Principles of Payment Systems
Authors:
White, James J. / Summers, Robert S. / Hillman, Robert A.
Edition:
5th
Copyright Date:
2008
17 chapters
have results for Principles of Payment Systems
Chapter 7. Electronic Funds Transfers 473 results (showing 5 best matches)
- If a payment order addressed to a receiving bank is transmitted to a funds-transfer system or other third-party communication system for transmittal to the bank, the system is deemed to be an agent of the sender for the purpose of transmitting the payment order to the bank. If there is a discrepancy between the terms of the payment order transmitted to the system and the terms of the payment order transmitted by the system to the bank, the terms of the payment order of the sender are those transmitted by the system. This section does not apply to a funds-transfer system of the Federal Reserve Banks.
- Finally, a “funds transfer system” is a “wire transfer network, automated clearing house, or other communication system of a clearing house or other association of banks through which a payment order by a bank may be transmitted to the bank to which the order is addressed.” A payment order need not pass through a funds transfer system to be an Article 4A transfer. It need not even be a wire transfer. An Article 4A funds transfer may be by any means. If a funds transfer does pass through a funds transfer system, some of the rights and obligations of the sender and receiving bank of the payment order will be defined by the rules of the funds transfer system. In most cases, the rules of Article 4A will defer to the applicable rules of a funds transfer system.
- (d) A funds-transfer system rule may provide that payments made to beneficiaries of funds transfers made through the system are provisional until receipt of payment by the beneficiary’s bank of the payment order it accepted. A beneficiary’s bank that makes a payment that is provisional under the rule is entitled to refund from the beneficiary if (i) the rule requires that both the beneficiary and the originator be given notice of the provisional nature of the payment before the funds transfer is initiated, (ii) the beneficiary, the beneficiary’s bank and the originator’s bank agreed to be bound by the rule, and (iii) the beneficiary’s bank did not receive payment of the payment order that it accepted. If the beneficiary is obliged to refund payment to the beneficiary’s bank, acceptance of the payment order by the beneficiary’s bank is nullified and no payment by the originator of the funds transfer to the beneficiary occurs under Section 4A–406.
- Absent an express agreement or a funds transfer system rule, a receiving bank that is not a beneficiary’s bank can accept a payment order only by executing its own payment order. That is, such a receiving bank cannot accept a payment order by remaining silent. Therefore, a receiving bank that is not the beneficiary’s bank need not send notice of rejection of the payment order to the sender in order to reject the payment order. It can reject by inaction.
- In general, all types of EFTs share one common theme—they consist of an order by one person, typically to a bank or other financial institution, either to credit or charge the bank account of another person. The transaction is usually conducted between the banks by way of a system that is set up to handle such interbank transfers, although intrabank transfers that do not use such systems are also possible. Exactly which law, or, increasingly, which apply to a particular situation will depend on several factors: (1) whether the person making the payment is a consumer or a commercial party, (2) whether the payment is conducted as a traditional Article 4A funds transfer involving originating and beneficiary banks over Fedwire or another large wire transfer system, (3) whether the payment is classified as a “credit payment” or “debit payment,” and (4) which one of the available funds transfer systems is used to complete the transaction.
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Principles of Payment Systems 3 results
Chapter 7. Electronic Funds Transfers Part 2 254 results (showing 5 best matches)
- § 4A–203, Comment 7 also provides that the receiving bank is not entitled to enforce or retain payment of an unauthorized, but effective, payment order if the sender and receiving bank are members of a funds transfer system, and the funds transfer system varies the rights and obligations of the sender and receiving bank.
- (a) If, under this Article, a receiving bank is obliged to pay interest with respect to a payment order issued to the bank, the amount payable may be determined (i) by agreement of the sender and receiving bank, or (ii) by a funds-transfer system rule if the payment order is transmitted through a funds-transfer system.
