PREP Guide - Regulatory Environment - Part 1 and UCC Flashcards
What is the Uniform Commercial Code (UCC)?
Model law as adopted in each state
The UCC standardizes commercial transactions across states.
What are negotiable instruments?
Definition of negotiable instruments
Negotiable instruments are written documents guaranteeing the payment of a specific amount of money.
What do transfer and presentment warranties cover?
Transfer and presentment warranties for bank deposits and collections
These warranties ensure the legitimacy of checks and deposits in banking transactions.
What does the UCC apply to regarding bank-to-customer agreements?
Applies to provisions of bank-to-customer agreements; addresses RDC deposit/payment/customer relationship
RDC refers to Remote Deposit Capture.
What is Reg CC?
Federal law - applies to availability of funds and collection of checks
Reg CC establishes guidelines for how quickly deposited funds must be made available.
How does Reg CC extend warranties?
Definitions extend Reg CC warranties to image of check
This includes electronic images of checks in banking operations.
What does Subpart C of Reg CC apply to?
Subpart C applies to interbank exchange of electronic checks/electronic returned checks
This subpart governs the electronic processing of checks.
What does Subpart D of Reg CC cover?
Subpart D applies to the substitute check
A substitute check is a digital reproduction of a paper check.
What are ECCHO Operating rules?
ECCHO Operating rules and federal reserve operating circular 3 (OC3)
These rules guide the electronic check clearing process.
What do the ECCHO Operating rules define?
Define terms of exchange (what, where, when)
This includes standard procedures for electronic check exchanges.
What are eligible items in the context of ECCHO rules?
Eligible items and rules for certain types of checks
These items must meet specific criteria to be processed electronically.
What do ECCHO rules provide regarding adjustments?
Define adjustments and operational processes including settlement
Adjustments relate to correcting errors in transactions.
What do ECCHO rules offer regarding regulatory provisions?
Provide exceptions or variations to regulatory provisions
This allows for flexibility in certain operational scenarios.
What does the Uniform Commercial Code (UCC) consist of?
A set of standardized state laws governing financial contracts
First published in 1952 and enacted in all 50 states and other territories.
What does Article 3 of the UCC cover?
Negotiable instruments
It establishes legal standards for instruments like checks and promissory notes.
What is covered under Article 4 of the UCC?
Bank deposits and collections
It outlines the rights and responsibilities of banks and their customers in handling deposits.
How is the Code of Federal Regulations (CFR) structured?
Divided into 50 titles representing broad areas of federal regulation
Each title contains parts that detail specific regulations.
What is the purpose of the CFR Title 12?
Regulations related to Banks and Banking
It includes rules governing financial institutions and their operations.
What does 12 CFR Part 205 regulate?
Electronic Fund Transfers
Known as Regulation E, it sets rules for electronic transactions.
What is the focus of 12 CFR Part 210?
Collection of Checks and Other Items by Federal Reserve Banks
Also includes funds transfers through Fedwire.
What does 12 CFR Part 229 address?
Availability of Funds and Collection of Checks
Known as Regulation CC, it governs when deposited funds must be made available to customers.
What is the general duty established by the UCC for parties in transactions?
To act in good faith and exercise ordinary care
This standard is fundamental to the UCC’s application in financial transactions.
When were Articles 3 and 4 of the UCC revised?
In 1990
These revisions addressed changes in banking practices and negotiable instruments.
Who writes updates to the UCC?
Experts in commercial law
Draft revisions are submitted for approval to the Uniform Law Commission (ULC).
What does UCC Article 3 cover?
Definition and requirements of a negotiable instrument, negotiation, transfer and indorsement, liability of the parties
What are the sample topics included in UCC Article 3?
- Standards of care required for processing checks
- Establishing the identity of the payee
- Contradictory terms of instrument
- Negligence of drawer in case of forgery or alteration
- Forgery and fraud loss allocation
- Transfer and Presentment warranties
What type of instruments may be classified as negotiable instruments?
