ch 28: banking in the digital age

postdated checks

a bank may charge a postdated check against a customer's account unless the customer notifies the bank not to pay the check until the stated date - treat like a stop payment order

checks bearing forged indorsements

a bank that pays a customer's check bearing a forged indorsement must recredit the customer's account or be liable to the customer for breach of contract. the loss usually falls on the first party to take the instrument bearing the forged indorsement because a forged indorsement does not transfer title

stale check

a check that is presented for payment more than 6 months from its date. a bank has an option of paying or not paying the check. if a bank pays a stale check in good faith without consulting the customer, the bank has the right to charge the customer's account for the amount of the check

stop payment orders

an order by a customer to her or his bank not to pay a certain check. a customer has no right to stop payment on a check that has already been certified by a bank. customer must have legitimate reason and within reasonable time and manner.

creditor-debtor relationship

between a customer and a bank when the customer makes cash deposits into a checking account. customer=creditor, bank=debtor for amount deposited

certified check

check that has been accepted by the bank on which it is drawn. when a drawee bank certifies a check, it immediately charges the drawer's account with the amount of the check and transfers those funds to its own certified check account. it is a promise that sufficient funds are on deposit and have been set aside to cover the check

check

draft that is drawn on a bank, ordering the bank to pay a fixed amount of money on demand

altered checks

if a bank fails to detect an alteration, it is liable to its customers for the loss because it did not pay as the customer ordered

incompetence or death of a customer

if the bank has no knowledge, the bank can pay a check without incurring liability

traveler's check

instrument that is payable on demand, drawn on or payable at a financial institution, and designated as a traveler's check. designed to be a safe substitute for cash when a person is on vacation or traveling and are issued for a fixed amount

customer negligence on altered checks

negligence can shift the loss when payment is made on an altered check (unless the bank was also negligent)

bank's liability for wrongful payment due to stop payment order

the bank is obligated to recredit the customer's account if it fails to follow the stop payment order & if subsequent checks bounce, the bank will be liable for resultant costs the drawer incurs

customer negligence of forged signatures

the bank will normally not be obligated to recredit the customer's account for the amount of the check

other parties from whom the bank may recover

the person who forged the signature is liable - if they can be found. the bank also has a right to recover from a party who transferred a check bearing a forger drawer's signature and received payment - the bank cannot recover from a person who took the check in good faith and for value

cashiers check

when a bank draws a check on itself and is a negotiable instrument on issue. bank assumes responsibility for paying the check, thus making the check more readily acceptable as a substitute for cash

forged drawer's signatures

when a bank pays a check on which the drawer's signature is forged, the bank suffers the loss

overdrafts

when the bank receives an item properly payable from its customer's checking account but the account doesnt have enough funds to cover the amount, the bank has 2 options: dishonor the items or create an overdraft by paying the item and charging the customer's account

agency relationship

when the customer writes a check on his/her account, the customer is ordering the bank to pay the amount specific on the check to the holder when the holder presents the check to the bank for payment. when the customer deposits a check into his or her account, the bank, as the customer's agent is obligated to collect payment on the check from the bank on which the check was drawn