Under provisions of the Uniform Commercial Code (UCC), once a check is presented for payment, financial institutions have strict time limitations under which they must take action to either pay on the check or dishonor it. However, New Jersey collection lawyers understand that what appear to be clear rules for banks to comply with to protect consumers are far more complicated.
The Midnight Deadline Rule
UCC Section 4-302 imposes strict liability on a bank for failure to take action on a check by midnight on the day after the day the bank received the check. This means that, if the bank fails to dishonor the check by midnight of the next day after receipt, the bank is liable for the face amount of the check. The purpose of this rule is to have certainty and finality in business transactions.
In many cases where a check is dishonored, the right to collect is assigned to a third party. Under 4-302, it would seem that, if a bank did not dishonor a check in a timely manner, the third-party collector could assert the original payee’s rights and hold the bank liable for the check amount. The courts have concluded otherwise.
The Right to Enforce the Midnight Rule
In addition to the exceptions to the midnight rule for circumstances outside of a bank’s control such as a computer failure or natural disaster, courts interpreting the midnight rule have limited the right to sue to enforce its provisions certain parties:
• The original payee;
• An assignee who may have received the check before dishonor; or
• A collecting bank.
Contact New Jersey Collection Attorneys for Legal Advice
Collection matters require legal counsel with experience and knowledge of banking laws. For any questions or concerns, call Snellings Law LLC at 973.265.6100.