TITLE 11 COMMERCIAL CODE

Section 4. Bank Deposits and Collections, 11-4-101 through 11-4-504.

ARTICLE 4 BANK DEPOSITS AND COLLECTIONS

11-4-407. Payor bank's right to subrogation on improper payment.

If a payor bank has paid an item over the order of the drawer or maker to stop payment, or after an account has been closed, or otherwise under circumstances giving a basis for objection by the drawer or maker, to prevent unjust enrichment and only to the extent necessary to prevent loss to the bank by reason of its payment of the item, the payor bank is subrogated to the rights:

Of any holder in due course on the item against the drawer or maker;
Of the payee or any other holder of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and
Of the drawer or maker against the payee or any other holder of the item with respect to the transaction out of which the item arose.

(Code 1933, § 109A-4 - 407, enacted by Ga. L. 1962, p. 156, § 1; Ga. L. 1996, p. 1306, § 13.)

Law reviews.

- For article surveying recent judicial developments in commercial law, see 31 Mercer L. Rev. 13 (1979). For comment on Trust Co. of Columbus v. Refrigeration Supplies, Inc., 241 Ga. 406, 246 S.E.2d 282 (1978), discussing liability of collecting and payor banks for payment of check over missing endorsement of copayee, see 13 Ga. L. Rev. 677 (1979).

JUDICIAL DECISIONS

Former subsection (c) gives bank defenses of drawer against payee or holder.

- Intent of O.C.G.A. § 11-4-407 is to allow payor bank to be subrogated to rights of drawer in suit by payor bank against payee or other holder of an item with respect to transaction out of which the item arose. Trust Co. v. Refrigeration Supplies, Inc., 241 Ga. 406, 246 S.E.2d 282 (1978).

Purpose of section.

- Scales of justice seek a balance where one unjustly gains pecuniary advantage over another to which gainer is not entitled and refuses to make restitution to loser by granting action for unjust enrichment. Woodard v. First Nat'l Bank, 159 Ga. App. 769, 285 S.E.2d 229 (1981).

Party compelled by operation of law to pay debt which in equity and good faith another party should have kept that party from paying may recover from the other party an amount paid in action at law. Woodard v. First Nat'l Bank, 159 Ga. App. 769, 285 S.E.2d 229 (1981).

Bank's rights after untimely action on stop payment order.

- Where, as result of failure to act timely upon stop payment order, bank reimburses drawer for the amount charged to drawer's account for the check, it thereby becomes subrogated to any claim the drawer has against the payee. Middle Ga. Bank v. Continental Real Estate & Assocs., 168 Ga. App. 611, 309 S.E.2d 893 (1983).

RESEARCH REFERENCES

Am. Jur. 2d.

- 11 Am. Jur. 2d, Banks and Financial Institutions, § 937.

6A Am. Jur. Pleading and Practice Forms, Commercial Code, § 4:229.

C.J.S.

- 83 C.J.S., Subrogation, § 22.

U.L.A.

- Uniform Commercial Code (U.L.A.) § 4-407.

ALR.

- Duty of bank to prior parties to the paper to apply deposit to credit of endorser on paper owned by bank, 37 A.L.R. 578.

Right of third person to be subrogated to depositor's claim against bank on account of the latter's payment of forged or raised check, 77 A.L.R. 1057.

Payment of check upon forged or unauthorized indorsement as affecting the right of the true owner against the drawee bank, 137 A.L.R. 874.

Stipulation relieving bank from, or limiting its liability for disregard of, stop-payment order, 1 A.L.R.2d 1155.

Rights and liabilities of drawee bank, as to persons other than drawer, with respect to uncertified paid check which was altered, 75 A.L.R.2d 611.

Right of check owner to recover against one cashing it on forged or unauthorized indorsement and procuring payment by drawee, 100 A.L.R.2d 670.

Extent of bank's liability for paying postdated check, 31 A.L.R.4th 329.

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