Okla. Stat. tit. 12A § 4-303

Current through Laws 2024, c. 135.

Section 4-303 - When Items Subject to Notice, Stop-Payment Order, Legal Process, or Setoff; Order in Which Items May be Charged or Certified

(a) Any knowledge, notice, or stop-payment order received by, legal process served upon, or setoff exercised by a payor 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:

(1) The bank accepts or certifies the item;

(2) The bank pays the item in cash;

(3) The bank settles for the item without having a right to revoke the settlement under statute, clearing-house rule, or agreement;

(4) The bank becomes accountable for the amount of the item under Section 4-302 of this title dealing with the payor bank's responsibility for late return of items; or

(5) With respect to checks, a cutoff hour no earlier than one (1) 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.

(b) Subject to subsection (a) of this section, items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.

Okla. Stat. tit. 12A, § 4-303

Laws 1961, SB 36, p. 129, § 4-303; Amended by Laws 1991, SB 25, c. 117, § 123, eff. 1/1/1992.

Oklahoma Code Comment

1. Section 4-303 is similar to pre-revision Section 4-303, with the addition of a provision (subparagraph (a)(5)) establishing, with respect to checks, a cut-off hour by agreement or, absent agreement, by statute for the receipt of any notice or stop-payment order or exercise of setoff. This language is necessary because the cutoff occurring on the completion of the process of posting has been deleted. The addition of the option of establishing a cut-off hour allows a bank to fix the time for receipt of notice or setoff.

For a thorough discussion of the banker's right of set-off, see John TeSelle, Banker's Right of Setoff Banker Beware, 34 Okla. L REV. 40 (1981); Leona Beane, Rights of Drawers, Banks and Holders in Bank Checks and Other Cash Equivalents, 19 Tulsa L.J. 612 (1984). See also Op. Att'y Gen. No. 81-88 (July 14, 1981).

2. Garnishments and levies are effective as of, and only as of, the time of service. To protect itself if its computers do not show present status, a bank should immediately freeze the customer's account up to the amount of the process, and then sort out the debits and credits the next morning before answering the process. If any cut-off hour or the midnight deadline has passed, then the bank has no obligation to return items presented for payment prior to receipt of the process. This determination must be made in time to make any excess funds available to the customer as required by Regulation CC.

In Fast Food Systems, Inc. v. Ducotey, 837 P.2d 910 (Okla. 1992), Ducotey deposited a tax refund check in his account at First State Bank at 8:52 a.m. on June 4th. Between 10:00 and 10:30 a.m. a garnishee summons was served on the bank by a creditor of Ducotey. The bank denied having property or indebtedness, and when the check was collected, released the funds to Ducotey. The court held the bank liable (the bank did not actually know of the deposited check until close of business on June 4th). While the court agreed the bank was not indebted until the check was paid, the bank was liable because it had the check when the garnishee summons was served. However, the facts do not disclose whether the check had already been forwarded for collection.

3. Oklahoma courts have held a stop payment order comes too late to terminate or suspend right or duty to pay an item if it is received after the bank has accepted or certified the item. See Yukon Nat'l Bank v. Modem Builders Supply, Inc., 686 P.2d 307 (Okla. Ct. App. 1984). (As to the balance of the opinion, however, see Section 3-411 .) A drawer can stop payment of a check at any time before it has been certified, accepted or paid by the bank. Cirar v. Bank of Hartshome, 567 P.2d 96 (Okla. 1977). Liability on the check, however, is not affected by stopping payment. See Bond v. Krugg, 115 Okla. 222, 242 P. 559 (1925), and Sections 3-414 and 3-415 .

4. Sub section 4-303(2) allows a bank to pay or charge items in any order. See Pracht v. Oklahoma State Bank, 592 P.2d 976 (Okla. 1979).