Chapter 28: Checks. Banks, and Funds Transfers

Question 1

Check

Answer 1

Order by a depositor on a bank to pay a sum of money to a payee; a bill of exchange drawn on a bank and payable on demand

Question 2

Check vs draft

Answer 2

• drawee for a check is always a bank
• check is drawn in assumption money is in bank to cover the check (no such assumption for general draft)
• check is payable on demand (draft may be payable at a specific future date)
• drawee bank only accepts check through certification. (For a draft acceptance is required for the liability of the drawee)

Question 3

Laws governing checks

Answer 3

• Article 3 of UCC

- Article 4 of UCC (bank deposits and collections)

Question 4

American bankers association bank collection code

Answer 4

• written to introduce clarity into processing electronic and paper transactions for electronic payment methods
• provisions incorporated into new versions of article 4 of the UCC

Question 5

References to electronic payment methods

Answer 5

Called

• remotely drawn
• remotely created
• consumer authorized

Question 6

Remotely-created consumer orders

Answer 6

RCPOs

Also remotely-created consumer items (per article 3)

Automated clearinghouse (ACH) payments

Consumer- originated authorizations for bank payments without paper signatures

Permit authorized payments initiated over the phone or online

Have the same effect as writing a check

Banks generally put holds on the funds once the ACH payment request arrives

Question 7

Consumer account

Answer 7

A bank account used for household, family, or personal purposes

Question 8

Pointbreak media case

Answer 8

• pointbreak making fraudulent robot calls to business owners
• obtained remotely created consumer payment orders from some and then continued to withdraw money from these accounts
• FTC made them repay the funds/ give up assets to provide refunds
• also prohibited the company from using payee- initiated fund transfers
• Pointbreak appealed saying they couldn’t run their business without collecting from customers
• court disagreed. Can still collect checks

Question 9

Check as payment

Answer 9

• check is NOT a guarantee of payment, does not create a duty for drawee bank to pay the holder
• check will be paid only it there are sufficient funds in the drawer’s account to cover payment
• does not impose absolute primary liability on the bank at the time the check is written
• international transactions may require proof of credit with the bank to ensure check is covered

Question 10

Check drawn with intent to defraud person to whom delivered

Answer 10

Subject to criminal prosecution in most states - though requires proof drawer knew there were insufficient funds/ that no future funds were coming to change the account balance

Bouncing a check

Mostly: if not made good within stated period (10 days) there is a presumption drawer issued check with intent to defraud

Question 11

Bad check laws

Answer 11

Laws making it a criminal offense to issue a bad check with intent to defraud

Question 12

Postdate

Answer 12

To insert or place on an instrument a later date than the actual date on which it was executed

Changes the character of the check from a demand draft to a time drafts

BUT banks are not obligated to hold the time draft until time written (requires extra paperwork). Banks not required to examine date on each instrument unless customer places hold in the system

Question 13

Time draft

Answer 13

Bill of exchange payable at a stated time after sight or at a definite time

Question 14

Form of checks

Answer 14

Per UCC check can be in any form of writing but bank customers may agree to use certain forms as part of their contract with the bank

Question 15

Form of remotely-created consumer item

Answer 15

Must be evidenced by a record (not necessarily a written document)

Question 16

Record

Answer 16

Information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form

Question 17

Money order

Answer 17

Draft issues by a bank or a non-bank

Question 18

Bank money order

Answer 18

Draft with the bank as both drawer and drawee

Remains a three party instrument even though two parties may be the same entity

Question 19

Cashier’s check

Answer 19

Draft drawn by a bank on itself

“A draft with respect to which one he drawer and drawee are the same bank or branches of the same bank”

Remains a three party instrument even though two parties may be the same entity

Question 20

Teller’s check

Answer 20

A cashier’s check drawn on another bank in which the drawer bank has an account

Question 21

Certified check

Answer 21

A check accepted by the bank on which it is drawn - bank has accepted primary liability on the instrument

Check for which the bank has set aside in a special account sufficient funds to pay it; payment is made when check is presented regardless of amount in drawer’s account at the time; discharges all parties except certifying bank when holder requests certification

Actual certification must be written on the check and authenticated by signature of authorized bank representative. Then money is set aside from the drawer’s account