- the sender proves as much, then the sender would not be bound by the fraudulent order, but that is a big if. An example of this type of fraud that we are aware of involved Russian thieves who obtained the passwords necessary to gain access to Citicorp’s payment order system, and accessed the system over forty times. The thieves then sent unauthorized payment orders from legitimate Citicorp accounts. As the thieves were unrelated to any of the Citicorp customers, 4A–203(a)(2) would presumably have insulated the account holders from any losses in a suit against Citicorp. As secure as Citicorp’s computer systems were likely to have been at the time of the thefts, one would imagine they are even stronger today. As such, we continue to believe that this manner of fraud will remain rare in the future.
- means that consequential damages can be imposed if the culpable bank has notice of particular circumstances giving rise to the damages, it does not provide an acceptable solution to the problem of bank liability for consequential damages. In the typical case transmission of the payment order is made electronically. Personnel of the receiving bank that process payment orders are not the appropriate people to evaluate the risk of liability for consequential damages in relation to the price charged for the wire transfer service. Even if notice is received by higher level management personnel who could make an appropriate decision whether the risk is justified by the price, liability based on notice would require evaluation of payment orders on an individual basis. This kind of evaluation is inconsistent with the high-speed, low-price, mechanical nature of the processing system that characterizes wire transfers. Moreover, in ...s bank to convey notice of this kind to intermediary banks...
- Consumer Payment Products and Systems: the Need for Uniformity and the Risk of Political Defeat,
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Chapter 5. NSF Checks, Documentary Drafts, and Forged Checks: Liability of Payors and of Collecting Banks, Final Payment, Delay 312 results (showing 5 best matches)
- The general right to restitution for a mistaken payment rests on common law unjust enrichment principles set forth in sections 1, 6, and 15–38 of the Restatement of Restitution. The basic elements of the payor’s prima facie case are (1) that the payment must have been made on the basis of a mistake of fact existing at the time of payment, and (2) the payment would not have been made had the true facts been known to the payor. Section 59 of the Restatement also recites the rule that negligence of the payor does not, as such, bar it from a restitution recovery.
- To see the confusion that might arise here, assume a payee presents a $100,000 check at the payor bank’s counter and takes away a teller’s check in payment. Alternatively assume the check is presented through the banking system and a teller’s check is sent back in settlement for the check presented. In the first case final payment has occurred at the bank’s counter under 4–215(a). The payor bank and the drawer are off the hook on the original check and the payee has to look to the liability on the teller’s check for payment. (In this case the payor would be the drawer of the teller’s check and so would have liability on that check.) In any event, there would have been final payment on the underlying check; liability on that check would have been discharged. That conclusion is stated explicitly in Comment 8 to 4–215: “However, if presentment of the item was over the counter for immediate payment, final payment has occurred under 4–215(a)(2).” That comment then goes on to note that...
- In determining whether a multi-branch bank should be treated as one or many banks, one might consider the form of communication among the branches. If every teller station in a system has an on-line computer that allows the teller instantaneous access to a customer’s balance maintained in a central computer memory, it is more logical to hold each branch to be part of one bank and to treat the payment as final. If, on the other hand, the teller at one branch has no ready means of determining the balance of any account at another branch, it is unfair to the bank to say that it has made final payment when one branch has paid cash on a check drawn on another branch. In the latter case the bank should have the right to charge back against its customer who received cash for a check which proves to be drawn against insufficient funds.
- In the other presentation—through the banking system and not over the counter—settlement occurs when the teller’s check is sent (under 4–213(a)(2)), but “final settlement” does not occur under 4–213(c) until 1) final payment on check if it is sent for collection, or 2) if not sent for collection, at the midnight deadline of the person receiving the settlement. We are uncertain of the reasons for this distinction between settlements over the counter and other settlements—but there they are.
