UCC ARTICLES 3 &4 Flashcards
The UCC divides negotiable instruments into two categories. List these two categories and give an example of each one.
Draft — an order to pay such as a check or share draft.
Notes — a promise to pay such as a loan.
If a check is made payable to “John Doe, Jane Doe,” who can cash the check?
Either John Doe or Jane Doe can cash the check.
There are three types of endorsements discussed in UCC Article 3 — special endorsement, blank endorsement, and restrictive endorsement. Give an example of each of these.
-Special endorsement The check is payable to “John Doe” who endorses the check with his name and adds “Pay to the order of Jane Doe.”
-Blank endorsement The check is payable to “John Doe” and he endorses it “John Doe.”
-Restrictive endorsement The check is endorsed, “Pay Jane Doe only”
If a member claims that a teller’s check, cashier’s check, or certified check purchased from your credit union has been lost, stolen, or destroyed, what rights
does that member have in regard to replacing that check and how soon can a replacement be given to that member?
The member must make a claim on a “Declaration of Loss” statement that reasonably describes the check. It must be received in time to act on the claim
before the check is received at the credit union, and the member must provide proper identification if requested.
Mary member prepared a written document for one of her clients and accepted a check for payment without noticing that the memo line on the check contained the words “Payment in Full.” Mary deposited the check and now wants to know if she has to accept this as full payment since the amount of the check was only half the amount owed to her. What one exception under “Accord and Satisfaction” must be met before the lesser amount must be accepted as full payment of the debt?
Before a lesser amount must be accepted as full payment under “Accord and Satisfaction,” the debtor must have in good faith raised a bona fide dispute over the amount billed for the services.
Because the UCC varies from state to state, which state’s code governs when ABC Credit Union honors a check written on a financial institution in another
state?
The code of the state ABC Credit Union is located in.
Credit unions are subject to the encoding and retention warranties of UCC Article 4. When a credit union encodes a check, what is the warranty given to
any subsequent banks concerning that check?
Encoding a check warrants to any subsequent collecting bank and to the payor bank that the information is correct and must promptly provide credit for the error on demand.
Describe a credit union’s “midnight deadline” under UCC Article 4.
Midnight deadline — an item that will not be paid must be returned by midnight of the next banking day after the banking day the item is received.
Explain a credit union’s rights and responsibilities when a member postdates a check.
Article 3 (§3-113) provides checks can be postdated. However, Article 4 gives the credit union the right to ignore that date. Article 4 also states that if a
member notifies the credit union of a postdated check before that date and in time for the credit union to act, this notice must be treated as a stop-payment notice and should be honored.