Drafts or notes
What defines an instrument as a note?
It is a promise to pay
What defines an instrument as a draft?
It is an order to pay; checks are drafts
True or False: A check is classified as a note.
False
What is required for the processing of checks according to UCC Article 3?
Standards of care
Fill in the blank: An instrument is a _______ if it is a promise to pay.
note
Fill in the blank: An instrument is a _______ if it is an order to pay.
draft
What is the liability of the parties in a negotiable instrument?
Defined under UCC Article 3
What is meant by ‘negligence of drawer in case of forgery or alteration’?
It refers to the responsibility of the drawer when a negotiable instrument is forged or altered
What is a blank indorsement?
Payee simply signs his/her name
Blank does not mean unendorsed. Example: John Doe
What characterizes a special indorsement?
Transfers the check to a specified payee
Payee signs check and names party to whom rights are transferred. Example: Pay to the order of Jane Doe and John Doe
What is a restrictive indorsement?
Payee signs check and imposes limitations on transfer
Example: For Deposit Only John Doe
Define anomalous indorsement.
Made by a person who is not the holder of the instrument
Example: John Doe Sr. (check payable to John Doe Jr for mowing lawn)
What does UCC §4-205 address?
Depositary Bank liability of an unindorsed item
Please see for specific legal obligations and implications.
What is a negotiable instrument?
A written instruction signed by the drawer that orders the payment of a fixed sum of money.
What must a negotiable instrument NOT state to be considered unconditional?
It must not state a condition to payment or be subject to another record.
What are the two types of payment timelines for a negotiable instrument?
- Payable on demand
- Payable at definite time
What does ‘payable on demand’ mean?
It means the instrument is payable at sight or indicates payment is at the will of the holder.
What does ‘payable at definite time’ entail?
It is payable after a definite period or at a fixed date that is ascertainable at issuance.
Can the date of a negotiable instrument be changed?
Yes, it may be antedated or postdated.
What happens if a negotiable instrument is antedated?
The bank has the option to pay or not pay the item.
What is the date of an undated negotiable instrument?
It is the date of its issue or the date it is first possessed by a holder.
To whom can a negotiable instrument be payable?
- To order of a named payee
- To bearer
What does it mean if a negotiable instrument is payable to bearer?
It states that it is payable to the bearer or does not specify a payee.
If a negotiable instrument does not state a payee, who is entitled to payment?
The person in possession of the order is entitled to payment.
What does it mean if a payment is ‘payable to order’?
It means the payment is made to a named payee or to bearer.
‘Payable to order’ indicates that the payment is directed to a specific individual or entity.
UCC
When is a payment considered ‘to bearer’?
A payment is ‘to bearer’ if it states that it is payable to:
* Bearer or to the order of bearer
* To cash
* Not payable to an identified person
* Does not state a payee
‘To bearer’ allows anyone in possession of the document to claim the payment.
What is required for the negotiability of an instrument?
The following are required:
* Amount - value of the instrument
* Date of instrument - day on/after which the amount of check (value) transfers
* Payee - name of person/organization to receive amount (value) of the instrument
* Drawer’s signature – authorization for payee bank (drawee) to disburse funds
What is the significance of the date of the instrument in negotiability?
It indicates the day on/after which the amount of check (value) transfers.
Who is the payee in the context of an instrument?
The name of the person/organization to receive the amount (value) of the instrument.
What does the drawer’s signature authorize?
It authorizes the payee bank (drawee) to disburse funds.
What is the result of the transfer of possession of an instrument?
The transfer results in the holder becoming another person or bank who becomes the holder as a result of the transfer.
Fill in the blank: The amount represents the _______ of the instrument.
[value]
True or False: A drawer’s signature is not necessary for the disbursement of funds.
False
What is a Holder?
Person in possession of a negotiable instrument that is payable either to bearer or to an identified person.
What defines a Holder in Due Course (HIDC)?
