UCC Neg. Instr.

Responsible Employee Rule 3-405

3-405, makes fraudulent indorsements of either the company's or a third-party's name effective if they are made by an employee the employer has entrusted with "responsibility with respect to instruments." An employer is in a better position to control check frauds perpetrated by the employer's agents than the banks b/c the employer hires and supervises the employees. Tip -The rule only applies to employee who makes deposits, prepares checks, supplies information in order to have a check cut, or processes checks received by the employer but does not apply to other employees. Tip - look for negligence on behalf of the bank which may supersede this rule. Bank would share the liability with the employer.

Check Writing Machines and Forgeries 3-110(b)

Check made and signed by automated means the payee of the check is determined by the intent of the person who supplied the name of payee whether or not they were authorized to do so.

Sureties Right of Exoneration

Exoneration is an equitable right by which the surety, at maturity of the instrument, can compel the Principal (maker) to perform instead of the Surety. This tactic is used to try and prevent the Surety from paying and then turning around and suing the Principal for Reimbursement.

The Bank Statement Rule 4-406

Extension of Negligence Rule and states that a customer must examine their bank statement with "reasonable promptness" or they are estopped from asserting claims of unauthorized signatures/forgeries and seeking recredit to their account UNLESS the customer can show that the bank suffered no loss by their tardiness to report the forgery. i.e. if the forger also had an account at the bank then bank can recredit customers account and take the funds from forger's account. This rule gives the bank the ability to pass liability of forgery back to the customer. Tip - there is an absolute rule of 1 year limit which negates any claim of negligence on the bank. under 4-406(f)

Restrictions on Provisional Credit Schedules - aka "Escape Valves."

Types of deposits where a bank does not have to comply with the availability rules listed in EFAA (1) New Accounts (2) Large Deposits (3) Redeposited Checks (4) Repeated Overdrafts (5) Reasonable Cause Exception (6) Emergency Conditions

What is the Statute of Limitations (SOL) for an action to enforce an obligation to duty or right under Art. 4?

Under Art. 4 of the UCC the SOL is 3 years after the cause of action accrues.

Definitions of Types of Banks

(1) "Bank" means a person engaged in the business of banking, including a savings bank, savings and loan association, credit union, or trust company. (2) "Depositary Bank" means the 1st bank to take an item even though it is also the payor bank, unless the item is presented for immediate payment over the counter; (3) "Payor Bank" means a bank that is the drawee of a draft; (4) "Intermediary Bank" means a bank to which an item is transferred in course of collection except the depositary or payor bank; (5) "Collecting Bank" means a bank handling an item for collection except the payor bank; (6) "Presenting Bank" means a bank presenting an item except a payor bank.

Negotiability Concept

(1) A writing; that is (2) Signed; with an (3) unconditional Promise (note) or Order (check); to pay (4) A fixed amount of money; and must not (5) contain conditions or requirements (except as in 3-104(a)(3); and that is (6) Payable on demand or at a definite time; to a (7) Bearer or Order; with no (8) Express Conditions

Second Element Necessary for Indorser Liability to Transfer to Maker Dishonored Draft (Check)

(1) If a check is duly presented for payment to the payor bank otherwise than for immediate payment over the counter, the check is dishonored if the payor bank makes timely return of the check or sends timely notice of dishonor or nonpayment. (2) If a draft is payable on demand and paragraph (1) does not apply, the draft is dishonored if presentment for payment is duly made to the drawee and the draft is not paid on the day of presentment. (3) If a draft is payable on a date stated in the draft, the draft is dishonored if (i) presentment for payment is duly made to the drawee and payment is not made on the day the draft becomes payable or the day of presentment, whichever is later, or (ii) presentment for acceptance is duly made before the day the draft becomes payable and the draft is not accepted on the day of presentment. (4) If a draft is payable on elapse of a period of time after sight or acceptance, the draft is dishonored if presentment for acceptance is duly made and the draft is not accepted on the day of presentment.

Second Element Necessary for Indorser Liability to Transfer to Maker Dishonored Note

(1) If the note is payable on demand, the note is dishonored if presentment is duly made to the maker and the note is not paid on the day of presentment. (2) If the note is payable at or through a bank or the terms of the note require presentment, the note is dishonored if presentment is duly made and the note is not paid on the day it becomes payable or the day of presentment, whichever is later. (3) If the note is not payable on demand and paragraph (2) does not apply, the note is dishonored if it is not paid on the day it becomes payable.

