[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR229.38]

[Page 542-544]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 229--AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS (REGULATION CC)--Table of Contents
 
                     Subpart C--Collection of Checks
 
Sec. 229.38  Liability.

    (a) Standard of care; liability; measure of damages. A bank shall 
exercise ordinary care and act in good faith in complying with the 
requirements of this subpart. A bank that fails to exercise ordinary 
care or act in good faith under this subpart may be liable to the 
depositary bank, the depositary bank's customer, the owner of a check, 
or another party to the check. The measure of damages for failure to 
exercise ordinary care is the amount of the loss incurred, up to the 
amount of the check, reduced by the amount of the loss that party would 
have incurred even if the

[[Page 543]]

bank had exercised ordinary care. A bank that fails to act in good faith 
under this subpart may be liable for other damages, if any, suffered by 
the party as a proximate consequence. Subject to a bank's duty to 
exercise ordinary care or act in good faith in choosing the means of 
return or notice of nonpayment, the bank is not liable for the 
insolvency, neglect, misconduct, mistake, or default of another bank or 
person, or for loss or destruction of a check or notice of nonpayment in 
transit or in the possession of others. This section does not affect a 
paying bank's liability to its customer under the U.C.C. or other law.
    (b) Paying bank's failure to make timely return. If a paying bank 
fails both to comply with Sec. 229.30(a) and to comply with the deadline 
for return under the U.C.C., Regulation J (12 CFR part 210), or 
Sec. 229.30(c) in connection with a single nonpayment of a check, the 
paying bank shall be liable under either Sec. 229.30(a) or such other 
provision, but not both.
    (c) Comparative negligence. If a person, including a bank, fails to 
exercise ordinary care or act in good faith under this subpart in 
indorsing a check (Sec. 229.35), accepting a returned check or notice of 
nonpayment (Secs. 229.32(a) and 229.33(c)), or otherwise, the damages 
incurred by that person under Sec. 229.38(a) shall be diminished in 
proportion to the amount of negligence or bad faith attributable to that 
person.
    (d) Responsibility for certain aspects of checks--(1) A paying bank, 
or in the case of a check payable through the paying bank and payable by 
another bank, the bank by which the check is payable, is responsible for 
damages under paragraph (a) of this section to the extent that the 
condition of the check when issued by it or its customer adversely 
affects the ability of a bank to indorse the check legibly in accordance 
with Sec. 229.35. A depositary bank is responsible for damages under 
paragraph (a) of this section to the extent that the condition of the 
back of a check arising after the issuance of the check and prior to 
acceptance of the check by it adversely affects the ability of a bank to 
indorse the check legibly in accordance with Sec. 229.35. Responsibility 
under this paragraph shall be treated as negligence of the paying or 
depositary bank for purposes of paragraph (c) of this section.
    (2) Responsibility for payable through checks. In the case of a 
check that is payable by a bank and payable through a paying bank 
located in a different check processing region than the bank by which 
the check is payable, the bank by which the check is payable is 
responsible for damages under paragraph (a) of this section, to the 
extent that the check is not returned to the depositary bank through the 
payable through bank as quickly as the check would have been required to 
be returned under Sec. 229.30(a) had the bank by which the check is 
payable--
    (i) Received the check as paying bank on the day the payable through 
bank received the check; and
    (ii) Returned the check as paying bank in accordance with 
Sec. 229.30(a)(1).

Responsibility under this paragraph shall be treated as negligence of 
the bank by which the check is payable for purposes of paragraph (c) of 
this section.
    (e) Timeliness of action. If a bank is delayed in acting beyond the 
time limits set forth in this subpart because of interruption of 
communication or computer facilities, suspension of payments by a bank, 
war, emergency conditions, failure of equipment, or other circumstances 
beyond its control, its time for acting is extended for the time 
necessary to complete the action, if it exercises such diligence as the 
circumstances require.
    (f) Exclusion. Section 229.21 of this part and section 611 (a), (b), 
and (c) of the Act (12 U.S.C. 4010 (a), (b), and (c)) do not apply to 
this subpart.
    (g) Jurisdiction. Any action under this subpart may be brought in 
any United States district court, or in any other court of competent 
jurisdiction, and shall be brought within one year after the date of the 
occurrence of the violation involved.
    (h) Reliance on Board rulings. No provision of this subpart imposing 
any liability shall apply to any act done or omitted in good faith in 
conformity with any rule, regulation, or interpretation thereof by the 
Board, regardless of whether the rule, regulation, or interpretation is 
amended, rescinded, or

[[Page 544]]

determined by judicial or other authority to be invalid for any reason 
after the act or omission has occurred.

[53 FR 19433, May 27, 1988, as amended by Reg. CC, 54 FR 13850, Apr. 6, 
1989; 54 FR 32047, Aug. 4, 1989]