Chapter 34: Checks and Funds Transfers

1. Chapter 34: 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’scheck, 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 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 Check vs. Draft

5. Certification • 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. • Liability of a secondary party cannot be enforced unless that party was given proper notice of the dishonor.

7. 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).

8. Bank as Agent • 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.

9. 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.

10. Electronic 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.

11. Comparison of Drafts