Non-Holder Person Entitled to Enforce Instrument - UCC 3-301(a)

(1) the holder of the instrument, (2) a non holder in possession of the instrument who has the rights of a holder, or (3) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

Discharge by Cancellation or Renunciation - UCC 3-606

(a) A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument (1) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party's signature, or the addition of words to the instrument indicating discharge, or (2) by agreeing not to sue or otherwise renouncing rights against the party by a signed record. (b) Cancellation or striking out of an indorsement pursuant to subsection (a) does not affect the status and rights of a party derived from the indorsement. (c) As used in this section, "signed," with respect to a record that is not a writing, includes the attachment to or logical association with the record of an electronic symbol, sound, or process to or with the record with the present intent to adopt or accept the record.

"The Four Legals" Responses Banks Are Obligated to Take Action

1) Notice - depositors death, incompetence, third party claiming interest 2) Stop-Payment 3) Service of Process 4) Banks Right to Set-Off Tip - Also need to know the time limitations for each of the Four Legals

Rights of Sureties

1) Reimbursement 2) Exoneration 3) Subrogation 4) Contribution 5) Collateral

Sight Drafts in Practice

8 Simple Steps in Transactions using Sight Drafts (SD): 1) Buyer contacts seller and orders quantity of goods ;then 2) Seller creates a (SD) with Seller's Bank as the payee (for value received & charged to the account of Buyer); then 3) Seller ships goods to warehouse in Buyer's area; and then 4) Seller endorses (at a discount) the SD over to Sellers Bank and gives them a Bill of Lading (BoL) and receives payment from Sellers Bank; then 5) Seller's Bank endorses SD over to Buyers Bank while at the same time; 6) Buyer confirms shipment of goods has arrived at warehouse; then 7) Buyer either pays Buyers Bank or authorizes release of funds from his account to Sellers Bank 8) Buyer goes to warehouse with the BOL and SD marked PAID and picks up his goods.

Bill of Lading (BoL)

A Bill of Lading (BoL) is a negotiable instrument issued by a carrier (or his agent) to acknowledge receipt of a shipment of cargo and can be applicable 3 main functions: (1) it is a conclusive receipt, i.e. an acknowledgment that the goods have been loaded;[and it contains or evidences (2) the terms of the contract of carriage; and (3) it serves as a document of title to the goods. Bills of lading are one of three crucial documents used in international trade to ensure that exporters receive payment and importers receive the merchandise. The other two documents are a policy of insurance and an invoice. Whereas a bill of lading is negotiable, both a policy and an invoice are assignable.

A Forged Check Payee's Signature vs Drawer's Signature 3-403 3-404 3-405

A Drawer's forged signature is not enforceable and thus the instrument is not valid. An Indorser's or Payee's forged signature is only enforceable against the person who forged the signature by the party who takes or pays the instrument in good faith. Not effective to negotiate the instrument so following a forgery of the payee's name no later transferee can qualify as a holder. See Price Rule - 1) Drawer's signature forged = payor bank liable. 2) Payee's name forged = depository bank liable.

Recoupment - UCC 3-305(a)(3)

A claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought.

Price Rule 3-418

A drawee who pays a check takes the risk of a forged drawers signature. However, under 4-406 a customer has duty to discover and report unauthorized or forged checks in a "reasonably prompt time" in order to have their account re credited. Tip - Reasonably prompt is USUALLY 30 days after the customer gets their bank statement. The promptness time limits are laid out in the banking customer agreement.

Alterations under 3-407(b)

A fraudulent alterations completely discharges any non-negligent person whose negotiable instruments contract is changed by the alteration. Tip - if the alternated instrument is taken with notice then the original maker is COMPLETELY discharged. However if the payor bank takes the altered instrument with out notice and in good faith then the original maker is still liable for the original amount.

