CP: Duties and Liabilities of Parties Flashcards
When does a drawee have a duty to honor a customer’s check?
When the customer has sufficient funds to cover the check.
If a customer has insufficient funds, what is the drawee’s duty?
The drawee may choose to honor the check, in which case the customer will be liable to the drawee for the overdraft.
If a bank wrongfully dishonors a check, what is the customer’s remedy?
The drawer can recover damages for whatever harm is proximately caused by the dishonor.
When does the death of a customer affect the drawee’s duty?
The drawee has a duty to stop paying checks when the bank knows of the death and has reasonable time to act on that knowledge.
What does it mean that a bank must honor a check “as drawn”?
The bank cannot charge a customer’s account if the drawer’s signature was forged, for money more than the original order, if the bank pays the wrong person, or if the check is postdated.
What is a stop payment order?
an oral order that is binding on the bank for 14 days unless renewed in writing within that period.
a written stop payment order is binding for six months, renewable within that period in writing.
If the bank pays in spite of a stop payment order, what must the customer show?
The customer has the burden of proving that a loss occurred, and the amount of the loss.
What is the properly payable rule?
If a drawee bank honors a forged or materially altered check, they must re-credit the drawer’s bank account (unless the drawer was negligent).
What are the drawee’s remedies when it cashes a forged or materially altered check?
The thief is always liable, but the drawer is also liable if negligent.
When is the drawer negligent?
Leaving blanks or open spaces on the instrument, failing to follow internal procedures, not looking at bank statements regularly, getting duped by an imposter, or failing to follow company procedures to keep the checkbook out of unauthorized employee hands.
What is the bank statement rule?
Reasonably prudent drawers read their bank statements. If a person fails to read their bank statements and therefore does not promptly report a material alteration, they can be liable for the amount the thief stole (estopped from claiming material alteration).
What is the fictitious player rule?
If you get duped by an imposter, you should have known better - you will be liable to the bank on the amount they defrauded you for.
What is the employee indorsement rule?
An employer is liable for forgeries by an employee who was entrusted with responsibility for handling checks.
