Chapter 31 Checks and Funds Transfers

1. Twomey  JenningsAnderson’s Business Law and the Legal Environment, Comprehensive 20eAnderson’s Business Law and the Legal Environment, Standard 20eBusiness Law: Principles for Today’s Commercial Environment 2e Chapter 31 Checks and Funds Transfers

2. Checks • A check is a draft drawn on a bank and payable on demand. • A delivery of a check is not an assignment of money on deposit with the bank on which it is drawn. • A check does not automatically transfer the rights of the depositor against the bank to the holder of the check.

3. Types of Checks • A check may be an ordinary check, a cashier’s check, or a teller’s check. • A check may be certified by the bank. • Unless otherwise agreed, the delivery of a certified check, a cashier’s check, or a teller’s check discharges the debt for which it is given, up to the amount of the check.

4. Check vs. Draft Check Draft 1. Drawee is not necessarily a bank 2. No assumption drawee has any of drawer’s money to pay instrument 3. Draft may be payable on demand or at future date 1. Drawee is always a bank 2. Check is drawn on assumption money in bank to cover check 3. Check is payable on demand

5. Certified Checks • Certification of a check by the bank is the acceptance of the check—the bank becomes the primary party. • Certification may be at the request of the drawee or the holder. • Certification by the holder releases all prior indorsers and the drawer from liability.

6. Presentment and Dishonor • Presentment to the drawee bank is the first step in payment of a check. • Notice of nonpayment of a check must be given to the drawer of a check. • If no notice is given, the drawer is discharged from liability to the same extent as the drawer of an ordinary draft.

7. Presentment and Dishonor • Liability of a secondary party cannot be enforced unless that party was given proper notice of the dishonor. • Wrongful Dishonor by Bank.

8. Stopping Payment • A depositor may stop payment on a check. • The depositor is still liable to a holder in due course unless the stop payment was for a reason that may be raised against a holder in due course. • The stop payment order may be oral (binding for 14 calendar days) or written (effective for six months).

9. Wrongful Dishonor • Check is wrongfully dishonored by bank when: • It is properly payable, and • The account has sufficient funds to pay the check. • Bank’s liability to Drawer. • Banks’ liability to Holder.

10. Bank’s Duty of Care • The depository bank is the agent of the depositor for the purpose of collecting a deposited item. • The bank does not become the owner of the item being deposited. • The bank does become a holder of the item if it gave cash (value) to the depositor. • As agent, a bank is required to exercise ordinary care in the handling of items.

11. Liability of a Bank A bank may be liable when it: • Pays a postdated check too soon IF the drawer gave notice of the postdating. • Pays a check subject to a valid stop payment order. • Pays an item with a forged signature (in most cases) or missing indorsement. • Pays a check which has been altered. • Collects on an unauthorized check.

12. Consumer Funds Transfers • An electronic funds transfer is a transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape. • The Electronic Fund Transfers Act requires that a financial institution furnish consumers with specific information containing all the terms and conditions of all EFT services. • Upon notice, consumers have a maximum liability of $50. (Failure to notify: $500)

13. Funds Transfer • UCC Article 4A vs. EFTA. • Originator: person starting the fund transfer. • Beneficiary: ultimate recipient. • Beneficiary’s bank: final bank in the chain. • Payment Order: direction by Originator.

14. Errors in Funds Transfer • Unauthorized Order. • Bank is liable to any prior party in the transfer chain. • Failure to Act. • Bank is liable-at most-for interest loss and expenses (no consequential damages).