Question 22

Request for check certification

Answer 22

May be made by holder or drawer

At request of holder releases all prior indorsers and the drawer from liability

At request of the drawer there parties are not releqsee

Question 23

State bank v. Smith

Answer 23

• March 26, 2012: Dale Smith presented (what appeared to be) a cashier’s check drawn on chase bank for $294.5k for deposit into his account with state bank, who accepted it
• following day (March 27th) he requested state bank wire $275k to an account in Japan
• state bank called local chase bank and confirmed: check number, account number, amount in the check, lack of stop payment orders
• state wired transfer per smith’s request
• on March 28th chase returned the check to State marked “refer to maker”. State presented it for payment again and again it was returned
• per chase VP: check was different form than official cashier’s checks written by chase, check number had incorrect number of digits, didn’t include a printed audit number, packed proper signature, missing security symbol
• in deposition: all checks drawn on the account number printed have the same electronically printed authorized signature. Because this check lacked that signature she knew it wasn’t issued by chase
• May 16th: state said filed suit that Chase wrongfully dishonored check
• trial court granted summary judgement for chase, state appealed
• appeals court held for Chase
• lack of a valid signature is a real defense (no one required to pay on an instrument without a valid signature)
• without a valid signature state cannot be a HDC and even if they were an HDC lack of signature is still defense

Question 24

Lost cashier check case

Answer 24

• Jennings obtained a cashier check to pay off car loan
• mailed the check via express mail, requiring a signature
• employee of lender felt check was invalid because it did not have Jennings’ signature on it. Returned it via regular USPS but Jennings never got it
• since Jennings had received proof of receipt of the check she did not make next payment. Got notice of late payment, penalty, and late payment was reported to credit bureau
• lender said since check had been returned late penalty stood
• bank said could issue stop payment order if Jennings paid $1,200 for a bond to cover the amount of check. (As check had been properly issued no simple stop payment possible)

What are Jennings rights?

Question 25

Bank as primary party

Answer 25

Banks are first part to whom holders turn for payment but they do not have primary liability (absolute requirement to pay) on a check. Only required to pay if there are sufficient funds in the account to cover a check.

Banks give provisional credit on a check contingent on adequate funds

Question 26

Presentment requirements for a check

Answer 26

Holder presents check or electronic record for payment in a commercially reasonable manner

If presented in person may be required to show identification

holder must first seek payment from drawee via presentment: secondary obligor is not liable until presentment has been made (to the drawee bank first)

per revised article 3 the party can present the check or a record for payment

if bank pays no liability to drawer

Question 27

Timing of presentment of a check for payment

Answer 27

Must be within a reasonable time after drawers and indorsers have signed the check (if not reasonable discharges secondary obligors of instrument)

If check is NOT certified and is both drawn and payable within the U.S.: must be presented for payment within 90 days. (from date on check or date of issuance, whichever later)

Bank is not obligated to pay a check if it is more than six months after date of issue

If bank dishonors a check the drawer has primary liability

Question 28

Check is overdue

Answer 28

If check has been outstanding over 90 days it is overdue

Can still be honored But no one can be a holder in due course for the check

Holder who takes overdue check is subject to all defenses against payment

Question 29

Time limit for attaching liability to secondary obligors

Answer 29

90 days

Secondary obligors: drawers and indorsers

Question 30

Time limit for attaching liability to an indorser of a check

Answer 30

Must be presented within 30 days of the time that indorsement was placed on the check

30 days is presumed reasonable time

Question 31

Postdated checks

Answer 31

May still be presented for immediate payment. Banks not required to honor post dating

Unless: drawer has given the bank prior notice providing sufficient information so that the bank is moved to action by the trigger that comes from the orderly processing of the check as it flows through it’s electronic processing system.

