Misc. Issues Flashcards
How can a holder of an instrument discharge the obligation?
The instrument can be discharged by:
1) Surrendering it to the obligor
2) destroying the instrument
3) cancelling it / writing void
What is the effect of payment by certified check, cashier’s check or teller’s check?
The underlying obligation is discharged as if the person was paid in cash.
What is the effect of payment uncertified checks and notes?
Underlying obligation is only suspended
Once the check and note is actually paid, then the obligation will be discharged
What are the options of the holder if an uncertified check or note held is later dishonored for payment?
They can sue on either instrument or under the underlying obligation.
How can a person not in possession of an instrument enforce it?
1) Person must have been entitled to enforce it when the loss occurred
2) The loss was not due to transfer or lawful seizure
3) Person cannot reasonably obtain the original.
4) Protection for payor is required such as security or a bond.
Can a bank charge a customer’s account even if it produces an overdraft?
Yes
Does post-dating a check affect when the check is paid?
Generally No - check is payable on demand
How can a customer prevent a post-dated check from being paid?
The customer must give the bank notice of the postdating and must describe the check with reasonable certainty.
The request must be received at a time and in a manner that gives the bank a reasonable opportunity to act.
What party has the authority to order stop payment orders?
Drawer - the bank’s customer. Other parties have no authority to do so.
Is written or oral notice of the order stop payment stronger?
Written notice is stronger
How long is a stop order payment effective for?
6 months and can be renewed
When does a stop order payment lapse if the original order was given orally?
It lapses after 14 calendar days if the original order was oral and was not confirmed in writing within the 14 day period
What should a written stop payment order contain?
Signed by Drawer Dated by Drawer Describe the check with reasonable certainty Contain the account number Contain the amount of the check
What standard is used to determine if the stop order payment has the necessary information?
Whether a reasonably prudent banker with the information provided will be able to locate the check.
What defenses can the bank raise if it pays out over a stop payment order?
1) The stop payment order did not comply with the requirements
2) No Loss- Customer would have had to pay the check even if the payment had been stopped. Requirement to pay could be due to the fact that the current holder is a HDC.
Who is entitled to order a stop payment order for a cashier’s check or a teller’s check?
The bank can issue the stop payment.
The remitter cannot.
The bank risks liability for expenses, lost interest, and consequential damages if it orders a stop payment.
What is a wrongful dishonor?
When the drawee bank dishonors a properly payable check - when you have money in the bank but the bank bounces the check.
Who has standing to complain about a wrongful dishonor?
The drawer can bring an action against the drawee bank for bouncing the check.
Does the payee have a cause of action against the Drawee bank if the bank refuses to pay the check?
No - payee cannot sue even if the bank should have paid and the drawer had sufficient funds to cover the check.
What damages can the drawer recover from the drawee for a wrongful dishonor?
Can recover all damages caused by the wrongful dishonor such as the bounced check fee and expenses incurred defending prosecution for allegedly writing a check without funds.
What are the defenses that the drawee bank can raise in response to a wrongful dishonor claim?
1) Payment would have caused an overdraw on the drawer’s account.
2) Check is more than 6 months hold - bank can honor a stale check as long as it does so in good faith.
What is a payment in full check?
A check or accompanying communication on which the drawer conspicuously indicates that cashing the check acts as payment in full of an existing obligation which is subject to a bonafide dispute.
What is the effect of cashing a check marked “paid in full”
It operates as an accord and satisfaction of the underlying obligation
What are exceptions to the receipt of a check paid in full being an accord and satisfaction?
1) Payee returns the money within 90 days
OR
2) Payee is an organization and had previously notified the drawer of a particular person or address to send payment in full checks to
Can you opt of negotiability for commercial paper?
Yes - unless it is a check.
Can you opt out of negotiability by writing on the face of the check?
No
True or False: If order/bearer langauge is only one element of negotiability missing for a check, it is waived.
True
A bank ____ charge customer’s account if the charge creates an overdraft.
Can
What is the rule regarding post-dated checks?
Bank can pay the post dated check unless:
1) The customer gives the bank notice of the post dating; and
2) Describes the check with reasonable certainty.
Who can stop payment on a check?
Drawer - Bank’s customers.
How long does an oral stop payment order last?
14 days - if not confirmed in writing within the 14 day period
How long does a written stop payment order last?
6 months
What is required for a written stop payment order to be valid?
The order must describe the check with reasonably certainty - listing the account number, check number and amount
What is required in order for stop order payment to be valid?
Bank must have a received reasonable time and notice in a reasonable manner that allows the bank reasonable opportunity to act.
Defenses to Stop Order Payment
1) Improper procedure
2) No Loss- customer would have had to pay the check anyway.
Who can stop payment on casher’s and teller’s check?
Bank only
Wrongful dishonor
The drawer can bring an action against the drawee bank.
Payee has no standing to do so
What damages can drawer recover for wrongful dishonor?
All damages of the wrongful dishonor
Defenses to Wrongful Dishonor
Payment would cause overdraft
Check is over 6 months old - its stale.
True or False: Bank may honor a stale check if it does so in good faith.
True
What is the effect of an indorsement that states “without recourse”
Passes title but cuts off contractual liability.
How does indorser liability work?
Indorsers are liable to each other in the order of signatures. Sue prior indorsers for payment.
Sue on the indorser’s contract.
Against whom can the first indorser in the chain previal?
Only against Maker or Drawer
What is required for an indorser to be liable?
1) Presentment
2) Dishonor
3) Notice of Dishonor
True or False: Right to establish presentment liability is gone after 30 days.
True - liability is discharged after 30 days
When must notice be given for breach of an indorser’s contract?
30 days
When do you use under Indorser’s contract?
Payor has not paid the instrument at all. If it has paid must sue under the warranties.
