Commercial Paper. Negotiable Instruments Negotiation & Holder in Due Course Liability of Parties Checks and Electronic Transfers. Checks and Electronic Transfers. 34. C. H. E. A. P. T. R.
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Negotiation & Holder in Due Course
Liability of Parties
Checks and Electronic Transfers
“Whether we like it or not mankind now has a completely integrated international financial and informational marketplace capable of moving money and ideas to any place on this planet in minutes.”
Walter Wriston in a speech to the International
Monetary Conference, London (June 11, 1979)
The drawer-drawee relationship
Forged and altered checks
Check collection and funds availability
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Depositor is a creditor of the bank to the extent of deposits and the bank becomes his debtor
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As agent, bank owes a duty of ordinary care to (a) follow depositor’s reasonable direction about payment of checks and (b) collect checks and other deposits to the account
Bank as Agent of Depositor
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No duty to pay stale checks (> 6 mo. old)
Duty to pay may be terminated by depositor’s stop payment order or bankruptcy
Bank’s Duty to Pay
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An altered check or one with a forged signature is not properly payable since bank should be familiar with drawer’s signature
But if drawer negligently contributes to forgery or alteration or fails to report forgery, drawer’s account may be rightfully be charged
Bank’s Right to Charge
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Bank must receive timely notice and a reasonable description of the check
While stop-payment order is in effect, bank is liable to drawer of a check it pays for any loss drawer suffers by reason of bank’s error
Burden of proof for loss placed on drawer
See Seigel v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
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Bank debits customer’s account and transfers the funds to a special bank account
Adding bank’s signature to the check shows it accepted primary liability and is essential for certification [3–409] (see page 840)
The Certified Check
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A teller’s check is similar, but one bank is the drawer and another bank is the drawee
See page 840 for an example
The Cashier’s Check
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Check trunctation means the drawee bank keeps original checks and provides a monthly bank statement bearing images of cancelled checks
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The 1987 Expedited Funds Availability Act set mandatory schedules limiting check holds and stating when depositary banks must make funds available to customers
See Federal Reserve Board Regulation CC
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Automated teller machines
Point-of-sale terminals: consumers use EFT cards like checks to transfer money from their checking account to the merchant
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Telephone transfers between accounts or authorization to pay specific bills.
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Kruser v. Bank of America NT & SAillustrates the provisions that require a customer to timely notify the bank of any unauthorized use of his card to limit liabilty
Electronic Funds Transfer Act
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At right, bank trading room
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Payments over these systems are more than one trillion dollars per day
See http://www.frbservices.org/ and http://www.chips.org/home.php
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Explicitly excludes consumer payments covered by Electronic Funds Transfer Act
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True=A, False = B
A depositor is a creditor of the bank to the extent of deposits; the bank is the debtor.
A bank has the right to charge any properly payable check to a depositor’s account, but not if an overdraft results.
Check 21 allows banks to handle more checks electronically and provides that state law apply to business-to-business transfers.
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True=A, False = B
The 1987 Expedited Funds Availability Act set mandatory schedules limiting check holds.
An altered check or one with a forged signature is not properly payable.
A stale check is over 30 days old.
A bank is an agent and owes a duty of ordinary care to the depositor.
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Lee went to State Bank and gave them cash in return for a check in which State Bank was both drawer and drawee. Lee purchased a:
(a) Cashier’s check
(b) Teller’s check
(c) Special indorsement check
(d) Wire transfer
(e) none of the above
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A drawee bank isn’t obligated to certify a check, but if it certifies:
(a) it substitutes its promise to pay the check for the drawer’s promise and becomes obligated to pay the check
(b) it guarantees that drawer will pay the check upon payee’s presentment
(c) it merely warrants that the drawer’s signature is authentic and authorized
(d) none of the above
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The increased use of online banking and electronic transfers has raised concerns about privacy. Are you concerned? How should the banking industry and businesses respond to a customers’ concern about privacy?
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