The Negligence Rule aka Negligence Contributing to Forged Signature or Alteration. 3-406

A party may be estopped to complain about the forgery when that party's own negligence Substantially contributed to the forgery. e.x. Maker of a check leaves enough space in the amount line for a forger to easily alter the amount of the check the maker should be liable to the drawee bank or depository bank who is presented the check for deposit. e.x. business has 2 people with the same or similar names and issues a check payable to one but mails it to the other and that person forges indorsement the business's mistake makes them at least partially if not wholly liable even though the indorsement was forged.

Properly Payable Rule under 4-401

A payee of a post-dated check may still cash the check before the date of the check and the bank will not be liable for paying the check UNLESS the drawer of the check gave their bank proper notice of the post dated check.

Ratification of Unauthorized / Forged Signature 3-403(a)

A person can be estopped from claiming conversion against the bank. Additionally the forger does not have liability to the banks under the UCC. Tip - ratification does not eliminate criminal penalties against the forger.

Check Truncations System

A process where paper checks are photographed after they are cashed and reduced to an electronic signal which contains: (1) item number (check number) (2) amount; and (3) date of payment.

Accommodated Party's Rights Against Accommodation Party

Accommodated Party who pays the obligation has no rights of recourse for contribution or reimbursement from Accommodation Party.

Accommodated Party

Accommodated party is a party to an instrument for whose benefit an accommodation party signs and incurs liability on the instrument. She is the person for whose benefit an accommodation is made.

Accommodation Party's Obligation Party

Accommodation Party (surety) can sign as Maker, Drawer, Acceptor or Indorser and will be obligated to pay the instrument in the capacity in which the Accommodation Party signs. i.e. if they sign as Maker then they have the same obligation as the original Maker. If they sign as Indorser then they are only liable in that capacity (and has rights of an indorser: presentment, notice of dishonor, etc.)

Accommodation Party

Accommodation Party is a person who signs negotiable instrument for the purpose of being a Surety for another party (called accommodated party) to help them obtain a loan or an extension of credit. Accommodation Party receives no value or benefit for taking on the liability. Also known as "Co-Signer" or "Surety"

2 Prong Test for Determining Whether Account is "Repeatedly Overdrawn"

Account is considered repeatedly overdrawing if : (1) the account balance is negative on 6 or more banking days within the preceding 6 months; OR (2) if on two or more banking days within the preceding 6 months the account was negative $5k or more.

What is a Negotiable Instrument under UCC Art. 3-104(a)

An unconditional promise (note) or order to pay (check) a fixed amount of money, w/ or w/out interest or other charges described in the promise or order, if it: (1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

If someone gives you a check as the payee and it was deposited in your account at your bank how quickly may you withdraw the funds?

Answer: as soon as your bank will let you. Tip - certain types of checks are regulated by federal law. If the payee and drawer each have an account at the bank the check is drawn on the you have the right to remove the funds the at the opening of the 2nd banking day following the deposit.

If someone gives you a check as the payee and you present it to the bank for payment across the counter how quickly must the bank pay or dishonor it?

Answers: that same day before the close of business.

When there is a Conflict between rules stated Art. 3 and rules stated Art. 4 of UCC which rule set will prevail

Article 4 will prevail over Article 3.

Banks Liability for Conversion or Accepting Checks that are Not Properly Payable

Bank is liable for either conversion or "not properly payable" rule but not both.

What is a "Defect" which would eliminate a party's HIDC status?

Defect would exist if the holder had notice that (1) the instrument is overdue or (2) has been dishonored or that (3) there is an uncured default with respect to payment of another instrument issued as part of the same series, (4) notice that the instrument contains an unauthorized signature or has been altered, (5) notice of any claim to rescind a negotiation or recover the instrument or its proceeds. (6) without notice that any party has a defense or claim in recoupment described in Section 3-305(a).

New Account Exception

During the first 30 days after opening a new account a bank does not need to provide provisional credit except for: (1) cash deposits (2) gov checks (3) wire transfers (4) cashiers, tellers, certified checks

Next Day Availability for Special Items

EFAA Availability Rules states that the following types of checks are to be available the next banking day. (1) Any check issued by any branch of Gov e.g. federal, state, local checks. (2) Bank Checks where a bank is primarily liable. i.e. cashier, teller and certified check (3) Wire Transfers

