Other Issues

Question 1

When may a holder discharge an obligation?

Answer 1

By: (1) voluntary acts such as surrendering or destroying instrument or striking out signature; or (2) renouncing rights in signed writing
* For payment by certified, cashier’s, or teller’s check, this discharges as if person paid in cash
* For uncertified checks and notes, obligation only suspended and, if dishonored, holder may sue on the instrument or underlying obligation

Question 2

If an instrument is lost, destroyed, or stolen, when will the person be entitled to enforce the instrument?

Answer 2

By showing:
1. They were in possession of the instrument and entitled to enforce it when loss occurred (i.e., a holder)
2. The terms of the instrument, and
3. The facts that prevent production of the original instrument

Question 3

What is a bank’s option if sufficient funds are not on deposit to cover the draft?

Answer 3

The bank may choose to honor the check, in which case the customer is liable for the overdraft

Question 4

What is the effect of a postdated check?

Answer 4

The bank may pay postdated check unless the customer gives the bank notice of the postdating

Question 5

How long is a “stop payment order?”

Answer 5

• An oral stop payment order is effective for 14 days and then lapses unless confirmed in writing within that period
• A written stop payment order is binding for 6 months and the bank must be given reasonable time to act
• “No loss defense”–when there is an HDC in the chain of transferees of the item, even if payment had been stopped, the customer would have had to pay HDC

Question 6

What happens when a bank wrongfully dishonors your check?

Answer 6

May bring an action and collect damages for harm proximately caused by the wrongful dishonor, such as the bounced check fee and expenses incurred defending prosecution for writing bad checks
* Payee of the check can’t sue the bank

Question 7

What are the bank’s defenses to wrongful dishonor?

Answer 7

(1) Payment would overdraw drawer’s account
(2) Check is more than 6 months hold–bank may honor, if done so in good faith, but is not obligated to
* Drawer is still liable for 10 years

Question 8

What is a payment in full check?

Answer 8

A check on which the drawer conspicuously indicates that cashing the check acts as payment in full of an existing obligation that is unliquidated or subject to a bona fide dispute
* Effect–accord and satisfaction
* Exception if: (1) payee returns money within 90 days or (2) payee is an organization and sends notice before instrument is tendered