Drawer vs. Drawee Flashcards
Properly Payable rule
1) Bank must pay checks that are properly payable and must not pay checks that are not properly payable
2) properly payable means authorized by the drawer
Stop payment order
1) oral valid for 14 days
2) written orders valid for 6 months and can be renewed
Stale Checks
checks are payable for 6 months from date of issue
Post dated checks
1) presumption that still payable on demand
2) BUT bank must honor post dating only if:
(a) customer provides notice of postdating to the bank describing the check with reasonable certainty
(b) notice received in time and manner which gives bank reasonable opportunity to act on it
(c) notice effective for 14 days for oral, 6 months if in writing
Checks paid after drawer’s death
banks may continue to pay checks for 10 days after drawer’s death
Overdrafts: properly payable?
YES!
Drawer liability: Forgery or Alteration general rule
1) Drawer is not liable for forgery or alteration on check or forged indorsement
2) Bank must recredit alleged drawer’s account as check was not properly payable UNLESS bank has a defense
Bank Defenses: Drawer’s negligence generally
1) may “validate” forgery or altercation
2) precludes in whole or in part (contributory negligence) customer from asserting properly payable rule
3) drawer’s negligence substantially contributes to the forgery of the drawer’s name the drawer may not raise the forgery
Bank Defenses: Duty to inspect bank statements, general rule
1) customer has duty to inspect bank statement and canceled checks in timely manner and report forgeries to the bank
2) if customer does not and bank can prove a loss beyond original mistaken payment, customer precluded
3) forged signatures must be reported to the bank within 1 year regardless of bank’s or customer’s negligence
Forged indorsements: bank liability
1) brearer paper: doesn’t matter because indorsement not needed to negotiate
2) order paper: breaks the chain of title and check is not properly payable and bank must recredit account
Bank Defenses: imposter rule
1) maker or drawer is deemed to have acted negligently in issuing the check and thus contributed to the forgery
2) issuer maker or drawer will be precluded from denying the validity of a forged instrument
Bank Defenses: Fictitious payees (employees)
1) drawer is in best position to police employees so she bears responsibility
2) forgery is treated as a valid indorsement
Bank Defenses: Employees responsible for check writing
1) if an employer entrusts an employee with responsibility with respect to handling or processing instruments
2) the employee forges
3) indorsement is effective
4) payee is estopped form asserting the forgery
Bank Defenses: Employees break into checks, write them but not authorized to
1) employer is not liable
2) bank must recredit account
3) so long as employer was not negligent
