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Payment Systems
University of Nebraska School of Law
Wilson, Catherine Lee

Ø      Four concerns of any payment system
§         (1) needs to be understood in a mechanical sense of how value actually gets transferred from one person to another
§         (2) each system has rules about how a person incurs the obligation to pay, when the person is obligated to pay, and how the obligation to pay is satisfied
§         (3) obligation to pay is to someone else, and obligee
§         (4) each payment system has rules allocating the risks of errors and wrong doing such as theft etc.
Ø      Diversity of legal rules in payment systems
v     CASH
Ø      Cash Analysis (with primary concerns questions):
§         Value is transferred by..
·        Cash—by hand, physically
§         An obligation to pay is incurred when
·        Cash—no obligation, because it is a matter of payment
§         The obligation may be enforced by
·        Cash—see above
§         The person who has the money bears the risk of theft/counterfeiting, etc
·        Cash—Yes, see below case????
Ø      UCC §1-201(b)(24) “Money”. Substantively identical to former Section 1-201. The test is that of sanction of government, whether by authorization before issue or adoption afterward, which recognizes the circulating medium as a part of the official currency of that government. The narrow view that money is limited to legal tender is rejected
Ø      Should cash be the model for other payment systems?
Ø      How did the Federal Reserve Note become “legal tender” in the US?
Ø      Is a bona fide purchaser of cash, who takes the dollar in good faith for the valuable consideration, liable to the true owner for conversion or theft?
§         City of Portland v. Berry
·        Facts: Husband and wife had tenant. Wetzel was convicted of theft of money using counterfeit bills. Plaintiff sought the action to determine who the bills belonged to
·        Issue: Whether the bills belongs to the P or D
·        Holding: Bills belong to bank. If the good faith and valuable consideration requirements are met. If the Bank took the money in good faith and for good consideration, the appellants have no ownership right to be asserted
·        Notes:
¨      General rule, action of replevin lies with recovery of personal property to the P that has the right to immediate possession
¨      Court dismisses the replevin argument
¨      The money ruleà currency passes to the good faith purchaser of value
Ø      History
Ø      What Rules apply?
§         UCC
·        Only the contract between the cardholder and the merchant, is even potentially governed by the UCC; if for the sale of goods then its subject to Article 2
¨      Otherwise Credit cards are governed by TILA

al person to whom a credit card is issued for consumer credit purposes, or a natural person who has agreed with the card issuer to pay consumer credit obligations arising from the issuance of a credit card to another natural person…
¨      (14) Credit means the right to defer payment of debt or to incur debt and defer its payment
¨      (15) Credit card means any card, plate, coupon book, or other single credit device that may be used from time to time to obtain credit. Charge card means a credit card on an account for which no periodic rate is used to compute a financial charge
¨      (17)(i) A person (A) who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than 4 installments (not including a down payment), and (B) to who the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract
(22) Person means a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust or government unit