Duties and Liabilities of Parties Flashcards
What is the core duty of a bank (drawee)?
1) Honor customer’s check, provided there are sufficient funds to cover it.
NOTE: A bank my choose to honor a check even in the absence of insufficient funds, at which point the customer is liable for overdraft fees).
What happens if the bank wrongfully dishonors a check?
The customer can recover damages for whatever harm is proximately caused by the wrongful dishonor.
Does the death of a customer revoke the bank’s authority to pay a check?
Not until the bank:
1) knows of the death; AND
2) has reasonable time to act on that knowledge
The bank must honor the check as drawn - what does that mean?
It cannot charge the customer’s account if:
1) the drawer’s signature was forged;
2) for more money than the original order (i.e. due to alteration of amount by third party);
3) the bank pays the wrong person (i.e. due to forgery of payee or indorsee’s signature)
4) the check is post-dated.
For how long is an oral stop-payment order binding on then bank?
Written stop payments?
If the bank pays in spite of a stop payment order, who has the burden of proving that a loss has occurred and the amount of the loss?
14 days, unless renewed in writing within that period.
6 months, renewable every six months in writing.
The customer.
What is the properly payable rule (with regard to forged checks)?
The drawee bank that honors a forged check or materially altered check must reaccredit the drawer’s account, as long as the drawer was not negligent
What are the bank’s remedies in the event of a forged check?
The thief is always liable
The drawer is also liable if negligent
When is the drawer negligent (forged checks)?
Negligence includes:
1) Leaving blanks/spaces on the instrument
2) Failing to follow internal protocol designed to avoid forgeries (e.g. by keeping signature stamp in same unlocked drawer’s as company’s checks)
3) Failure to examine one’s bank statement (the bank statement rule)
4) Being induced by an imposter to write a check (the fictitious payee rule)
5) Forgeries by an employee entrusted with responsibility for handling checks (employee indorsement rule)
Under the bank statement rule, what result if a customer fails to report a forgery or alteration within a reasonable time?
He is estopped from demanding re-credit from the bank
This means that the customer MUST READ the statement to uncover errors and take prompt action to notify the bank of any found.