Holder that has possession of the item and:
* Took the item in good faith
* Took item for value
* Without notice the signature was unauthorized or the item altered
* Without notice the instrument was overdue or dishonored
* Without knowledge of any claims against it
True or False: Not every holder is a holder in due course.
True
What is the benefit of being a holder in due course?
Can enforce the item against the drawer even if item was returned unpaid by drawee (paying bank)
What does UCC §3-302 state regarding overdue instruments and HIDC?
Includes provision that item cannot be overdue or dishonored, which can affect ability of holder to claim holder in due course status.
UCC
What is considered an overdue instrument?
An instrument that is a check and is payable on demand is considered overdue the later of:
* Day after the day demand for payment is made
* 90 days after its date
What is the UCC §3-405 related to?
Employer’s Responsibility regarding fraudulent indorsements
UCC §3-405
What are the two categories of fraudulent indorsements made by employees?
- Indorsement made in name of employer on an instrument payable to the employer
- Indorsement made in name of payee on an instrument issued by employer
UCC §3-405
What constitutes a fraudulent indorsement by an employee?
Checks written, stamped, or deposited fraudulently using the company’s account
UCC §3-405
Who is typically liable for fraudulent indorsements made by employees?
Employer, not the paying bank
UCC §3-405
What must be true about the employee in relation to the checks?
Employee was entrusted with responsibility for checks by that employer
UCC §3-405
What is a requirement for the bank in cases of fraudulent indorsements?
Bank was not negligent
UCC §3-405
Fill in the blank: An indorsement made in the name of the employer on an instrument payable to the employer is considered a _______.
fraudulent indorsement
UCC §3-405
True or False: The paying bank is liable when an employee makes a fraudulent indorsement.
False
UCC §3-405
What does § 3-405 of the Uniform Commercial Code (UCC) address?
The responsibility of employers for fraudulent indorsements made by their employees
UCC §3-405
What is included in the definition of an ‘employee’ under § 3-405?
Independent contractors and their employees
UCC §3-405
What constitutes a ‘fraudulent indorsement’?
A forged indorsement, either pretending to be the employer or the named payee
UCC §3-405
What does ‘responsibility’ refer to in the context of § 3-405?
Authority over instruments, such as signing, processing, or controlling their disposition
UCC §3-405
What is excluded from the definition of ‘responsibility’?
Mere access to stored or transported instruments
UCC §3-405
What happens if an employer entrusts an employee with responsibility for an instrument and the employee forges an indorsement?
The indorsement is deemed effective if made in the name of the intended payee
UCC §3-405
Under what condition may liability shift when handling an instrument?
If the person handling the instrument fails to exercise ordinary care, contributing to the loss
UCC §3-405
How is an indorsement considered made in the name of the payee?
If it is made in a substantially similar name or deposited into a corresponding account
UCC §3-405
What does § 3-405 outline regarding fraud involving employee-handled instruments?
Measures to determine rights, liabilities, and the standard of care expected
UCC §3-501
What is the definition of Presentment?
Presentment refers to a demand for payment or acceptance of an instrument made by or on behalf of a person entitled to enforce it.
UCC §3-501
Who can Presentment be made to?
Presentment can be made to the drawee, a payor, or a bank.
UCC §3-501
Where must Presentment be made if the instrument is payable at a U.S. bank?
Presentment must be made at the instrument’s place of payment.
UCC §3-501
What methods can be used for Presentment?
Presentment can be conducted by oral, written, or electronic means.
UCC §3-501
When is Presentment effective?
Presentment is effective upon receipt.
UCC §3-501
What may be required from the person making Presentment?
The person may be required to exhibit the instrument, provide identification or evidence of authority, sign a receipt, or surrender the instrument if fully paid.
UCC §3-501
What can the party receiving Presentment do if there are missing indorsements?
The party may return the instrument for missing indorsements.
UCC §3-501
What can the party receiving Presentment do if the terms do not align?
The party may refuse payment/acceptance if the presentment does not align with the instrument’s terms, agreements, or applicable laws.
UCC §3-501
What is the minimum cut-off hour for Presentment?