Question 32

Agreeing to honor an instrument beyond the 90 days limit

Answer 32

Discharges the liability of the secondary obligors

Subjects bank to questions about good faith and reasonable care

Question 33

Bank’s limit for commercially reasonable actions

Answer 33

Six months

Question 34

Processing a presented check

Answer 34

If check is drawn by a customer of depository bank: depository bank can pay holder, credit holder’s account(deposit) or dishonor the check

If check is drawn on another bank: depository bank must run check through electronic processing. Drawee bank has until midnight the next banking day to let depository bank know if dishonoring checl

Question 35

Timing of check processing

Answer 35

May be treated as if transaction was on the following business day if presentment made after close of business day

Banks may chose cutoff time for electronic banking (after which deposits will post the next day) but per UCC it cannot be before 2pm

Question 36

Expedited funds availability act

Answer 36

Imposes time limits for processing and lifting provisional credits on funds availability after presentment or by presenting the check to another (drawee) habk

Question 37

Dishonor of customer check

Answer 37

Once bank decides to dishonor/ has been notified the drawee bank is dishonoring they must provide notice to the customer within the given time limitations (holder then turns to drawer, and if that fails endorsers)

Returning the dishonored check to the customer is sufficient notice of dishonor. Notice may be oral, written, or electronic

holder must then notify the drawer of dishonor by drawee

Question 38

Time limitations on notice of dishonor

Answer 38

Bank: must give customer notice of dishonor by midnight of the next banking day

Non-bank primary parties: must give notice within 30 days following their receipt of notice of dishonor

If notice not given within the UCC time period then the holder may not be able to recover from secondary obligors (drawer)

Question 39

Secondary party liability after notice of dishonor

Answer 39

Must pay according to terms of instrument once primary party has given notice of dishonor

Only limited defenses or presenting party is holder in due course

Question 40

Example: check for Bentley from Paltrow to Sutherland

Answer 40

• Ben Paltrow writes check drawn on first interstate bank, made out to Julia Sutherland as payment on a Bentley
• Julie deposits check at Ameribank who sends it to first interstate for payment
• first interstate finds Ben’s account has insufficient funds and dishonors the check: they must give Ameribank notice by midnight of the next banking day
• Ameribank must notify Julia by midnight of the next banking day after they are notified
• Julia then has 30 days to notify Ben, and turn to him as a drawer/ secondary party for payment

Question 41

Wells Fargo v. Ferruggio insurance services of LA

Answer 41

• Equa gaming had a business account at Wells Fargo
• Ferruggio insurance issued a check to Equa and it was deposited at Wells Fargo on March 12
• sometime between 11th and 12th President of Ferruggio (Hand) and owner of Equa (Carrillo) talked and, since deposited funds would not be available immediately, Hand agreed to put a stop payment on the check and instead wire the funds to the Equa account
• WF posted check on March 14th and funds made available/ debits and withdrawals occured.
• Stop payment directed on March 16th resulting in Equa account becoming overdrawn
• to attempt to recover amount of overdraft WF filed suit against Ferruggio, Equa, and owners of Equa
• Ferruggio claims that agreement between them and Carrillo not to deposit check was defense against their liability for payment
• wells Fargo maintains that they’re a HDC and took check without notice of underlying defenses. Ferruggio says not HDC b/c “did not exercise reasonable commercial standards of fair dealing”
• Ferruggio argued check not taken in good faith since WF had stated policy that funds over $5000 would not be immediately available on deposit. WF says it’s a notice they may do so,not requirement and that they had no notice of dishonor or defense
• ruling: wells Fargo was HDC and no personal defenses from agreement between Equa and Ferruggio could be raised against them. Awarded the money sought.

Question 42

Forgery of drawer signature

Answer 42

When the name of the drawer is signed by another person without the authority to do so, and with intent to defraud by making it appear that the drawer signed the check.

Forgery not effective signature: possessor is not a holder

If bank (payor) pays on check with forged signature bank is liable (unless owner was negligent in allowing forgery)

Question 43

Bank liability for forged signature

Answer 43

Liable without regard to whether the bank could have detected the forgery. Bank presumed to know customers signatures

Question 44

Customer responsibility to protect against forgery

Answer 44

• responsible for reviewing electronic and check payments each month to detect forgeries/ unauthorized payments
• must report unauthorized payments/forged checks to tuebbank “with reasonable promptness”
• failure to review and report could result in customer being partially or fully liable for forgeries/ unauthorized payments that continue over a period following statements that reflect illegal payments (but if bank also doesn’t detect forgery/unauthorized payments it may share in liability)

Question 45

UCC Article 4 forgery protections and rights to alterations or unauthorized drawings

