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Payment Systems
South Texas College of Law Houston
Worley, John J.

Payment Systems Outline
–          Introduction
o   Money = medium of exchange currently authorized or adopted by a domestic or foreign government
o   Derivative Title Rule (Latin = Nemo Dat): you can’t greater rights in s/t then your transferor had
§ Nemo dat = applies to goods
o   Negotiability Doctrine: a transferee can get better rights then their transferor. (Ex. the money rule)
§ Applies to money
§ Reason is don’t want question asked about money as to dilute its value in the medium of exchange
o   Money substitutes
§ The law governing commercial transactions should be crafted in light of commercial practices
·         Money rule – under certain conditions, the transferor can get better title then the transferee
o   In the case of money stolen, the true owner cannot recover it, after it has been paid away fairly and honesty by a BFPGF
o   Necessity that currency be readily acceptable as payment for debts, so that a good faith and valuable consideration requirements provide ample protection from pretextual transfers of stolen money from a thief to a third party
§ Good faith = honesty in fact
§ Valuable consideration = bargained for exchange; doesn’t have to be equivalent
o   Since bank notes are not money themselves, but are a substitute for money, the law governing money substitutes should basically the same as the law governing money itself w/ MONEY RULE
o   The money rule does NOT apply to gift recipients of stolen money – a donee of stolen money cannot in good conscience rely on the bounty of a thief to deny restitution to the victim of the theft
§ Examples:
·         Negotiable instruments
o   Instrument is a note if it is a promise
o   Instrument is a draft if it payable to order
§ A promise is payable to bearer if it:
·         States that it is payable to bearer or to the order of bearer or indicates that person in possession of the promise is entitled to payment
·         Does not state a payee; or
·         States that it is payable to or to the order of cash or otherwise indicates that it is not payable to an identifiable person
§ A promise is payable to order if it is payable to the order of an identified person or to an identified person or order
o   Nature of payments
§ Legal tender need not be accepted in all circ

he drawer and drawee are the same bank or branches in same bank
·         Teller’s check – check drawn by one bank on another bank
·         Certified check – check drawn by the bank’s customer and accepted by the drawee bank
o   Certification of the check constitutes bank acceptance of the obligation to pay
o   NO stop-payment order on a certified check
·         Traveler’s check – instrument POD, is drawn on or payable at or through a bank, designated ‘traveler’s check’, requires a countersignature by a person who specimen signature appears on the instrument
§ Note – instrument that contains a promise
·         Promise by one party (maker) to pay another party (payee) a sum of money
·         Certificate of deposits – note issued by a bank
o   An instrument containing an acknowledgement by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money