Principles of Payment Systems
Authors:
White, James J. / Summers, Robert S. / Hillman, Robert A.
Edition:
5th
Copyright Date:
2008
14 chapters
have results for payment systems
Chapter 7. Electronic Funds Transfers 330 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.
- 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.
- (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.
- 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,” transfer systems is used to complete the transaction.
- Open Chapter
Chapter 7. Electronic Funds Transfers Part 2 145 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
- 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 ...its ability to effect payment at low cost and great speed...
- Payment Systems Update 2005: Substitute Checks, Remotely–Created Items, Payroll Cards and Other New–Fangled Products
- Open Chapter
Chapter 5. NSF Checks, Documentary Drafts, and Forged Checks: Liability of Payors and of Collecting Banks, Final Payment, Delay 115 results (showing 5 best matches)
- 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
- In addition to making final payment by delay, the payor bank can make final payment in several other ways. For example, it might pay the check over the counter in cash or it might give its own cashier’s check in return for the depositor’s check presented for payment. The consequences are the same whether the bank has missed the midnight deadline or made final payment in any of the other ways outlined in 4–215.
- 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...
- Open Chapter
Principles of Payment Systems Your search matches the chapter title
Chapter 1. The Negotiable Instrument 88 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.
- (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.
- Protest is no longer mandatory and must be requested by the holder. Even if requested, protest is not a condition to liability of indorsers or drawers. Protest is a service provided by the banking system to establish that dishonor has occurred. Like other services provided by the banking system, it will be available if market incentives, inter-bank agreements, or governmental regulations require it, but liabilities of parties no longer rest on it. * * *
- Since no creditor will ordinarily extend a note’s maturity unless the debtor would have difficulty making current payments, we expect that the burden on the accommodation party to show not only “loss,” but also “its extent” will be hard to carry. As with all these cases, there is the possibility that the debtor will have two obligations to the creditor: one that is guaranteed and one that is not. When the creditor extends the guaranteed obligation but insists on the payment of the unguaranteed obligation, the courts are certain to listen closely to complaints from accommodation parties. Of course, insisting on payment of non-guaranteed obligations while extending guaranteed obligations is not alone evidence of bad faith. Indeed, if there is a reasonable prospect of payment in the future and a high likelihood the guarantor would have to fork money over if the debt were called at once, there will not be any injury to the accommodation party by the extension.
- Open Chapter
Index 149 results (showing 5 best matches)
Principles of Payment Systems Part 2 Your search matches the chapter title
Chapter 6. The Payor Bank and Its Customer 149 results (showing 5 best matches)
- 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,
- 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. ...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 bank’s particular system should be on the bank. This objective standard, which ignores a particular...
- A customer may stop payment on “any item drawn on the customer’s account.” Since stop-payment orders are common only for checks, we consider the relevant rules only in reference to checks. A stop-payment order poses a variety of problems. Here we examine: (1) Who may issue a binding stop-payment order? (2) What form must a stop-payment order take? May it be oral? (3) How are the usual stop-payment order rules altered because a personal check is certified or because the check in question is a cashier’s or bank check? (4) What is the bank’s liability for failure to follow a binding stop-payment order? (We deal with this last question mostly in the following section for it inevitably turns on
- Subsection 4–403(b) entitles the customer to stop payment orally. Although this provision caused unhappiness in the banking community, the Code drafters decided that banks should honor oral as well as written stop-payment orders. As we indicated in Section 6–2, we read 4–403(b) and comments as a statement of public policy and believe that a bank may not by contract deprive a customer of his right to stop payment orally. For the same reasons, we think courts should invalidate stop-payment order forms that completely exculpate banks for failure to follow stop-payment orders.
- 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.
- Open Chapter
Chapter 3. Basic Liability Arising From Stolen Instruments and Forged Signatures 42 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.
- A variation on this regime is made when a company decides to use an automated signature system. Agreements to use such a system invariably include a provision that authorizes the bank to pay any check that appears to be so authorized. Courts have approved this arrangement.
- That means that the liquor store operator is guilty of conversion for taking a stolen check from a customer. The same is true of a bank who “makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.” If a thief deposits a stolen check in the bank and the depositary bank receives payment from the drawee, both the depositary bank who obtains the payment and the drawee who makes it commit conversion under 3–420(a).
- (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.
- Open Chapter
Chapter 4. Reallocation of Loss Because of Fault 34 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.
