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

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chapter 31 checks and funds transfers

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

  • 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.
types of checks
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.
check vs draft
Check vs. 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

certified checks
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.
presentment and dishonor
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.
presentment and dishonor1
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.
stopping payment
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).
wrongful dishonor
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.
bank s duty of care
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.
liability of a bank
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.
consumer funds transfers
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)
funds transfer
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.
errors in funds transfer
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).