Answer 45

• officer may have limited authority, so if check amount is beyond that authority signature is unauthorized
• if principle drawer to an account is an organization and it has a requirement that two or more designated persons sign instruments, if instrument has fewer than specified signatures it is unauthorized (may be indicated on the check)

Question 46

Warranty and liability of those who transfer an instrument with forgeries

Answer 46

Because all those who pass checked along with indorsements warrant that the signatures are authorized, so anyone who acquired and transferred the check is liable to those harmed by the forgery

Warranty provision for good title and authorized signatures

Question 47

Paige v. Wells Fargo and company

Answer 47

• Bret Gibson leased space from Paige electric
• paid for lease with insurance check received for work on house of Jim Wylie (check was issued by fidelity and deposit co of Maryland and payable to Wiley and Wiley’s insurance company HomeEq- which at time of issue and transfer was owned by wells Fargo)
• Paige called Wylie to confirm indorsements/whether check was negotiable and upon confirmation accepted check for full satisfaction of storage fees and paid Gibson cash for difference (= Paige is HDC?)
• deposited the check at Bankcorp South 6/14/06, wells Fargo made final payment 6/15/06
• 11/1/06 HomeEq submitted affidavit that check wrongfully endorsed. Wells Fargo received it 11/20/06 and notified BancorpSouth, who notified Paige (and placed a hold on their account) on 11/27/06
• December 6th BS rejected forgery claim and released hold

12/31/07 (year later) BS notified Paige of another hold, and on 3/3/08 deducted full amount of check from Paige’s account- Paige filed suit for recovery of funds. Case was dismissed

• Paige said wells breached warranties re: forgeries on negotiable instruments. BUT wells did not have warranty to Paige, rather Paige (in transferring check to BancorpSouth) warranted to BS and WF that all signatures were authentic, meaning that Paige was liable for recovery of funds by WF
• wells Fargo did not follow proper timeline, waited more than 30 days after it had reason to know of breach of warranty before giving notice. Warranties liability is discharged to the extent of the loss caused by the delay in giving notice. BUT Paige failed to raise issue of lack of notice or document it’s losses so dismissal of Paige’s claim stood

Question 48

Overdraft

Answer 48

Negative balance in a drawer’s account

Happens when a bank honors a check for an account where there are insufficient funds (unless there is an overdraft agreement with the customer they do not have to honor the check)

Excess of a payment from an account over the amount on deposit

Treated as a loan from the bank - the bank has the right to take funds from the account when they come in to cover the overdraft amount

Question 49

Duty of privacy

Answer 49

Owed by a bank to it’s customers. Customer information bank acquires cannot be turned over to administrative law enforcement agencies without obtaining: customer consent, subpoena, or search warrant

Question 50

USA Patriot act

Answer 50

Federal law that, among other things, imposes reporting requirements on banks intended to track money laundering or potential funding of terrorist activities

Checks over $10,000 usually trigger bank reporting systems

Question 51

Check clearing for the 21st century act

Answer 51

Check 21

Allows banks to use images of checks as a substitute for paper checks

Has sped up credits to accounts because checks can be recognized immediately once the ATM scans them

Question 52

Stale check

Answer 52

A check whose date is longer than six months ago.

Bank is under no obligation to pay (unless it is a verified check) but may accept the check/charge a customer’s account as long as they’re acting in good faith. Since establishing good faith may be difficult most banks will not cash a stale check until verified with the customer

Question 53

Payment after a depositor’s death

Answer 53

Bank can continue paying items until given notice of the death. Even with notice bank has the right to continue to pay items for 10 days unless the payments are halted by an heir or the government.

If decedent had a checking account for their trust bank can continue to honor ACH payments till estate stops payments

Question 54

Stop payment order

Answer 54

Order by a depositor to the bank to refuse to make payment of a check when presented for payment

If the check is in the hands of a holder in due course the HDC must be paid, regardless of what is happening with the performance of the underlying contract. (If payment of a check is stopped HDC can still demand payment)

Stop payment not available for certified or cashier’s checks

Question 55

Form of stop payment order

Answer 55

May be oral or by record (written or electronic)

If oral: order only binding on the bank for 14 calendar days unless confirmed in writing in that time

Orders are valid for six months and can be renewed for another six months if customer gives the bank a written extension (anyway it is the bank’s decision to honor checks over six months old)