Rules Regarding Provisional Credit for Check Deposits

Federal Rules (Dodd Frank Act) states that $200 is available to the payee the next day and the remainder must be available for check writing purposes on the 2nd banking day following the deposit. However, if the customer wants to take cash out he can only get up to $400 by 5pm on the 2nd banking day with the full amount available for cash on the start of the 3rd banking day following deposit. NonCash Use: Day 1 - $200 Day 2 - Remainder (up to $5k per day) Cash Use: Day 1 - $200 Day 2 - $400 Day 3 - Remainder (up to $5k per day)

Final Payment Rule

Following final payment the payor bank bears the risk of any mistaken payment. 2 exceptions to Final Payment Rule: (a) presentment warranties; or (b) common law restitution. Tip - Final payments rules apply for split deposits (i.e. deposit part of the check and pays the other part in cash over-the-counter). Tip - Final payment can only be made by the payor bank.

Drawee Obligation

General Rule - The K is between the Drawer and Payee. A bank (drawee) is not obligated to cash a check (distribute funds to payee) even if the funds are available in the account. Thus a payee has no recourse against the drawee unless the bank accepts the check and does not return it after dishonoring the check then the payee has recourse against the bank. However the payee has a claim against the drawer and the drawer has a claim for wrongful dishonorment against the drawee.

Written Digits vs Written Numbers on Negotiable Instruments

General Rule is Words over Numbers.

Holders-in-Due-Course (HIDC)

HIDC is a person who has received a Neg. Instr. (1) for value, (2) in good faith, (3) without notice of some defect.

Defenses Holder has against "Defects"

Holder can try to maintain HIDC if they can prove they only found out (notice) about the defect after the instrument was negotiated. However, there cannot be any "apparent" evidence of a defect at the time the instrument was negotiated. This is the "smell test" and the holder must look for alterations, forgery or other circumstantial evidence surrounding the transaction and origination of the instrument.

General Rule - "The Collateral Follows the instrument."

If a negotiated instrument indicates that there is collateral securing the note and the security does not follow the note then it will be deemed that there was "notice" of the impairment of the instrument and therefore the new owner of the note will not enjoy HDC status.

Fictitious Persons 3-404(b)

If a person issues a check to a fictitious payee anyone who is in possession of the check is a holder and anyone who endorses the check in the name of the fictitious payee is effective. Tip - 3-404(b) only applies to those situations where the person issuing the check does not intend the person identified as the payee to ever get the check or the issuer makes the payee a fictitious person.

Imposter Rule 3-404(a)

If maker of a check writes a check payable to an imposter that check is properly payable to any person who indorses the check. Tip - the law places the burden on the person writing the check to make sure they are paying the right person; it is not the bank's job.

Reasonable Cause Exception

If the Bank has "reasonable cause" to believe that a check is uncollectible then the bank may ignore the Provisional Credit rules and give notice to the customer stating the reasons it is not making the funds available. Reasonable Cause exists whenever "facts which would cause a well-grounded belief in the mind of a reasonable person" Circumstances where exception applies - Bank has received notice that a check is being returned, the check is state (more than 6 months old), or check floating is suspecting

Sureties Rights in Collateral

If the Surety pays off the obligation which was secured by collateral then Surety is entitled to possession of the satisfied note and is entitled to the collateral securing that note. If creditor mishandles or fails to protect (e.g. fails to perfect security interest) the collateral and it becomes unavailable to pay the debt the Surety is discharged for the value of the collateral. The Surety will still be liable if the notes exceeds the value of collateral.

Liability in Neg Insrt. - Makers Obligation - Multiple Makers

If there is more than one maker, those who sign are presumed to be jointly and severally liable to the rest of the world (they can all be sued as a group) but the individuals have right to contribution from the co-makers if they are forced to pay more than their share.

Vouching In - Notice of Right to Defend Action

In an action for breach of obligation the D may give notice to 3rd party notice of the litigation and the 3rd party can join in the litigation and defend their interests. Failure to join will bind the 3rd party to the facts/result of litigation.

Alterations of Incomplete Checks - What is an "Incomplete Check" 3-115

Incomplete Instrument means a signed check, whether or not issued by the signer at the time that it is incomplete but that signer intended it to be completed by the addition of words or numbers. If the amount (words or numbers) are added to an incomplete instrument w/out the authority of the signer this is classified was an alteration and not properly payable

Qualified Indorsement

Indorser can avoid incurring obligation by writing "without recourse" next to or above indorser's name. Allows the instrument to be negotiated but not create liability on the qualified indorser.

