Payment Systems Outline

Molony_
Payment Systems
Spring 2011
§  Types of PS
o   Barter
o   Currency
o   Stored value cards
o   Credit cards
o   Debit cards
o   Neg instr
§  Checks, prom notes, etc – Art 3 & some Art 4
o   Letters of credit
o   EFT
§  Purpose of PS – to move value from one person to another
§  Goals of PS
o   Efficiency
o   Low trans cost
o   Consistency/predictability/confidence
o   Uniformity
§  Legal Tender
o   31 USC 53 – US coins & currency are legal tender for all debts
§  will discharge all debts
o   Money – 1-201(b)(24) – a medium of exchange currently authorized or adopted by a domestic or foreign gvmt
§  Counterfeit Currency
o   18 USC 472 & 473 & 492
§  all counterfeit monies found in possession w/o permission shall be forfeited to US
§  Damaged Currency
o   31 CFR 100.5(a)
§  if more than ½ of original – US will exchange it
§  if less – only exchange if can provide to Director that missing portion was completely destroyed
o   31 CFR 100.6
§  no relief if was totally destroyed
§  Stolen Currency
o   City of Portland v. Berry
§  UCC 2-403(1) – purchaser of goods acquires all title which his transferor had or had power to transfer except that a purchaser of a limited interest acquires rights only to the extent of the interest purchased
·         Dealing with personal property only – not legal tender
§  Take-aways
·         Could always recover from actual thief – bills, value of bills, etc
·         Can’t get bills from 3rd party if took in good faith & for valuable consideration
§  Most common NI
o   Checks
§  ALL checks are NI – is a requirement to be a check
o   Notes
§  Not all notes are negotiable
§  NI – Elements/Characteristics
o   Is a Contract
§  Assignment of Rights
·         Assignee subject to all defenses buyer has against assignor
·         If assignee is a holder in due course – MIGHT not be subject to the defenses
o   Get “super” rights
o   NI changes assignment rights/defenses
§  Delegation of Duties
·         Delegate obligation to deliver, etc
·         Delegator NOT off the hook
o   Unless novation occurs (effectively new agmt w/replacement person)
·         NI doesn’t change delegation duties/defenses
o   Is Property
§  Has to be tangible
§  3-104(a)
o   Written
§  1-201(b)(43)
§  printing, typewriting, intentional reduction to tangible form
o   Signed
§  1-201(b)(37)
§  signed (any symbol executed or adopted with present intention to adopt or accept writing) by person giving instruction or order
o   Must be a promise or an order
§  3-103(a)(8) or (12)
§  undertaking (promise) or instruction (order)
§  mere acknowledgement is not undertaking
§  mere authorization is not instruction
o   to pay money
§  medium of exchange adopted by dom/foreign gvmt
o   Promise/Order must be unconditional
§  3-106
§  unconditional unless it states:
·         express condition to payment
·         subject to/governed by another record
·         rights/obligations w/respect to the promise or order are stated in another record
§  NOT made conditional if:
·         Mere reference to another record
·         By reference to another record for stmt of rights w/respect to collateral, prepayment or acceleration
·         Bc pymt limited to resort to particular fund or source
·         By req of countersignature as condition to pymt
·         By including stmt, required by state or admin law, that rights or holder or transferee are subject to claims/defenses issuer could assert against original payee
o   Must be to pay fixed amount of money (w/w/o interest or other charges)
§  3-112
§  only the principal must be fixed
§  no interest payable unless instrument requires
§  interest may be fixed/variable amt of money or based on fixed or variable rates
·         ex. Prime Rate + 3%
·         LIBOR + 5% — rate at which banks loan money to each other
·         Amt or rate may require reference to info not in instrument
·         Payable at judgment rate if interest to be paid, but not determinable from description
o   Is it payable to bearer or to order
§  3-109
§  bearer
·         states payable to Bearer
·         states payable to O of B
·         otherwise indicates possessor entitled to payment
·         doesn’t state payee
·         pay to cash or unidentified person
·         otherwise indicates not payable to identified person
§  order
·         to order of identified person
·         to an identified person/order
·         MUST STATE “PAY TO THE ORDER OF”
§  if not payable to bearer – then payable to order
o   is it payable to O at time of issue or first in possession of holder
§  time of issue or first in possession of holder
·         issue is first delivery by maker or drawer to another person for purpose of giving rights on instrument to any person
·         holder is person in possession, if payable to bearer, and identified person, if payable to order
o   is it payable on demand or at a definite time?
§  3-108
§  on demand
·         states payable on demand at sight
·         otherwise indicate that it is payable at the will of the holder
·         not state any time of pymt
§  at a definite time
·         payable on elapse of definite period of time after sight or acceptance
·         payable at fixed dates OR
·         payable at times readily ascertainable at issue
·         may be subj