The cut-off hour for Presentment may not be earlier than 2 p.m.
UCC §3-501
What happens if Presentment is made after the cut-off hour?
Presentment made after an established cut-off hour may be treated as if it occurred on the next business day.
UCC §3-501
What does this section aim to provide during the process of Presentment?
This section provides rules to ensure clarity and fairness during the process of making demands for payment or acceptance of financial instruments.
UCC §3-501
What is presentment according to UCC §3-501 (d)?
Demand for payment made to drawee
Presentment is a crucial step in the payment process under the Uniform Commercial Code.
UCC §3-501
What factors should be considered for presentment?
Location for presentment
The location can be determined by the agreement of the parties involved.
UCC §3-501
How can presentment be made?
By any commercially reasonable means including:
* Oral communication
* Written communication
* Electronic communication (if authorized)
The means of presentment may vary based on what the parties have agreed upon.
UCC §3-501
When is presentment effective?
When demand for payment is received by drawee
This is essential for the initiation of payment obligations.
UCC §3-501
What must be provided to the drawee during presentment?
The instrument unless otherwise agreed by the parties
This includes any specific agreements regarding electronic presentment.
UCC §3-501
Under what conditions may a drawee return or refuse payment?
For:
* Lack of a necessary indorsement
* Failure of presentment to comply with terms of the instrument, agreement of parties, or applicable law
It is important for the drawee to comply with legal and contractual obligations.
UCC §3-501
What can a drawee establish regarding presentment timing?
A cut-off hour
This affects how presentments are processed and may lead to next business day treatment.
UCC §3-501
What happens when presentment occurs?
Starts several processes including:
* UCC and Reg CC return clocks
* UCC Midnight deadline (UCC§4-302)
* Reg CC Expeditious return requirements (Reg CC §229.31(b))
* Paying bank requirement to settle for a properly payable item (UCC §4-401)
These processes dictate the timelines and responsibilities of banks following presentment.
UCC §3-501
What is the UCC Midnight deadline?
Midnight of the banking day following the day of presentment
This deadline is critical for the processing of returned items.
UCC §3-501
What are the Reg CC Expeditious return requirements?
Received by the depositary bank by 2:00 pm local time the second day following day of presentment
This regulation ensures timely processing and return of checks.
UCC §3-501
What defines a properly payable item according to UCC §4-401?
Item authorized by the customer and in accordance with agreement between customer and bank
This ensures that payments are made only for valid and authorized transactions.
UCC §3-501
What right does a paying bank have regarding a customer’s account?
To charge the customer’s account if they choose to do so under their customer account agreement
This is part of the bank’s rights and responsibilities in managing customer accounts.
UCC §3-416 TRANSFER WARRANTIES
What is the main purpose of UCC § 3-416?
To ensure that transferors guarantee the authenticity, validity, and enforceability of the instruments they transfer.
UCC §3-416 TRANSFER WARRANTIES
What warranties does a transferor provide when transferring an instrument?
- They have the right to enforce the instrument.
- All signatures on the instrument are genuine and authorized.
- The instrument has not been altered.
- The instrument is free of claims or defenses against the transferor.
- They are unaware of any insolvency proceedings involving the maker, acceptor, or drawer.
- For remotely-created consumer items, the charged account authorized the item and amount.
UCC §3-416 TRANSFER WARRANTIES
What can a transferee who took the instrument in good faith recover from the transferor for a breach of warranty?
Damages limited to the value of the instrument plus additional losses such as interest or expenses.
UCC §3-416 TRANSFER WARRANTIES
True or False: Warranties for checks can be disclaimed.
False
UCC §3-416 TRANSFER WARRANTIES
What happens if a claimant delays notifying the warrantor after discovering a breach?
The warrantor’s liability is discharged to the extent of losses caused by the delay.
UCC §3-416 TRANSFER WARRANTIES
When does a breach of warranty claim arise?
When the claimant becomes aware of the breach.
