Negotiable Instruments III
Customer's Negligence on an Altered Check
A customer's negligence can shift the loss when payment is made on an altered check.
For cash deposits, wire transfers, and government checks
Funds must be available on the next business day
Bank
"A person engaged in the business of banking, including a savings bank, savings and loan association, credit union or trust company."
Postdated Checks
A bank may charge a postdated check against a customer's account unless the customer notifies the bank, in a timely manner, not to pay the check until the stated date.
Certified Check
Check that has been accepted by the bank on which it is drawn. When a drawee bank certifies (accepts) 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
Stale Checks
Commercial banking practice regards a check that is presented for payment more than 6 months from its date as a stale check. A bank is not obligated to pay an uncertified check presented more than six months from its date. UCC 4-404
Forged Drawer's Signature
General Rule: When a bank pays a check on which the drawer's signature is forged, generally the bank suffers the loss. Note, however, that a bank may contractually shift to the customer the risk of forged checks created electronically or by the use of nonmanual signatures.
Bank's Duty to Honor Checks
General Rule: When a banking institution provides checking services, it agrees to honor the checks written by its customers, with the usual stipulation that sufficient funds must be available in the account to pay each check. When the drawee bank wrongfully fails to honor a check, it is liable to its customers for damages resulting from its refusal to pay. UCC 4-402(b).
Traveler's Check
Instrument that is payable on demand, drawn on or payable at a financial institution (such as a bank), and designated as a traveler's check. Traveler's checks are designed to be a safe substitute for cash when a person is on vacation or traveling and are issued for a fixed amount, such as $20, $50, or $100. The purchaser is required to sign the check at the time it is purchased and again at the time it is used.
Stop Payment Order
Order by a customer to her or his bank not to pay a certain check
Forged Indorsements
Rule: A bank that pays a customer's check bearing a forged indorsement must recredit the customer's account or be liable to the customer (drawer) for breach of contract.
Altered Checks
Rule: The bank has an implicit duty to examine checks before making final payments. If it fails to detect an alteration, it is liable to its customer for the loss because it did not pay as the customer ordered.
Check
Special type of draft that is drawn on a bank, ordering the bank to pay a fixed amount of money on demand.
Bank's Duty to Accept Deposits
The Expedited Funds Availability Act (EFAA) and Regulation CC establish when funds from deposited checks must be made available to the customer. Any local check (drawn on a bank in the same area) deposited must be available for withdrawal by check or as cash within one business day from the date of deposit. For nonlocal checks, the funds must be available for withdrawal within not more than five business days.
Advantage of Cashier's Check
The payee need not wait to see if the check "clears." Payment is immediately credited
Truth-In-Savings Act
Under this law, banks must pay interest based on the full balance of a customer's interest-bearing account over the relevant period
Cashier Check
When a bank draws a check on itself (the bank is the drawer as well as the drawee).
Customer Negligence on a Forged Signature
When a customer's negligence substantially contributes to a forgery, the bank normally will not be obligated to recredit the customer's account for the amount of the check. UCC 3-406(a).
Can a bank decide to pay a stale check if it wishes?
When receiving a stale check for payment, the bank has the 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.
Overdraft
When the bank receives an item properly payable from its customer's checking account but the account contains insufficient funds to cover the amount of the check, the bank has two options. It can either dishonor the item, or it can pay the item and charge the customer's account, thus creating an overdraft. UCC 4-401(a).
Overdraft with a Joint Account?
With a joint account, the bank cannot automatically hold any joint-account owner liable for payment of an overdraft. A joint-account owner is not liable for an overdraft unless he or she either signed the check or benefited from the proceeds of the check. UCC 4-401(b).