Strettissimi Juris

Latin - Strictest Law Uncompensated surety is a "favorite of the law" and thus the surety prevails when possible. When an agreement between a creditor and the principal changes in any detail this will discharge and release the non consenting surety from liability.

Jus Tertii

Latin - The Rights of Another In litigation certain rights are available to other litigants but only in special circumstances when there are Sureties "accommodation parties". The Sureties are permitted to raise the defense of their principals "accommodated parties"

Real Defenses under UCC 3-305(a)(1) Result? Holder in Due Course (HIDC) - loses - probably

Legal excuse the obligor may have to avoid paying obligation. 1) Infancy - under the legal age (per state statute) to enter into K. 2) Duress, Lack of Capacity, or Illegality of Transaction which nullifies the obligation. 3) Fraud in Factum - fraud that induces the obligor to sign w/ neither the knowledge nor reasonable opportunity to learn of the true nature of the instrument.

Personal Defenses - UCC 3-305(a)(2) Result? Holder in Due Course - Wins - Probably

Legal excuses obligor may have to avoid paying: 1) Fraud-in-the-Inducement - intentionally causing a person to sign an instrument e.g., misleading someone about the true facts 2) Misrepresentation 3) Failure or Lack of Consideration 4) Unconscionability 5) Undue Influence 6) Breach of Warranty 7) Discharge by payment to someone other than holder of instrument. 8) Statutory Violations (to the extent that the statute does not expressly make transferees liable for the violations by originating lender)

When is the latest a payor bank can return a check before final payment is deemed made?

Midnight on the banks next banking day following the banking day on which it receives the check or notice or form which the time for taking action commences to run, whichever is later. Tip - a payor bank that misses the midnight deadline is STRICTLY LIABLE for the amount of the check. Called a "Late Return". HOWEVER there are 2 exceptions under CC regulation 229.30: (1) Payor bank is able to mis the midnight deadline rule as long as it is able nonethelesss to return a check to the collecting bank "on or before the receiving bank's next banking day following the otherwise applicable deadline by the earlier of the close of that banking day or a cutoff hour of 2pm or later set by the receiving bank under UCC 4-108. (2) The deadline is further extended if a paying bank uses a highly expeditious means of transportation in returning the check (e.g. express overnight mail

What is a "Note" under UCC Art. 3?

Negotiable Instrument containing a promise to pay money e.g. A Promissory Note Notes have 2 parties - Maker (promise to pay) and Payee (party to receive payment)

What is a "Draft" under UCC Art. 3?

Negotiable Instrument containing an order to pay money. e.g. a Check Checks have 3 parties - Drawer (writer), Drawee (person (bank) who will pay the amount and Payee (party to receive payment)

Does a Bank have to honor a check that would create an overdraft on the account the check is drawn on?

No obligation to pay if there is insufficient funds in the account. UNLESS the banking agreement states the Bank will cover overdrafts. Banks are able to charge a free for payments of checks which create overdrafts.

Does a Bank have to re-credit a Customer's account if the Bank (negligently, inadvertently, or by mistake, etc.) paid a check after a stop-payment order was properly given?

No, but only if the drawer of the check would have had to pay the payee anyway. In other words if the payee was an HDC and there were no defenses the Bank does not have re-credit the customer's account even if the Bank negligently paid the check after a stop order payment was issued. Tip - Subrogation Law under 4-407 which is linked to 4-403

Emergency Condition Exception

Normal fund availability rules are suspended when there are emergencies beyond the banks control, e.g. 9/11 attacks

Forgery - UCC 3-401(a) & 3-403(a)

Not a Real Defense but provides the same level of defense. 3-401(a) - A person is not liable on an instrument unless the person signed the instrument 3-403(a) - an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value.

What is the "shelf life" for Notes and Orders?

Notes - overdue 1 year after execution / start date Orders - overdue 90 days after written.

What is "Notice" under the UCC?

Notice = (1) actual notice (2) received notice/notification (3) facts and circumstances known to the person at the time of the negotiation or (4) has reason to know or should have known that facts and circumstances exists.