UCC §3-416 TRANSFER WARRANTIES
Fill in the blank: A person transferring an instrument for consideration guarantees the transferee that they have the right to _______.
[enforce the instrument]
UCC §3-416 TRANSFER WARRANTIES
What is the limitation on recovery for a breach of warranty?
Limited to the value of the instrument plus additional losses.
UCC §3-416 TRANSFER WARRANTIES
What should a transferee do if they discover a breach of warranty?
Notify the warrantor within 30 days.
UCC § 3-417 PRESENTMENT WARRANTIES
What establishes key protections and responsibilities during presentment in UCC § 3-417?
Presentment warranties
This section ensures fairness and accountability in transactions involving drafts.
UCC § 3-417 PRESENTMENT WARRANTIES
What does the person presenting an unaccepted draft guarantee to the drawee?
They are entitled to enforce the draft or act on behalf of someone who is, the draft has not been altered, they are unaware of any unauthorized signature of the drawer, and for remotely-created consumer items, the account holder authorized the issuance of the item and its amount.
These guarantees protect the drawee from fraud and errors.
UCC § 3-417 PRESENTMENT WARRANTIES
What can a drawee recover for breach of warranty?
Damages, including the amount paid, expenses, and interest losses.
Breach of warranty can also be a defense if the drawee accepts the draft.
UCC § 3-417 PRESENTMENT WARRANTIES
What defenses can a warrantor use against claims of unauthorized indorsement or alteration?
Proving the indorsement was valid under specific UCC sections or showing the drawer is precluded from asserting such claims under other sections.
Relevant sections include § 3-404, § 3-405, § 3-406, and § 4-406.
UCC § 3-417 PRESENTMENT WARRANTIES
What is warranted when a dishonored draft is presented for payment and paid?
The presenter and prior transferors warrant their entitlement to enforce the instrument.
This protects the parties involved in the transaction.
UCC § 3-417 PRESENTMENT WARRANTIES
What warranties cannot be disclaimed for checks according to UCC § 3-417?
Undisclaimable warranties
Liability may be discharged if the claimant fails to notify the warrantor of a breach within 30 days of discovery.
UCC § 3-417 PRESENTMENT WARRANTIES
When does a cause of action for breach of warranty arise?
When the breach is discovered.
Timely discovery is essential for enforcing the warranty.
UCC § 3-417 PRESENTMENT WARRANTIES
True or False: A drawee can recover damages for breach of warranty even if they accepted the draft.
True
Breach of warranty can be used as a defense in such cases.
What does UCC Article 4 cover?
Check collection, payment, liabilities, time frames and responsibilities
UCC Article 4 addresses various aspects of banking transactions, specifically regarding checks.
UCC Article 4
Can any provision under Article 4 be varied?
Yes, by agreement between bank and customer
This includes all provisions except the bank’s duty to act in good faith and exercise ordinary care.
UCC Article 4
What is one of the topics included in UCC Article 4?
Customer’s right to stop payment
Other topics include check collection processes and bank responsibilities.
UCC Article 4
What is the bank’s option regarding stale-dated items?
The bank has the option not to pay stale-dated items
Stale-dated items are checks that are presented for payment after a certain period.
UCC Article 4
What must a customer do regarding unauthorized signatures?
Report unauthorized signatures
This is part of the customer’s obligations under UCC Article 4.
UCC Article 4
What is required of the bank concerning customer statements?
Send or make available a customer statement of account
The statement must show payment of items or provide sufficient information to identify items paid.
UCC Article 4
What does UCC §4-110 mention regarding electronic presentment?
Presentment of image or other information by agreement
This allows for a more flexible approach to presenting checks electronically.
UCC Article 4
What may an agreement for electronic presentment include?
Procedures governing retention, presentment, payment, dishonor and other matters
These procedures are subject to the specific agreement between the bank and customer.
UCC Article 4
True or False: Presentment of an item must always be by delivery of the item itself.
False
Presentment may occur through transmission of an image or information describing the item.