- Other claimed “mistakes” arise from the nature of the check processing system itself. Consider the case in which a check is presented, run through the bank’s machinery and paid by the passage of the midnight deadline without any conscious decision. This might be done because the drawer was a good customer and thus no attention was paid to the fact that the apparent balance in his account rose because of uncollected funds, or because the bank’s computer was not programmed to distinguish between collected and uncollected funds, or because the bank routinely allowed many customers to draw against uncollected funds even though the daily computer printout correctly showed the status of their accounts as lacking sufficient collected funds to support the payments. For reasons like those discussed above concerning kites, we do not believe that payments made in these circumstances are “mistaken.” In all of these cases, the payor bank has the capacity to determine which checks are drawn...
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Chapter 8. Letters of Credit Part 2 92 results (showing 5 best matches)
- The section balances the claimant’s right to subrogation and the letter of credit independence principle by precluding any defenses or rights until after payment is made under the letter of credit. This is critical, as one of the key justifications for disregarding the independence principle under these circumstances is that there is no reason to apply the principle once its primary objective (that the beneficiary be paid quickly) is met by the issuer’s honor.
- Colonial entered into a settlement with Marquette’s receiver for a $500,000 cash payment and assignment of Marquette’s interest in the underlying reimbursement agreement and personal guarantees. In denying Colonial’s claim against Proc and its principals, the First Circuit found that the language of the reimbursement agreement did not make Proc liable under the reimbursement agreement because Marquette never actually made payment. Proc had no liability to Marquette that could be assigned to Colonial.
- If an issuer wrongfully dishonors a draft or demand for payment presented under a letter of credit or honors a draft or demand in breach of its obligation to the applicant, the applicant may recover damages resulting from the breach, including incidental but not consequential damages, less any amount saved as a result of the breach.
- * * * an entity that is liable with the debtor on, or that has secured, a claim of a creditor against the debtor, and that pays such claim, is subrogated to the rights of such creditor to the extent of such payment.
- This rule makes perfect sense, as standby letters of credit are expressly designed to insure payment when the applicant cannot pay, which must certainly include situations where the applicant files for bankruptcy and the automatic stay prohibits access to the debtor’s assets. A contrary rule would remove the entire value of standby letters in such circumstances.
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Chapter 6. The Payor Bank and Its Customer 343 results (showing 5 best matches)
- We believe that 4–103 incorporates the standard principle that parties may not depart from legislative statements of public policy, that 4–403(a) is a statement of such a public policy and that the foregoing Comment is an indication that the Code drafters did not intend that banks should have the right to eliminate the practice of stopping payment.
- Because of changes in the check process, the “no signature” cases are not as easy as they once were. To accommodate the explosive growth of checks, banks have automated almost all of the payment process. Except for random examination, most banks look at signatures only on checks above a fixed dollar amount. In truncation systems, the payor bank never receives the depositor’s checks and,
- The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order or order to close an account is on the customer. The loss from payment of an item contrary to a stop-payment order may include damages for dishonor of subsequent items under Section 4–402.
- Nevertheless, in cases decided prior to the 1990 amendment, drawers usually prevailed against banks in suits for payment over stop-payment orders containing erroneous information. Why should banks be liable for a payment made due to a customer’s mistake? The majority of courts rationalized the bank’s liability on the grounds that the customer, although mistaken in one essential piece of information, still provided sufficient correct information to afford the bank a reasonable opportunity to act. The case of Parr v. ...error stumped the bank’s computer. The bank argued that whether or not it had a reasonable opportunity to act on Parr’s information should be determined in reference to the bank’s own procedures. An Oklahoma Appeals Court rejected the bank’s reasoning and found for Parr. According to the Oklahoma court, it seemed reasonable to require banks to accept reasonable information. Once the customer has provided such information, the Parr court stated, any loss because of the...
- When a bank pays an item over a stop payment order, such payment automatically involves a charge to the customer’s account. Subsection (3) [now (c)] imposes upon the customer the burden of establishing the fact and amount of loss resulting from the payment. Consequently until such burden is maintained either in a court action or to the satisfaction of the bank, the bank is not obligated to recredit the amount of the item to the customer’s account and therefore, is not liable for the dishonor of other items due to insufficient funds caused by the payment contrary to the stop payment order.