Question 56

Liebling v. Mellon

Answer 56

• Attorney Liebling processed checks on computerized system. System issued a duplicate check to ah incorrect client
• Liebling contacted the client and told her to destroy the check + out a stop payment on the check
• nineteen months later bank honored the check (did not call Liebling first)
• Liebling filed suit for bad faith but court held: bank did not act in bad faith, without a stop payment bank could not be expected to tag one check in the thousands processed daily

Question 57

Wrongfully dishinored

Answer 57

Error by a bank in refusing to pay a check (if check is properly payable and the account on which it is drawn is sufficient to make payment)

Bank is liable to the customer for damages causes by wrongful dishonor (late penalties)

Also liable if bank and customer had contract that the back would pay overdraft items

Question 58

Bank’s liability to holder

Answer 58

(Except for certified checks) the holder has no claim against the bank for the dishonor of the check regardless of the fact that the bank wrongfully dishonored the instrument

Question 59

Bank’s liability

Answer 59

Determined by law of the state where the bank, branch, or office is located

Question 60

Bank’s duty of care

Answer 60

Bank is required to exercise ordinary care in the handling of items

Question 61

Encoding warranty

Answer 61

Warranty made by any party who encodes electronic information on an instrument; a warranty of accuracy

Warranting information is correct

If agreement for electronic presentment: warranting the transfer is made properly for transmissions

Question 62

Liability for losses resulting from counterfeit checks

Answer 62

Depends on whether the bank acted reasonably in it’s progressing systems in clearly checks (especially for large amounts) and if it complied with the time requirements for notifying customers of a dishonor of a deposited counterfeit checks. (After customer may have relied on funds only to have them removed from their account when the counterfeit is recognized)

Question 63

Greenberg, Trager & Herbst llp v. HBSC bank USA

Answer 63

• GHT representing Northlink Industrial Ltd in North American collections. Set $10,000 retainer
• GTH received a $197,7500 Citibank check from a Northlink customer and was told it could take it’s retainer from those funds
• check deposited at HSBC 9/21/07 (Friday)
• Monday 9/24 HSBC processed check through Fed reserve bank of Philadelphia and provisionally credited GHTs account for the amount of the check per legal requirement
• HSBC received notice on 9/25 that check was “sent wrong” (Citi had rejected it due to not recognizing the routing number), assumed it was a routing number issue and sent it to a different federal reserve bank on 9/26. Never told GTH there was an issue (administrative return, not dishonor)
• 9/27 GTH called HSBC to see if check had cleared and was told yes, so they wired the check amount less retainer to Northlink
• 10/2 HSBC received notice from Citibank that the check was we dishonored as suspect counterfeit. At that time they notified GTH and revoked the provisional settlement (charged back GTHs account)
• GTH filed suit that HSBC and Citibank had failed to inform them that the check was returned on the 25th, and that they had been informed funds had cleared
• trial court found that HSBC had no duty under UCC to inform about the “sent wrong” administrative return. (They had notified GTH when check was actually dishonored). Case dismissed
• deposit bank does not owe customers a duty to have effective procedures in place to detect counterfeit checks. Duty is on drawee bank and customers
• additionally banking rules do not allow reliance on oral statements so the alleged oral statement that the check had cleared was hot a misrepresentation

HSBC exercised ordinary care and did not breach any duty.

Question 64

Bank liability for payment over a stop payment order

Answer 64

A bank must be given a reasonable time in which to put a stop payment order into effect.

If bank makes payment of a check after it has been properly notified to stop payment (and there has been sufficient time for the order to be put in the system) the bank is liable to the drawer (customer) for the loss the drawer sustains (in absence of a valid limitation on bank’s liability)

Bank must have full information on stop payment order in order to be held responsible: payee, check number, amount

Question 65

Liability of a bank for payment on a check with a forged drawer signature

Answer 65

Bank is liable to the drawer if it pays a check that has a forged signature (because forgery lacks effect as a signature)

Liability on the bank without regard to whether the bank could have detected the forgery (bank presumed to know it’s customers signatures)

Customer whose signature has been forged may be barred from holding the bank liable if the customer’s negligence substantially contributed to the making of the forgery

Question 66

Imposter rule

Answer 66

An exception to the rules on liability for forgery that covers situations such as the embezzling payroll clerk