UCC Article 4
Fill in the blank: UCC Article 4 discusses the bank’s duty to act in _______.
good faith
This duty cannot be varied by agreement.
UCC Article 4
What does the term ‘presentment notice’ refer to?
Information describing the item rather than the delivery of the item itself
This is part of the electronic presentment process.
UCC Article 4
When may a bank charge a customer’s account?
A bank may charge for a properly payable item even if it creates an overdraft or if payment was made before the check date.
A customer must provide timely notice to the bank of the postdating.
UCC Article 4
What does UCC state about stale dated checks?
The UCC states a bank is under no obligation to pay a check presented more than six months after its date, except for certified checks.
The bank may choose to charge its customer’s account but is not obligated to do so.
UCC Article 4
What is a postdated item?
A postdated item is a check that is dated for a future date.
UCC Article 4
What is the time limit for presenting a check under UCC before it is considered stale dated?
More than six months after its date.
UCC Article 4
True or False: A bank must pay a stale dated check if it is presented after six months.
False.
UCC §4-205 DEPOSITARY BANK HOLDER OF UNINDORSED ITEM
What is a Depositary Bank?
Holder of unindorsed item as per UCC §4-205
UCC §4-205 DEPOSITARY BANK HOLDER OF UNINDORSED ITEM
When does a depositary bank become the holder of an item?
At the time it receives the item for collection
UCC §4-205 DEPOSITARY BANK HOLDER OF UNINDORSED ITEM
What condition must be met for a depositary bank to be the holder of the item?
The customer must be the holder of the item at the time of delivery
UCC §4-205 DEPOSITARY BANK HOLDER OF UNINDORSED ITEM
Does the customer need to indorse the item for the depositary bank to hold it?
No, whether the customer indorses the item or not does not affect this
UCC §4-205 DEPOSITARY BANK HOLDER OF UNINDORSED ITEM
What warranties does the depositary bank provide to the collecting bank, payor bank, and drawer?
Amount of item was paid to customer or deposited into the customer’s account
UCC §4-207 TRANSFER WARRANTIES
What do transferors guarantee when transferring an item and receiving settlement?
They guarantee the following:
* They are entitled to enforce the item.
* All signatures on the item are authentic and authorized.
* The item has not been altered.
* The item is free from defenses or claims in recoupment against the transferor.
* They are unaware of any insolvency proceedings involving the maker, acceptor, or drawer.
UCC §4-207 TRANSFER WARRANTIES
What additional requirement applies to remotely-created consumer items?
The person whose account is charged authorized the item and its amount.
UCC §4-207 TRANSFER WARRANTIES
What obligation does a transferor have if an item is dishonored?
The transferor must pay the amount due to the transferee or subsequent collecting banks.
UCC §4-207 TRANSFER WARRANTIES
Can the obligation to pay for dishonored items be disclaimed?
No, the obligation cannot be disclaimed, even with statements like ‘without recourse.’
UCC §4-207 TRANSFER WARRANTIES
What can a transferee who acted in good faith recover for damages due to breach of warranty?
They can recover damages equal to their losses, capped at the amount of the item, plus expenses and interest losses.
UCC §4-207 TRANSFER WARRANTIES
Are warranties for checks disclaimed?
No, warranties cannot be disclaimed for checks.
UCC §4-207 TRANSFER WARRANTIES
What happens if a claimant fails to notify the warrantor of a breach within 30 days?
The warrantor’s liability may be discharged.
UCC §4-207 TRANSFER WARRANTIES
When does a cause of action for breach of warranty arise?
When the breach is discovered.
UCC §4-207 TRANSFER WARRANTIES
What is the purpose of UCC § 4-207 regarding transfer warranties?
It outlines the protections and responsibilities tied to transferring items, ensuring accountability in the banking process.
UCC § 4-208 PRESENTMENT WARRANTIES
What does UCC § 4-208 ensure in presentment-related transactions?
Accountability and fairness in presentment-related transactions
This section outlines the warranties and rights involved in the presentment of drafts.