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Chapter 1. The Negotiable Instrument 404 results (showing 5 best matches)
- To keep restrictive indorsements from clogging the flow of checks through the banking system, section 3–206 limits the effect of restrictive indorsements in several ways. An indorsement that seeks to limit payment to a particular person, such as “pay to John only,” or otherwise to prohibit further transfer or negotiation, is ineffective under section 3–206(a).
- (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
- (2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in discharge of the obligation to the extent of the payment.
- In the normal course of events, the liability of a party to a negotiable instrument will terminate via discharge under 3–602: a holder of a check presents it to a bank for payment or a holder of a note presents it to the maker for payment; the holder is paid and relinquishes the instrument.
- (1) Unless there is notice of breach of fiduciary duty as provided in Section 3–307, a person who purchases the instrument from the indorsee or takes the instrument from the indorsee for collection or payment may pay the proceeds of payment or the value given for the instrument to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.
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Chapter 8. Letters of Credit 417 results (showing 5 best matches)
- The arrangement involves two contracts and the letter of credit. In all cases there will be a reimbursement contract between the issuer and the applicant the issuer for payments made on the letter of credit. Usually there will also be a contract between the applicant and the beneficiary. Then there will be the issuer’s obligation on the letter of credit itself. The unwashed characterize the letter of credit as a contract between the beneficiary and the issuer, but it is better to call it an “undertaking” and so avoid the implication that contract principles might apply to it.
- case and a few of the many cases that have applied 5–109 and its pre-revision counterpart, 5–114(2). In , plaintiff (applicant and purchaser) sought to restrain the payment of drafts under the letter of credit, to enjoin their presentation and asked also for a declaratory judgment that the letter of credit and the drafts were null and void. In denying the defendant’s motion to dismiss, the court recognized that the independence principle could be overridden where there was “active fraud on the part of the seller.” It was alleged in that case that the seller had not shipped merchandise that was “merely inferior in quality” but rather merchandise that consisted of “worthless rubbish.”
- For several reasons we believe it should be an unusual case in which the applicant successfully recovers from the issuing bank for wrongful honor under 5–108. In the usual case the bank’s bias and its selfish interest run exclusively toward dishonor. In the normal case the issuer’s most obvious and intense interest will be in its applicant as against a diffuse and remote interest in the integrity of the letter of credit system. If we are to preserve the independence principle and bolster the utility of letters of credit, the law must encourage banks to act in a relatively disinterested way, namely to pay. Moreover, one should have some sympathy for the bank in this position. The bank earns only a small fee, has a limited amount of time to make a decision and, at least when it acts in good faith, courts should be sympathetic to its judgment about beneficiary’s compliance with the credit.
- Bankers sometimes make the same point by describing the transaction between the bank and the beneficiary as a “paper transaction.” By that they mean the issuer’s agent should be able to sit in a business suit at a desk in a bank, and by looking at papers that are presented, determine whether the bank is obliged to make payment or not. She is not obligated and, indeed, is foreclosed from putting on overalls and going into the field to determine whether the underlying contract has been performed. We will see that there are some important exceptions to the independence principle, but they are limited.
- Having decided not to honor the demand for payment, the bank cannot “gratuitously characterize itself as a mere stakeholder * * *.” We endorse these views. The utility of the letter of credit depends upon quick payment or, at minimum, quick decision whether to pay. Banks should not be permitted to hide behind the court’s skirts in an interpleader action.
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Chapter 3. Basic Liability Arising From Stolen Instruments and Forged Signatures 183 results (showing 5 best matches)
- (d) If (i) a dishonored draft is presented for payment to the drawer or an indorser or (ii) any other item is presented for payment to a party obliged to pay the item, and the item is paid, the person obtaining payment and a prior transferor of the item warrant to the person making payment in good faith that the warrantor is, or was, at the time the warrantor transferred the item, a person entitled to enforce the item or authorized to obtain payment on behalf of a person entitled to enforce the item. The person making payment may recover from any warrantor for breach of warranty an amount equal to the amount paid plus expenses and loss of interest resulting from the breach.