If one of the three imposter exceptions applies the instrument is still effectively negotiated even though there may have been a forgery of an indorsement

• when indorser impersonates a payee
• when indorser is a dummy payee (or dummy payee supplied by an employee)

Question 67

Imposter rule: impersonating payee

Answer 67

Includes impersonation of the agent of the person who is named as payee (pretending to be an agent of a corporation to obtain a check payable to that Corp)

Question 68

Imposter rule: dummy payee

Answer 68

When the check preparer intends that the named payer will never benefit from the instrument (dummy payee may be an actual or fictitious person)

When an account owner wishes to conceal the true purpose for taking money from an account may make out a check for a nonexistent debt

Question 69

Imposter rule: dummy payee supplied by employee

Answer 69

When an agent or employee of the drawer has supplied the name to use as payee, intending the payee should not have interest in the paper.

A check that will not go to the payee but rather to the employee who will forge an indorsement and keep the money

This exception imposes responsibility on employers to have adequate internal controls

Question 70

Effect of the imposter rule

Answer 70

If one of the imposter rule exceptions (to bank liability) holds then any person may indorse in the name of the payee

Recognition of the fictitious payee’s signature as valid applies even though the payee of the paper is a fictitious person

Imposter rule applies without regard as to whether the drawee bank acted with reasonable care

Question 71

Unlimited adjusting group v. Wells Fargo bank

Answer 71

• Won Charlie Yi solicited and was given money by investors under the claim he would invest it in equities
• he created his own account at wells fargo, deposited the money there, and later absconded with it
• investors filed against wells fargo to recover losses (claim lack of ordinary care)
• original and appeal court ruling for Wells Fargo
• the checks were made out to and deposited by intended payee, even if not always precise. Since investors intended money to go to Charlie’s company bank is not liable for losses simply because the investors later realized he was untrustworthy. Checks were essentially legitimate
• losses are absorbed by banks when they fail to act in a commercially reasonable manner in honoring checks but in this situation there were no signals anything was wrong.

Question 72

Bank liability for payment on a forged or missing indorsement

Answer 72

Without proper indorsements the person presenting the check is not the holder and is not entitled to demand payment.

If bank honors a check with a forged indorsement it must re-credit the customer’s account upon discovery of forgery/notification of the bank

Liable for loss when pays on a check lacking indorsement

Question 73

Bank remedy for payment on forged and missing indorsement

Answer 73

Bank (like all transferors) can turn to the indorsers and transferors of the instrument for breach of warranty liability - because not all the signatures were genuine /authorized so they did not have title.

Goes back to transferors till responsibility rests with the party who first accepted the forged indorsement (theoretically this party could have verified the signatures)

Question 74

Indorsement by bank on behalf of customer

Answer 74

Bank may make indorsement on behalf of their customer when they deposit an un-indorsed check (unless the check specifically requires the customer’s indorsement)

Cannot supply a missing indorsement for a person who is not a customer

Question 75

Bank liability on alteration of a check

Answer 75

If a check has been altered so the amount to pay has increased the bank is liable to the drawer for the amount of the increase if it makes payment for the greater amount

If there was negligence in the writing of the check or reporting alteration the drawer may be barred from claiming alteration (if the negligence substantially contributed to making the material alteration and the bank honored the check in good faith, observed reasonable commercial standards)

Aka don’t leave blank spaces on your checks

Question 76

Liability of a bank for unauthorized collection of a check

Answer 76

Collecting bank is protected from liability when it follows its customers instructions (not required to verify the customers authority). Person giving wrongful instructions is liable for loss caused by instructions

Payor bank is NOT protected by customer instructions. Absolute duty to make proper payment. If does not make payment it is liable unless protected under estoppel or preclusion rule

Question 77

Time limitations on bank liability for forgery and alteration

Answer 77

If bank recognizes ordinary care but customer fails to review bank statements for unauthorized payments/ fails to notify the bank (within one year from the time the statement is received) then the customer assumed or shares liability

Question 78

Check truncation act

Answer 78

CTA

Gives banks right to substitute electronic images of check for customer billing statements (do not need to supply original checks) as long as image is of sufficient clarity to see details of check