UCC § 4-208 PRESENTMENT WARRANTIES
What do presenters and prior transferors warrant to the drawee when presenting an unaccepted draft?
They warrant that:
* They are entitled to enforce the draft or act on behalf of someone who is entitled
* The draft has not been altered
* They are unaware of any unauthorized signature by the drawer
* For remotely-created consumer items, the account holder authorized the issuance and amount of the item
These warranties establish the legal basis for the drawee’s reliance on the presentment.
UCC § 4-208 PRESENTMENT WARRANTIES
What can the drawee recover for a breach of warranty?
The drawee can recover:
* The amount paid
* Expenses
* Interest losses
This recovery is essential to protect the drawee from financial losses due to breaches.
UCC § 4-208 PRESENTMENT WARRANTIES
Does failure to exercise ordinary care by the drawee eliminate their right to recover damages?
No
The drawee retains the right to recover damages despite any failure to exercise ordinary care.
UCC § 4-208 PRESENTMENT WARRANTIES
What defenses can a warrantor use against claims?
A warrantor can defend by proving:
* The indorsement was effective under certain UCC provisions (e.g., § 3-404, § 3-405)
* The drawer is precluded from making claims due to negligence or other factors (§ 3-406, § 4-406)
These defenses are important for protecting warrantors from unjust claims.
UCC § 4-208 PRESENTMENT WARRANTIES
What warranties do presenters and prior transferors provide when a dishonored draft is presented and paid?
They warrant that they are entitled to enforce the item or act on behalf of someone who is
This warranty is crucial in transactions involving dishonored items.
UCC § 4-208 PRESENTMENT WARRANTIES
What can a person making a payment for a dishonored draft recover?
The person can recover:
* The amount paid
* Expenses
* Interest losses
This ensures that parties who have acted in good faith can recover their losses.
UCC § 4-208 PRESENTMENT WARRANTIES
Can warranties for checks be disclaimed?
No, these warranties cannot be disclaimed for checks
This rule reinforces the reliability of check transactions.
UCC § 4-208 PRESENTMENT WARRANTIES
What happens to warrantors’ liability if a claimant delays notifying them of a breach?
Warrantors are discharged from liability if the claimant delays notifying them for more than 30 days after discovery
Timely notification is essential for maintaining the warrantor’s responsibilities.
UCC § 4-208 PRESENTMENT WARRANTIES
When does a cause of action for breach of warranty arise?
When the breach is discovered
This timing is crucial for determining the validity of claims.
UCC § 4-208 PRESENTMENT WARRANTIES
What does it mean when a warranty is disclaimed?
It means that the party providing the item or service is explicitly removing or limiting their liability for specific warranties.
Essentially, they are stating that they will not guarantee certain aspects or conditions that might otherwise be implied by law or expected in the transaction.
UCC §4-209 ENCODING AND RETENTION WARRANTIES
What is the Encoding Warranty according to UCC §4-209?
A person who encodes information on or with respect to an item after issue warrants to any subsequent collecting bank and the payor bank that the information is encoded correctly.
UCC §4-209 ENCODING AND RETENTION WARRANTIES
Who makes the Encoding Warranty if a customer of a depositary bank encodes information?
The bank makes this warranty.
UCC §4-209 ENCODING AND RETENTION WARRANTIES
What is a Retention Warranty?
A person who undertakes to retain an item pursuant to an agreement for electronic presentment warrants to any subsequent collecting bank and payor bank that retention and presentment of the item complies with the agreement.
UCC §4-209 ENCODING AND RETENTION WARRANTIES
Who makes the Retention Warranty if the customer of the depositary bank undertakes the retention?
The bank makes this warranty.
UCC §4-209 ENCODING AND RETENTION WARRANTIES
Fill in the blank: A person who undertakes to retain an item pursuant to an agreement for electronic presentment warrants to any subsequent collecting bank and payor bank that retention and presentment of the item complies with the _______.
[agreement]
UCC § 4-215 FINAL PAYMENT
What constitutes final payment of an item according to UCC §4-215?