- * * * an instrument is paid to the extent payment is made (i) by or on behalf of a party obliged to pay the instrument, and (ii) to a person entitled to enforce the instrument. To the extent of the payment, the obligation of the party obliged to pay the instrument is discharged even though payment is made with knowledge of a claim to the instrument under Section 3–306 by another person.
- (2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in discharge of the obligation to the extent of the payment.
- (b) A drawee making payment may recover from a warrantor damages for breach of warranty equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment. In addition, the drawee is entitled to compensation for expenses and loss of interest resulting from the breach. The right of the drawee to recover damages under this subsection is not affected by any failure of the drawee to exercise ordinary care in making payment. If the drawee accepts the draft (i) breach of warranty is a defense to the obligation of the acceptor, and (ii) if the acceptor makes payment with respect to the draft, the acceptor is entitled to recover from a warrantor for breach of warranty the amounts stated in this subsection.
- (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee that pays or accepts the draft in good faith that:
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Index 543 results (showing 5 best matches)
Chapter 2. The Holder in Due Course 296 results (showing 5 best matches)
- the need to refer to another document for payment instructions did not prevent the instrument from being negotiable. Regent contracted with Azmat, a textile company located in Bangladesh, for the purchase of bed sheets and pillowcases for import. An essential condition of the sale was that the goods be manufactured in Bangladesh since such goods were not subject to quota restrictions. Azmat required payment by “confirmed irrevocable letter of credit” before shipping the textiles. Regent sent the letters of credit, and each draft indicated that payment was to be made “at 90 days deferred from bill of lading date.” Azmat’s advising bank, International Bank, presented these drafts along with the bill of lading to Regent’s bank for payment. After Regent’s bank had made partial payments, United States Customs detained the textiles for inspection and soon afterward determined that they had actually been manufactured in Pakistan. Regent sought to enjoin his bank from further payments and...
- To be negotiable, an instrument must require payment of “a fixed amount of money, with or without interest or other charges.” This language, added during the 1990 revisions, embraces variable rate notes. Before the revisions, the Code required payment of a “sum certain,” and that language produced some uncertainty.
- Check cashing companies appear to be the pariahs of holder in due course law. In Buckeye Check Cashing, Inc. v. Camp, a check cashing company sued drawer for payment after drawer contacted his bank and ordered the bank to stop payment. Drawer of check had negotiated with a contractor for services to be completed over the next three days and drawer drafted a post-dated check as payment. (The check bore the date of the projected date of completion of the services.) Contractor immediately cashed check with plaintiff, who submitted the check for payment. The drawer, fearing services would not be completed, contacted his bank the same day and ordered it to stop payment. The court held that the future date on the check should have put the check cashing company on notice that the check might not be good. The court also held that the company failed to act in a commercially reasonable manner and did not take the check in “good faith” when it did not attempt to verify the check. We are less...of
- Other cases that turn on the “payable to bearer or to order” language are contracts for payment or other documents of clearly recognized legal status. Frequently, such documents do not qualify as “negotiable” instruments within the meaning of 3–104(a) because they are not unconditional promises to pay money or because they demand that the maker do some act in addition to the payment of money. Consequently, no holder of such nonnegotiable documents may assume holder in due course status. For example, in All Lease Co. v. Bowen, Bowen had granted a security interest in some of its property to an entity named Colorback. Colorback assigned the contract to All Lease. When Bowen ceased making the payments, All Lease sued. Bowen asserted failure of consideration as a defense, and All Lease claimed to be a holder in due course. The court rejected this argument, stating:
- The Code fleshes out the clause “payable to bearer or to order” in section 3–109. An instrument is payable to bearer if it indicates that the person in possession is entitled to payment, if it does not specify a payee, or if it says it is payable to cash or uses some other indication that no particular person is entitled to payment. A promise is payable to order if it is not payable to bearer, and is payable to the “order of” an identified person or to that person “or order.” Thus, either of the following are payable to order: “to order of Brian” (3–109(b)(i)), and “to Brian or order” (3–109(b)(ii)), but “pay to Brian” is not.