Merger Doctrine - UCC 3-310(b)

Once an instrument was offered and accepted in satisfaction of an underlying obligation, the obligation merged with the instrument, and until the instrument was dishonored the underlying obligation was suspended. Under UCC 3-310(b)(1)&(2) actual payment of a check or a note must occur to fully discharge the obligation.

Liability in Neg Instr. - Indorser Obligation

Once the payee signed the back of the instrument, the payee automatically incurs the obligation of indorser. To be liable the instr. must be: (1) presented to maker/drawer (2) the instr was dishonored; and (3) indorser be given notice of dishonor. Indorser liability is secondary to the Maker but only if the 3 elements above are met. Indorser Liability is only good for 30days after instrument is indorsed. Indorser's are not jointly & severally liable but indorser can go "back up stream" and file claims against prior endorsers in a contribution claim.

Large Deposits Exception

Only the first $5k of a day's deposits is subject to the normal availability rules. The excess over $5k may be held for an additional reasonable period of time (5-6 business days) Tip - cash and wire transfers are not subject to this rule.

Who can bring an action for conversion?

Only the payee on a check. Other parties wronged in a transaction may have other legal remedies under the law.

Excused Presentment and Notice of Dishonor

Presentment for payment of an instrument is excused i: (i) the person entitled to present the instrument cannot with reasonable diligence make presentment, Or (ii) the maker or acceptor has denied an obligation to pay the instrument or is dead or in insolvency proceedings, (iii) by the terms of the instrument is not necessary to enforce the obligation of endorsers or the drawer, (iv) the drawer or indorser whose obligation is being enforced has waived presentment or has no reason to expect or right to require that the instrument be paid or accepted, or (v) the drawer instructed the drawee not to pay or accept the draft or the drawee was not obligated to the drawer to pay the draft.

First Elements Necessary for Indorser Liability to Transfer to Maker Presentment

Presentment means a demand made by or on behalf of a person entitled to enforce an instrument (i) to pay the instrument made to the drawee or a party obliged to pay the instrument or, in the case of a note or accepted draft payable at a bank, to the bank, or (ii) to accept a draft made to the drawee.

Properly Payable Rule - 4-401

Properly Payable Rule - a check is properly payable if the customer has authorized the payment and payment did not violate the agreement between the bank and customer. However a customer is not liable for the amount of an overdraft if the customer neither signed the check nor benefited from the proceeds of the check.

Official Protest

Protest is an technical ritual when an public official (notary public) makes a formal presentment of a draft to the drawee bank and upon the bank declining to cash the check the notary drafts, signs and seals a written narrative of what happened. The Protest serves to prove the series of events leading up to and including the dishonor of instrument. This eases the burden of proof for the holder of the check (draft) when they seek to enforce their rights later in court.

Sureties Right of Reimbursement

Reimbursement right to compel the Maker of the note to reimburse the Surety who paid the obligation on behalf of the Maker.

Define Remotely Created Checks

Remotely Created Checks (RCCs) - orders of payment created by the payee and authorized by the customer remotely, using a telephone or the internet by providing the required information including the MICR code (account & routing #) from a valid check. They do not bear the signature of drawer like ordinary checks.

Sight Draft

Sight Draft = "Payable on Sight" It is a type of bill of exchange, in which the selling party (exporter) holds the title to the transported goods until the buyer (importer) receives and pays for them. typically used used with both air shipments and ocean shipments for financing transactions of goods in international trade. Used in conjunction with Bill of Lading

Sureties Right of Subrogation

Subrogation is when a Surety "steps into the of the creditor" If a Surety is forced to pay off the creditor the Surety is surrogated to whatever rights the creditor had. Also know as an equitable assignment of the creditors rights. Important if the creditor possess rights of a lien, a security interest in collateral, a priority in bankruptcy, a power to confess judgement, etc.

Sureties Right of Contribution

Sureties right to partial reimbursement that co-sureties have against each other for proportionate shares of the debt / liability.

When there is a Wrongful Dishonor of a Check on which party does the burden fall to prove damages

The burden of proving damages falls to the plaintiff (customer). The customer may recover for actual and consequential damages for wrongful dishonor of the check.

Sureties

The concept of Surety involves a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. The person or company providing this promise is also known as a "surety" or as a "guarantor".

