Right of Charge-Back or Refund; Liability of Collecting Bank; Return of Item

  1. Law
  2. Georgia Code
  3. Commercial Code
  4. Bank Deposits and Collections
  5. Collection of Items: Depositary and Collecting Banks
  6. Right of Charge-Back or Refund; Liability of Collecting Bank; Return of Item

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  1. 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.
  2. A collecting bank returns an item when it is sent or delivered to the bank's customer or transferor or pursuant to its instructions.
  3. 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 Code section governing return of an item received by a payor bank for credit on its books (Code Section 11-4-301).
  4. The right to charge back is not affected by:
    1. Previous use of a credit given for the item; or
    2. Failure by any bank to exercise ordinary care with respect to the item, but a bank so failing remains liable.
  5. A failure to charge back or claim refund does not affect other rights of the bank against the customer or any other party.
  6. 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 must 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.

(Code 1933, § 109A-4 - 212, enacted by Ga. L. 1962, p. 156, § 1; Ga. L. 1969, p. 956, § 1; Code 1981, §11-4-214, as redesignated by Ga. L. 1996, p. 1306, § 11.)

Editor's notes.

- Ga. L. 1996, p. 1306, § 11, effective July 1, 1996, renumbered former Code Section 11-4-212 as present Code Section 11-4-214 and renumbered former Code Section 11-4-214 as present Code Section 11-4-216.

JUDICIAL DECISIONS

Right to charge back credit.

- A bank has the right to revoke the credit it has extended when it is unable to collect the check upon which it has extended the provisional credit. The fact that the customer has used a portion of the credit extended does not affect the bank's right to charge back the credit, even though the bank was negligent in its representation that the deposited check was "good." However, the elements of estoppel prevent the bank from obtaining a refund of the amount credited to the account. First Ga. Bank v. Webster, 168 Ga. App. 307, 308 S.E.2d 579 (1983).

Where plaintiff bank is unable to obtain settlement, either final or provisional, from payor bank by reason of stop payment order of defendant-drawer, it becomes a holder in due course (all pertinent requirements having been met) with a security interest in the item which enables it to enforce payment against drawer, with right of charge back against its depositor's account in event that judgment cannot be obtained against drawer. Pazol v. Citizens Nat'l Bank, 110 Ga. App. 319, 138 S.E.2d 442 (1964).

Bank's deposit agreement with the bank's customer was not unreasonable and permitted the bank to charge back to the customer's account the amount of a check upon the check's return from another bank as fraudulent, although the bank had provided provisional funds that the customer had withdrawn or paid out. Vadde v. Bank of Am., 301 Ga. App. 475, 687 S.E.2d 880 (2009), cert. denied, No. S10C0624, 2010 Ga. LEXIS 338 (Ga. 2010); cert. denied, 131 S. Ct. 298, 178 L. Ed. 2d 143 (2010).

Effect of charge back on recovery against drawer also.

- Where bank exercises charge back rights granted by debiting customer's account on notice of dishonor for exact amount of checks in issue and thereby made itself whole, it will not be permitted to also recover amount of checks from drawer. GMAC v. Bank of Carroll County, 138 Ga. App. 654, 226 S.E.2d 815 (1976).

Cited in Brannon v. First Nat'l Bank, 137 Ga. App. 275, 223 S.E.2d 473 (1976); National Bank v. Weiner, 180 Ga. App. 61, 348 S.E.2d 492 (1986); Citizens & S. Nat'l Bank v. Sun Belt Elec. Constructors, Inc., 64 Bankr. 377 (Bankr. N.D. Ga. 1986).

OPINIONS OF THE ATTORNEY GENERAL

O.C.G.A.

§ 11-4-214 not restrictive of bank's freedom. - Neither O.C.G.A. T. 7 nor T. 11 restricts in any way a bank's freedom to decide how it will treat any particular collection item, whether it be a check or a credit union share draft. 1977 Op. Att'y Gen. No. 77-2.

Credit union share drafts.

- Banks need not process credit union share drafts as cash items, rather than as drafts for collection. 1977 Op. Att'y Gen. No. 77-2.

RESEARCH REFERENCES

Am. Jur. 2d.

- 11 Am. Jur. 2d, Banks and Financial Institutions, §§ 897, 938, 988. 11 Am. Jur. 2d, Bills and Notes, § 361 et seq.

C.J.S.

- 9 C.J.S., Banks and Banking, §§ 383 et seq., 402.

U.L.A.

- Uniform Commercial Code (U.L.A.) § 4-214.

ALR.

- Right of bank to charge back check drawn upon itself, which it has credited to a depositor under mistaken belief that the drawer's account is good, 15 A.L.R. 709.

Setoff or lien as between banks as to collection items or proceeds, as affected by question of mutuality or rights of owner of paper, 90 A.L.R. 1009.

Rights and liabilities of bank paying, or giving credit for, personal check of own officer or employee whose account is not good, 171 A.L.R. 880.

Right of bank which includes in its remittance to correspondent bank amount of a check drawn on itself which is not good, or other uncollectible item, to recall payment by deducting the amount in next remittance to correspondent, 10 A.L.R.2d 349.

Correspondent bank's liability to owner of collection items where credit originally extended to forwarding bank is canceled, 10 A.L.R.2d 462.

Right of bank certifying check or note by mistake to cancel, or avoid effect of, certification, 25 A.L.R.3d 1367.

Post-Sniadach status of banker's right to set off bank's claim against depositor's funds, 65 A.L.R.3d 1284.

Bank's liability for payment or withdrawal on less than required number of signatures, 7 A.L.R.4th 655.


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