- Thief also stole five blank checks of Manufacturer. Thief uses Manufacturer’s facsimile signature machine, which is sitting on a desk next to the check file, to sign each of them and those clear two weeks later in a sum of $1,000,000. Manufacturer sues payor bank for improper payment.
- (b) If (i) an instrument is taken from a fiduciary for payment or collection or for value, (ii) the taker has knowledge of the fiduciary status of the fiduciary, and (iii) the represented person makes a claim to the instrument or its proceeds on the basis that the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply:
- (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.
- Open Chapter
Chapter 2. The Holder in Due Course 59 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.
- In the usual case a depositary bank will not have become a holder in due course until an item deposited for collection is drawn upon, otherwise “applied or at final payment by the payor.” Different rules apply when the item is not deposited for collection but is taken in payment for an antecedent indebtedness or when the credit is payment for a discounted note. The latter case is presumably covered by 4–210(a)(3) in that the depositor has a legal “right” to withdraw such a credit.
- 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 certain than the court is about the commercial practice with respect to postdated checks. In some circumstances it...
- The next morning, Parmet was back in Dallas waiting at the door when Guaranty opened. Claiming that the $1,900,000 check he deposited had been drawn on insufficient funds, he told the bank he wanted to stop payment on the “official check” drawn the day before. Guaranty immediately contacted Citibank and instructed it to stop payment on the check. Shortly thereafter, Horseshoe called Citibank to inquire about the check. Citibank informed Binion that Guaranty had stopped payment. The lawsuit followed.
- Open Chapter
Table of Contents 23 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
- 5–4 Final Payment Defined
- a. Payment in Cash
- Open Chapter
Chapter 8. Letters of Credit 63 results (showing 5 best matches)
- Read 5–110 carefully. The warranties arise only after “payment,” so they do not help here. After payment Buyer (or more likely Buyer’s parent company who had no contract with Seller but who put up the letter) could sue under 5–110(a)(2).
- 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.
- Colonial made a settlement with Marquette’s receiver for a $500,000 cash payment and an assignment of Marquette’s interest in the reimbursement agreement and personal guarantees. In denying Colonial’s claim against Proc and its principals, the First Circuit stressed the language of the reimbursement agreement. Proc became liable under the reimbursement agreement only if Marquette was “required to make payment.” Since the bank never actually paid, Proc had no liability to Marquette which could be assigned to Colonial. Similarly, the principals’ guarantees were conditioned upon Proc’s non-payment of a liability, so they, too, had no obligation for Marquette to assign.
- Note the explicit requirements in the letter and think for a moment how a particular document that appears to fulfill the letter might be found not to do so. Note how carefully the bank (and the drafter of the letter) attempts to limit the beneficiary’s acts even by offering examples of the documents which must be presented to earn payment. As we will see, the bank is often in the position of an independent third party who is asked to make difficult choices between its loyalty to its applicant (who does not wish it to pay) and its legal duty to the beneficiary (who asserts a legal right to payment). The bank’s discomfort will be inversely related to the care and foresight of its drafter. If the letter is clear, the bank can reject its applicant’s plea by pointing to its clear legal duty. As one reads the following section, it might be appropriate to return to the letter and to the demand for payment to see how the language of those might guide one around some of the pitfalls that...
- Here we deal with a different avenue that sometimes also leads to payment over nonconforming documents. Under the UCP and Article 5, an issuer that fails to give timely notice of discrepancies is precluded from later asserting those discrepancies as a defense to its action. When the issuer dishonors but fails to give notice, the beneficiary will often have a right to damages for dishonor despite the fact it has failed strictly to comply with the terms of the letter. It is tempting but incorrect to say there is a right to “payment”—alà the “final payment” rule in Article 4. That may be the consequence of suit, but it is not the correct articulation of the beneficiary’s rights. If there is a discrepancy and if the issuer fails to give notice of that discrepancy within a reasonable time not to exceed seven days, the issuer has still dishonored—silence is dishonor. The consequence of the issuer’s silence is denial of a particular defense (namely, that the presentation was discrepant)...
- Open Chapter
Chapter 8. Letters of Credit Part 2 9 results (showing 5 best matches)
- 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.
- For such reasons, letters of credit may not always be more attractive to the applicant than standard bonds or guarantees, particularly in situations where the debtor-applicant may want to be able to fight it out in court with the creditor-beneficiary before payment is made.
- 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.
- Open Chapter
- 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.
