Assignment 1 – The Basic Relationship and the Banks Right to Pay Checks
A bank only has to pay a check if it is authorized by the customer and there is sufficient funds in the account to pay the check
Order – a signed written instruction to pay money
Draft – a negotiable instrument that is an order
Check – draft payable on demand where the drawee is a bank
Item – instrument, promise or order to pay money handled by a bank for collection. Debit and credit card and wire transfers are excluded.
Properly Payable – (1) item authorized by customer and (2) in accordance with any agreement between the customer and bank. Forged signature or indorsement is not properly payable.
Subrogation – standing in the shoes of another; having the same rights as if the other person.
When may bank charge customers account?
– when it is properly payable, even if it creates an overdraft
– customer is not liable if (1) he neither signed the item (2) nor benefited from the proceeds
Post-dated checks – properly payable unless;
(1) notice is given of postdating describing the check w/ reasonable certainty; and
(2) bank is afforded a reasonable opportunity to act on it
Stop payment order is effective for six (6) months, but lapses after fourteen (14) days if original order was oral
If payor bank pays an item over the order of the drawer or maker to stop payment, payor bank is subrogated to payee and drawer
When a check is taken for an obligation, the [underlying] obligation is suspended. Suspension continues until check is dishonored or paid
Article 4 may be varied by agreement
– bank cannot disclaim responsibility for lack of good faith or failure to exercise ordinary care
– agreement controls unless it is manifestly unreasonable
Article 4 does not regulate fees
– overdraft, stop payment, etc.
Assignment 2 – The Banks Obligation to Pay Checks
When are funds deposited available in account?
– cash – when deposited
– items – when the bank is sure it has received final payment
– EFAA preempts UCC with hard deadlines
A bank checks for funds whenever it decides to
– only one determination must be made
– if a second determination [purpose of reevaluation] is made, the bank must use that balance
Bank under no obligation to pay a check, other than a certified check, if it is presented more than six (6) months after its date, but may charge customers account if in good faith
– banks usually wouldn’t pay checks w/o consulting depositor
Local or nonlocal check, $100 available next day after deposit
Local Check
Nonlocal Check
Noncash
Day 1: $100
Day 2: Remainder
Day 1: $100
Day 5 : Remainder
Cash
Day 1: $100
Day 2: $400
Day 3: Remainder
Day 1: $ 100
Day 5: $400
Day 6: Remainder
Exceptions to 229.10 (c) & 229.12:
(1) For a large deposit (
g day it receives a notice or item unless extended by the Reg. CC
Item is returned when SENT
How long does bank have to return a check successfully?
(1) before it pays
– paid in cash (different than depositing then withdrawing cash)
– settled for item w/o right to revoke under statute, CH rule, or agreement
– made provisional settlement and failed to revoke settlement in time/manner permitted
(2) before Midnight deadline passes
– may fix hour of 2 p.m. or later as a cutoff hour – treated as received on next banking day
– separate banks treated as such for computing time
(3) Reg. CC return obligation
– 2 day/4 day rule
– payor bank returns check in expeditious manner if check received by 4pm by depository bank the 2nd business day following the banking day on which check was presented to payor bank if local, or 4th business day for nonlocal
– forward collection rule
– waives midnight deadline as long as the payor bank delivers the check to the transferor by the first banking day after the deadline
– expeditious means of transportation
– Ex. waive midnight deadline (Wed), on Thursday payor bank (NY) send on overnight carrier to get to depositary bank (SF) on Friday
(4) Reg. CC notice obligation
– if $2500 or more
– must give by 4pm the 2nd business day after the banking day when