Question 79

Customer rights under Check Act 21

Answer 79

• expired re-credit to account if substitute check was charged to it improperly
• right to see original check if they can explain necessity and are suffering a loss due to an improper charge
• have to challenge a substitute check within 40 days of delivery of monthly statements or date on which the substitute check was made available to them (whichever is later + may be extended for mitigating circumstances)
• bank must then re-credit account or explain why the check was properly charged within one business day
• may call and challenge a payment but without a written demand on a substitute check do not get protections under check Act 21 (protections include fine and overdraft protections,)

Question 80

Time limits on asserting unauthorized signature

Answer 80

Fraudulent drawer signature or alterations: 1 year from time bank statement is received

Forged indorsements: three years

Question 81

Check cashing company and thieves

Answer 81

Thief steals $22,000 UNINDORSED check made out by Sid Salmon to Fred Fisheries

Thief causes check (less check cashing fee) at Corner Check cashing company (CCCC)

Fred notifies Sid of theft who notifies drawee first commerce bank, so when CCCC presents check first commerce refuses to pay.

CCCC claims is a holder in due course

PROPOSED ANSWER: even if CCCC is an HDC (which, did they check ID? Why is someone cashing a check made out to a business?? Isn’t there rules for checks over a certain amount??) forgery or lack of authority is a valid defense against an HDC. Because bank had already been notified of theft bank would be liable to customer if paid out on the check.

If the check had been indorsed then it is bearer paper and unless it was a restrictive indorsement bank would have to honor?

Question 82

Consumer remittance transfers

Answer 82

Electronic funds transfers by consumers for consumer purchases or payments

Question 83

Electronic funds transfet

Answer 83

EFT

Any transfer of funds (other than a transaction originated by a check, draft, or similar paper instrument) that is initiated through an electronic terminal, a telephone, a computer, or a magnetic tape so as to authorize a financial institution to debit or credit an account

Question 84

Consumer financial protection bureau

Answer 84

Established by Dodd -Frank reforms to manage regulation and enforcement of consumer matters

Question 85

Consumer liability for unauthorized use of EFT card

Answer 85

Loss reported within two days of learning of loss/theft: max liability $50

Loss reported before card is used: no liability

Notification after 2 days but before 60 days: max liability $500

Notification after 60 days: unlimited liability (have had two statements issued since loss/ ample opportunity to provide notification)

Question 86

Consumer rights for consumer funds transfers

Answer 86

• have 30 minutes after transfer to cancel it and receive a full refund
• if electronic transfer is via a third party consumers have 180 days from dates funds were made available to the recipient to report errors to the service

Question 87

Credit transfer

Answer 87

When a person making a payment, such as a buyer, requests payment be made to the beneficiary’s bank

Can be governed by article 4A

Question 88

Debit transfer

Answer 88

Transaction where a beneficiary is entitled to payment from a bank according to a prior agreement and requests payment

Excluded from Article 4A

Question 89

Check per UCC 3

Answer 89

i) a draft…payable on demand and drawn on a bank
or
ii) a cashier’s check or teller’s check

Question 90

Money order

Answer 90

draft issued by a bank or a nonbank

Question 91

Cashier’s check

Answer 91

draft drawn by a bank on itself

Question 92

Teller’s check

Answer 92

Draft drawn by a bank on another bank in which it has an account

Question 93

Remotely-created consumer item

Answer 93

items directing payment that are drawn on a consumer account but do not carry a handwritten signature of the drawer

move away from signed checks towards these instruments

Question 94

Demand draft

Answer 94

draft that is payable upon presentment

Question 95

Presentment

Answer 95

Formal request for payment on an instrument

Question 96

Liability to holder for stopping payment

Answer 96

Act of stopping payment may, in some cases, make the drawer liable to the holder of the check.

if drawer has no proper ground for stopping payment drawer is liable to the holder

stop payment order has no affect on negotiable character of check

Question 97

Unauthorized signature or alteration by same wrongdoer

Answer 97

if there is a series of improperly paid items with the same wrongdoer involved customer is only protected for the items paid by the bank before the bank received notification from the customer (during that time customer must examine items or statements and notify the bank. if customer fails to act with reasonable promptness but they can show that bank failed to exercise ordinary care loss may be split between customer and bank)

Question 98

Statute of limitations on liabilities imposed by article 4

Answer 98

action must be commenced within three years after cause of action accrued