reasonable time may store, sell, or otherwise deal with the goods in any reasonable manner.

404.504(2) (2) For its reasonable expenses incurred by action under sub. (1), the presenting bank has a lien upon the goods or their proceeds, which may be foreclosed in the same manner as an unpaid seller’s lien.

404.504 History History: 1995 a. 449.