Dec 31, 2015
PART
PART
Commercial Paper
Negotiable InstrumentsNegotiation & Holder in Due Course
Liability of PartiesChecks and Electronic Transfers
7
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Checks and Electronic Transfers
PA ET RHC 34“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)
Learning Objectives
The drawer-drawee relationshipForged and altered checksCheck collection and funds
availabilityElectronic transfers
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The deposit agreement and UCC Articles 3 and 4 govern the relationship between the depositor and the drawee bank
Deposit agreement establishes relationship as creditor and debtor: Person depositing money into a bank
account is a creditor of bank to extent of deposits
Bank becomes the person’s debtor
Overview
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Bank is depositor’s agent for check collection 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 is liable for actual and consequential
damages from wrongful dishonor [4–402] Bank may charge properly payable check to
depositor’s account even if overdraft results
Bank as Agent of Depositor
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When a bank takes a check for deposit to a customer’s account, it places a hold on funds represented by check until it collects from drawee bank Then funds become available to depositor
Stop-payment order is customer’s request to drawee bank to not pay or certify a check Bank must receive timely notice and a
reasonable description of the check
Depositor & Bank
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Certified check: drawee bank promises to pay the check instead of the drawer [3–409] Bank debits customer’s account and
transfers funds to a special bank account Cashier’s check: bank is both drawer and
drawee, thus the bank is primarily liable
Certified & Cashiers Checks
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Federal law, short-titled Check 21, allows banks to handle more checks electronically and is an overlay to state law
Electronic Funds Transfer Act governs the electronic funds transfer systems (EFTs) for consumers: automatic teller machines, point of sale terminals, preauthorized payments, telephone transfers, and wire transfers
Check Collection
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Federal Reserve operates Fedwire, a domestic wire transfer system
International wire transfers made through New York Clearinghouse Interbank Payments System (CHIPS)
At right, bank trading room
Wire Transfers
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Test Your Knowledge 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 only to business-to-business transfers.
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Test Your Knowledge
True=A, False = B Fedwire is the international wire
transfer system. 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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Test Your Knowledge
Multiple Choice 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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Test Your Knowledge Multiple Choice
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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