Repeated Overdraft Exception

The normal availability rules are extended by and additional 5-6 business days (up to six months) after the account has been repeatedly overdrawn.

Redeposited Checks Exception

The normal availability rules are extended by and additional 5-6 business days for checks that are redeposited. UNLESS the reason for redeposit is because the check was returned for lacking endorsement or was postdated and these problems have been cleared up at the time of redeposit.

Tending Payment Under Protest "You are withholding my goods with no valid legal cause but I have no alternative but to pay under duress, involuntarily, and under protest"

The payment of money by the owner of goods, in order to redeem them from the hands of a person who unlawfully withholds them and demands payment, may be treated as compulsory payment so that the amount is recoverable as having been obtained by oppressive means. When the owner of the goods has an urgent need for them bringing legal action to recover the goods would prejudice him.

Signature by an Agent How can an Agent signing on behalf of another (principal) ensure they are not liable on an instrument?

The smart way for an agent to sign the instrument would be to (1) name the principal and (2) unambiguously indicate that the agent is signing only in a representative capacity. e.g. John Doe (agent) on behalf of Mike Money (principal) as Authorized Agent. If an agent does not do BOTH of these things when signing the agent is liable to a HiDC who has taken the instrument w/out notice that the agent was not intended to be liable. Tip - Agent can introduce evidence (parol) to prove that the parties never intended for Agent to be obligated in the instrument.

Can Banks Charge a Fee to Issue a Stop-Payment Order?

They do not have authority under the UCC BUT they have not been challenged on this yet and the customary business practices is for Banks to charge an "administrative fee" for stop-payment orders.

Shelter Rule - UCC 3-203(b)

Transfer of an instrument vests in the transferee any right of the transferor to enforce the instrument, including any right as a HIDC Transferee can't acquire rights of a HIDC by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.

"Chain of Command" Theory for Restrictive Endorsements.

Under UCC 4-203 the Chain of Command Theory renders it unnecessary for an intermediary or collecting bank to determine whether its transferor is "authorized" to give the instructions. Thus the liability for violation of a restrictive endorsements falls on the bank which first accepts the check.

How does death or incompetence of a customer affect the banks authority to accept, pay or collect checks and deposits?

Under UCC 4-405 death or incompetence does not revoke the authority of the bank to accept, pay or collect until the bank knows of the fact of death or incompetence and has reasonable (10days) time to act on it. However, Death and incompetence are treated differently. The death of the person gives the bank 10 days to continue to honor checks unless the bank is notified by a person claiming interest in the (estate) orders a stop payment then the bank must freeze the account and cannot continue to honor checks for the 10 days. With incompetence, once the bank is notified of the incompetence of a customer they must immediately freeze the account as soon as they are notified.

Warranties Rules: Presentment - UCC 3-417 & 4-208 Transfer - UCC 3-416 & 4-207

WARRANTIES WILL BE ON THE EXAM & ON THE BAR 1) Presentment Warranties - When an instrument is presented for payment, the presenter is making certain warranties to the party to whom they presenting the instrument. 3-417 & 4-208 2) Transfer Warranties - Any time a one party transfers ownership of instrument to another, the transferor makes a warranty of certain warranties (6 of them) of the negotiable instrument, such that they could be held liable. 3-416 & 4-207. Tip - transfer warranties are strict liability

Double Forgery Rule

When the drawer's signature and the payee signature are both forged the drawee bank is stuck with the liability on the check.

Same Wrongdoer Rule 4-406(d)(2)

When there is a serial forger and multiple checks are forged over a period of time then the customer whose account was forged has 30 days to notify the bank of the forgeries or they are precluded from having their account re credited.

Can the Bank and Customer Alter the Deposit Agreement?

Yes but Banks cannot abrogate any of the rules that form the "floor" or basic rights given to the individual under the UCC 4-103.

Is a Bank liable for a wrongfully dishonoring a check

Yes. Liability is limited to "actual damages" proved and may include damages for an arrest or prosecution of the customer or other consequential damages. Whether any consequential damages are proximately caused by the wrongful dishonor is a question of fact to be determined in each case.

Can Banks Charge a Fee to Produce a Copy of a Cashed Check?

Yes. Must be a "reasonable fee" and Banks are required to keep the minimum information (check number, amount and date of payment) on file for 7 years after the date of payment.