Chapter 34 - Checks and Electronic Transfers

CHAPTER 34

CHECKS AND ELECTRONIC TRANSFERS

LEARNING HINTS

1. The deposit agreement between the depositor and the drawee/payor bank establishes important relationships between those two parties. For example, the depositor becomes a creditor of the bank to the extent of his deposits. The bank is that person’s agent for collection of any check deposited by the depositor. In addition, the bank owes a duty to the depositor to follow his reasonable instructions concerning payment of checks and other items from his account.

2. If the bank receives a properly drawn and payable check on a person’s account and there are sufficient funds to cover the check, the bank is under a duty to pay. If the person has sufficient funds in the account and the bank refuses to pay the check, the bank is liable for the actual damages proximately caused by its wrongful dishonor of the check, as well as consequential damages.

3. The bank’s duty to pay a check may be terminated, suspended, or modified by the depositor’s order to stop payment. What is a stop payment order? Under what circumstances is it effective?How long is it effective, and does its effectiveness depend upon whether the stop payment order is verbal or written?

4. A cashier’s check is different from a certified check because a cashier’s check is a check on which the bank is both the drawer and the drawee. For this reason, the bank is primarily liable on this check. The bank also is primarily liable on a certified check because the bank, when it certifies (or accepts) the check, it substitutes its promise to pay the check for the drawer’s promise to pay.

5. Discuss the key elements of the mandatory funds availability schedules implemented as a result of the Expedited Funds Availability Act.

CHAPTER OUTLINE AND KEY CONCEPTS

  1. Learning Objectives
  1. The Drawer-Drawee Relationship
  2. Describe the deposit agreement between the bank and its customer.
  3. Bank’s Duty to Pay
  4. Bank’s Right to Charge to Customer’s Account

1.Stale Checks

2.Altered and Incomplete Items

3.Limitations on Bank’s Right or Duty

4.Postdated Checks

  1. Stop-Payment Order
  2. Bank’s Liability for Payment after Stop-Payment Order

1. Example: Seigel v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 745 A.2d 301 (D.C. Ct. App. 2000)

  1. Certified Check
  2. Cashier’s Check
  3. Death or Incompetence of Customer
  1. Forged and Altered Checks
  2. Bank’s Right to Charge Account

1. Example: Cincinnati Insurance Company v. Wachovia Bank National Association, 72 UCC Rep.2d 744 (U.S.D.C., D. Minn. 2010)

  1. Customer’s Duty to Report Forgeries and Alterations
  2. Multiple Forgeries or Alterations
  3. Example: Union Planters Bank, N.A. v. Rogers, 57 UCC Rep.2d 236 (Sup. Ct. Miss. 2005)
  1. Check Collection and Funds Availability
  2. Check Collection

1.Example: Valley Bank of Ronan v. Hughes, 61 UCC Rep. 2d 277 (Sup. Ct. Montana 2006)

  1. Funds Availability

1. Describe the Expedited Funds Availability Act and its purpose.

C.Check 21

1. What are the key components of the Check Clearing for the 21st Century Act?

  1. Electronic Transfers
  2. Electronic Funds Transfer Act (EFTA)

1. Example: Kruser v. Bank of America NT & SA, 281 Cal.Rptr. 463 (Cal.Ct.App.1991)

  1. Wire Transfers
  2. E-Checks (Cyberlaw in Action)

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