Okla. Stat. tit. 12A § 4-401

Current through Laws 2024, c. 378.

Section 4-401 - When Bank May Charge Customer's Account - Statute of limitations

(a) 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.

(b) 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.

(c) 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 subsection (b) of Section 4-403 of this title 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 Section 4-303 of this title. 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 or subsequent items under Section 4-402 of this title.

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

(1) The original terms of the altered item; or

(2) 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.

(e) The statute of limitations on a customer's claim that an item charged against an account is not properly payable due to a forged or unauthorized endorsement begins on the date the item is finally paid by the bank, without regard to care or lack of care of either the customer or the bank.

Okla. Stat. tit. 12A, § 4-401

Added by Laws 1961, SB 287, p. 129, § 4-401; Amended by Laws 1991, SB 25, c. 117, § 124, eff. 1/1/1992; Amended by Laws 2011 , SB 287, c. 28, § 1, eff. 11/1/2011.

Oklahoma Code Comment

1. Sub section 4-401(a) establishes the statutory authority of a payor bank to charge its customer's account for items that are properly payable. This authority and other issues relating to the bank-customer relationship may also be governed by the depository contract and other law. See Shaw v. Union Bank & Trust Co., 640 P.2d 953 (Okla. 1981). As to availability of a deposit made to the account, see Regulation CC, 12 C.F.R. part 229 , and American Cattle Services, Inc. v. Security Nat'l Bank & Trust Co. of Norman 620 P.2d 906 (Okla. Ct. App. 1980). The relationship between the bank and its depositor is that of debtor and creditor. W.R. Grimshaw Co. v. First Nat'l Bank & Trust Co. of Tulsa, 563 P.2d 117 (1977), State Guaranty Bank of O'Keene v. Doerfler, 99 Okla. 258, 226 P. 1054 (1924).

Pre-revision Section 4-401 did not define "properly payable"; new sub section 4-401(a) does so in terms of customer authorization and by reference to the bank-customer agreement. See Section 4-401, Official Comment I (citing Torrence Nat'l Bank v. Enesco Fed Credit Union 134 Cal. App. 2d 316, 285 P.2d 737 (1955)). This confirms the contractual nature of the relationship. Generally, the concept of properly payable encompasses the elements that make an item enforceable under contract law, UCC Article 3 and 4, and other applicable law. For negotiable instruments, for example, this includes a drawer's signature that meets the requirements of Article 3, Part 4, and any indorsement required for transfer of the instrument under Article 3, Part 2 (but see Hays v. Friendly National Bank, 591 P.2d 1274 (1979), as to when the absence of an indorsement does not render payment improper). Article 4 provisions that may affect proper payment include sub section 4-401(c) (post-dated items), and Sections 4-303 (legal process), 4-403 (stop payment orders) and 4-405 (drawer's death or incompetence). For example, in Cirar v. Bank of Hartshome, 567 P.2d 96 (Okla. 1977), a check was held to be properly payable under Section 4-405 , despite notification to the bank that the drawer had died.

Note that if the item is not properly payable because it contains a forged drawer's signature, a cause of action based on the bank's payment of the item accrues when the customer makes demand that the account be recredited. See Walker & Walker, Inc. v. Liberty Nat'l Bank & Trust Co., slip op., 64 Okla. B.J. 1496, 1993 W. L.150651 (Okla. May 11,1993).

2. A payor bank cannot charge its customer's account for an item not properly payable unless there is a ratification by the customer, the bank has a defense, or there is an estoppel or preclusion, e.g. under Section 3-403 , 3-404 , 3-405 3-406, 3-407 or 4 4-406. See W.R. Grimshaw Co. v. First Nat'l Bank & Trust Co. of Tulsa, 563 P.2d 117 (Okla. 1977). For example, in Eutsler v. First National Bank, Pawhuska, 639 P.2d 1245 (Okla. 1982), the bank's customer was deemed to have ratified payment of an unauthorized item by advising the bank not to pursue the wrongdoer (the customer's brother) while the customer sought to do so, resulting in a 6-month delay. Section 3-407 on alteration also may be relevant. Generally, the bank may charge the customer's account for the original amount of an altered item under sub section 3-4.07(c) and Section 4-401, even though the item as altered is not properly payable. If the customer is precluded from asserting the alteration, e.g., under sub section 3-407(b) , then the bank may charge the account for the amount of the item as altered. If the bank dishonors an item that is properly payable, the bank is liable for wrongful dishonor under Section 4-402 .

An insufficiency in the account balance does not prevent the item from being properly payable or preclude payment by the bank. A properly payable item may be paid even though it creates an overdraft, or the bank may dishonor such an item unless it has agreed otherwise. UCC §§ 4-401(a), 4-402(a). An overdraft represents a debt of the customer to the bank, whether created by payment of an item (UCC §4-401, Official Comment 1) or by dishonor of checks deposited by the customer in his or her account (UCC § 4-214). However, new sub section 4-401(b) provides that a customer is not liable for an overdraft created by a joint account holder unless the customer signed the item or benefited from it. This may be changed in the account agreement.

3. New sub section 4-401(c) allows the bank to pay a post-dated item before the date on the check, unless the customer has previously provided a notice similar to a stop payment order. This resolves uncertainty under prior law. See, e.g., Siegal v. New England Merchants Nat'l Bank, 386 Mass. 672, 437 N.E.2d 218 (1982).

4. Section 4-401 does not affect the liability of a bank officer or employee to the bank for wrongfully paying a check drawn on insufficient funds, with intent to defraud, under 6 O.S. § 712.8. (1992).

5. When a bank receives notice that an act count holder has filed a petition under the U.S. Bankruptcy Code, the bank is precluded under 11 U.S.C. § 362 (the automatic stay) from setting off any portion of that account against a debt the account holder owes to the bank. It is unclear whether the bank can nonetheless "freeze" the account by dishonoring items subsequently presented, without violating the automatic stay in bankruptcy and/or incurring liability for wrongful dishonor. See e.g., Bank One Texas, N.A. v. Taylor, 970 F.2d 16 (5th Cir. 1992), cent denied 113 S.Ct. 2331 (1993), B.F. Goodrich Employees Fed. Credit Union v. Patterson (In re Patterson), 967 F.2d 505 (11th Cir. 1992)(administrative freeze violates the automatic stay); Joseph M. Coleman, Terry J. Garrett & Joseph A. Friedman, Tug of War Over Deposits In Bankruptcy: Debtor's Desperation For Cash vs. Sank's Demand For Collateral, 47 CONSUMER FIN. L.Q. REP. 156 (1993).