An item is finally paid by the payor bank when they have:
* Paid for the item in cash
* Made a provisional settlement
* Settled for the item without the right to revoke settlement
This reflects the conditions under which a payor bank is considered to have completed the payment process for an item.
UCC § 4-215 FINAL PAYMENT
When is an item considered finally paid if a provisional settlement was made?
An item is finally paid if the payor bank fails to revoke the settlement in the time permitted by statute or clearinghouse rule, or agreement
This indicates the importance of adhering to time limits established by relevant statutes or agreements.
UCC § 4-215 FINAL PAYMENT
True or False: An item is finally paid if a provisional settlement is made for an item that does not become final.
False
A provisional settlement that does not lead to a final payment means the item is not considered finally paid.
UCC § 4-215 FINAL PAYMENT
Provisional debits or credits between presenting and payor banks (or successive collecting banks) become final upon…
the payor bank’s final payment.
UCC § 4-215 FINAL PAYMENT
A collecting bank is accountable to its customer for the item’s amount, and any provisional credit becomes final when they receive..
a final settlement.
UCC § 4-215 FINAL PAYMENT
If the bank is both the depositary and payor bank, when does the credit for an item in a customer’s account become available for withdrawal?
At the start of the second banking day after receiving the item.
UCC § 4-215 FINAL PAYMENT
When does the credit for an item in a customer’s account become available for withdrawal when they bank is not both depositary and payor?
When the provisional settlement becomes final, and the item is not returned within a reasonable time.
UCC § 4-215 FINAL PAYMENT
For direct deposits of cash (not checks or items), the funds are available on…
the next banking day after receipt.
UCC §4-403) CUSTOMER’s RIGHT TO STOP PAYMENT
What is the UCC §4-403 regarding a customer’s right to stop payment?
A customer or person authorized on an account may stop payment of any item drawn on the account, except for cashier’s checks.
UCC §4-403) CUSTOMER’s RIGHT TO STOP PAYMENT
What is required for a stop payment order to be effective?
It must be done in a manner that affords the bank reasonable opportunity to act.
UCC §4-403) CUSTOMER’s RIGHT TO STOP PAYMENT
How long is a stop payment order effective?
For 6 months, but lapses after 14 calendar days if the original order was oral and not confirmed in a record.
UCC §4-403) CUSTOMER’s RIGHT TO STOP PAYMENT
How can a stop payment order be renewed?
It may be renewed for an additional 6-month period by a record given to the bank within the effective period of the current stop payment.
UCC §4-403) CUSTOMER’s RIGHT TO STOP PAYMENT
Who has the burden of proof for loss in the context of a stop-payment order?
The customer must prove the fact and amount of loss caused by the bank paying an item against a stop-payment order.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
What is the customer’s duty regarding unauthorized signatures or alterations according to UCC §4-406?
The customer must examine the bank statement promptly and report any unauthorized items.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
What does UCC §4-406(c) require from the bank?
The bank must provide a statement (or items paid) to the customer.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
What must a customer do if they find an unauthorized item on their bank statement?
The customer must promptly notify the bank.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
Is the term ‘promptness’ specifically defined in the UCC?
No, it is not specifically defined in the UCC but should be defined within the bank agreement.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
What does UCC §4-406(f) establish regarding unauthorized signatures?
It establishes a second preclusion for the customer’s failure to notify the bank.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
What is the time limit for a customer to report unauthorized signatures or alterations according to UCC §4-406(f)?
One (1) year after the statement or items are made available.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
True or False: A customer can claim an unauthorized signature or alteration if they report it after one year.
False.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
Fill in the blank: The customer who does not discover and report unauthorized signature or alteration within one year _______.
cannot claim the unauthorized signature or alteration.
UCC§4-406 CUSTOMER DUTY TO DISCOVER & REPORT UNAUTH SIGNATURE/ALTERATION
What factors may affect the ‘promptness’ of reporting required of the customer?
It may vary by state.