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Chapter 4. Reallocation of Loss Because of Fault 218 results (showing 5 best matches)
- If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee that pays or accepts the draft in good faith that:
- In its second sentence (“The statement of account provides sufficient information if the item is described by item number, amount, and date of payment.”), section 4–406(a) facilitates the truncation of checks. It is now common in credit unions for the depositor to receive merely a listing of monthly checks without identification of the payee by name and with identification of individual checks only by item number, amount, and date of payment. If the depositor has maintained a decent ledger of checks drawn during the month, this limited information will be enough to identify most unauthorized payments. Presumably the banks favored the inclusion of the quoted statement from 4–406(a) to insure that a court would not find them to have violated some unstated obligation by failing to return checks to the depositor, or by not giving a more detailed statement of account.
- (2) In the case of an instrument payable to the represented person or the fiduciary as such, the taker has notice of the breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.
- (4) If an instrument is issued by the represented person or the fiduciary as such, to the taker as payee, the taker has notice of the breach of fiduciary duty if the instrument is (i) taken in payment of or as security for a debt known by the taker to be the personal debt of the fiduciary, (ii) taken in a transaction known by the taker to be for the personal benefit of the fiduciary, or (iii) deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.
- If one concludes that a conversion cause of action lies in any case in which the terms of section 3–307(b) have been met and that that cause of action is not dependent upon proof of a forged drawer’s signature or forged indorsement or alteration, then the use of 3–404 through 3–406 to validate a signature that happens to be forged would be no defense because there might be no forgery. To put it another way, the depositary bank or other taker has committed conversion (presumably common law conversion invited into the Code by 3–420) even in circumstances in which the owner of the deposit may be precluded from showing lack of authority of one of the drawers or indorsers. If one comes to that conclusion, the use of sections 3–404 through 3–406 will protect the bank or other taker from liability on one conversion theory (payment or taking over a forged indorsement), but not necessarily on another (payment or taking with knowledge of fiduciary violation).
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Table of Contents 102 results (showing 5 best matches)
- 7–22 Erroneous Execution Through Funds Transfer System or Other Communication System
- Chapter 5. NSF Checks, Documentary Drafts, and Forged Checks: Liability of Payors and of Collecting Banks, Final Payment, Delay
- 5–2 Legal Consequences of Final Payment of the Check
- b. Receiving Payment of Entire Amount of Sender’s Order
- b. Payment of Interest
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West’s Law School Advisory Board 10 results (showing 5 best matches)
- Professor of Law, University of San Diego Professor of Law, University of Michigan
- Professor of Law, Chancellor and Dean Emeritus, University of California, Hastings College of the Law
- Professor of Law, Pepperdine University Professor of Law Emeritus, University of California, Los Angeles
- Professor of Law, University of California, Berkeley
- Professor of Law, Michael E. Moritz College of Law,
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Preface 1 result
Copyright Page 2 results
- Thomson/West have created this publication to provide you with accurate and authoritative information concerning the subject matter covered. However, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. Thomson/West are not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.
- Printed in the United States of America
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- Publication Date: August 20th, 2008
- ISBN: 9780314239440
- Subject: Commercial Law
- Series: Concise Hornbook Series
- Type: Hornbook Treatises
- Description: Provides law students with an in-depth introduction to the UCC without burdening them with unnecessary detail. Citations have been used to enable the reader to understand the kinds of cases that might be presented under particular provisions of the Code. The chapters on Article 9 have been completely rewritten to deal only with revised Article 9 (1999). Similar revisions have been made to the chapter on Article 5 (1996 revision) and to other parts of the book to account for other Code amendments.