Payments Law in a Nutshell
Authors:
Matthews, Mary Beth / Nickles, Steve H.
Edition:
2nd
Copyright Date:
2015
27 chapters
have results for Payments Law in a Nutshell
Copyright Page 4 results
- Nutshell Series, In a Nutshell
- The publisher is 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
- © 2015 LEG, Inc. d/b/a West Academic
- Open Chapter
Chapter 1. Currency 33 results (showing 5 best matches)
- In the real lives of normal people, everybody wants cash; and in this country and many other places, most people accept American currency as a means of payment. It’s only in law school that we ask: under United States law can somebody ever refuse dollars as payment?
- First, the parties to the payment can agree otherwise and thereby require an exclusive, specific means of payment, including cash, stock, real estate, an executory promise, or anything else they decide on. However, what the agreement provides respecting means of payment is a question of contract interpretation. Thus, it’s possible that a contract calling for payment in “cash” can include, for example, payment by check; and a requirement of payment in money, without more specificity, allows payment by any manner current in the ordinary course of business. Restatement (Second) of Contracts § 249 (1981). Also, even if there is no prior agreement as to the means of payment, “payment can be made in any medium which the party obligated offers, and the party to whom payment is due, accepts.”
- As a payment system, currency raises few issues because it is so simple; but these issues are fundamentally important and shared by other, more complex systems. How the issues are resolved by the different payment systems determines, to a large extent, the organization and substance of payments law and is the focus of the study, practice, and business of payments. Currency sets the base line.
- payment system
- The answer is maybe. Federal law says: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.” 31 U.S.C.A. § 5103. This statute means in part that American cash is a form of payment that can be offered and accepted to satisfy debts, not that cash is the only or default means of acceptable payment.
- Open Chapter
Chapter 6. Shifting Check Fraud Losses 72 results (showing 5 best matches)
- (b) Except as provided in subsection (c), if an instrument has been paid or accepted by mistake and the case is not covered by subsection (a), the person paying or accepting may, to the extent permitted by the law governing mistake and restitution, (i) recover the payment from the person to whom or for whose benefit payment was made or (ii) in the case of acceptance, may revoke the acceptance.
- Payor banks sometimes argue mistake and rely on restitution law or some other common-law theory to recoup these losses from persons who obtained payment of such items or who otherwise received the proceeds of them. Section 3–418 sanctions the common-law restitution claim in 3–418(b) and, to some extent, codifies restitutionary liability in 3–418(a) which covers the two most common cases of mistaken payment: payment of forged checks and checks on which the drawer has stopped payment. If the case does not fit within (a), however, the bank is then free under (b) to resort to the common law which, rather than 3–418, will determine liability:
- • First, the defense is only available to a holder in due course (or other good faith purchaser) or a person who in good faith changed her position in reliance on the payment. As against anyone else, the equities favor allowing the payor to recover payments mistakenly made. (Practically speaking, however, in most cases any solvent party who benefited from payment will have taken the check in good faith and for value so that the defense is available to her.)
- The warranties that run in favor of a payor bank are made by the person who obtains payment and also by every previous transferor. The warranties arise automatically, that is, the warranties are implied by law and are not conditioned on the warrantor expressly making them or even being aware that warranties are made as part of the collection process.
- 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:
- Open Chapter
Chapter 12. Commercial Funds Transfers 84 results (showing 5 best matches)
- For proper cause and in compliance with applicable law, a court may restrain (i) a person from issuing a payment order to initiate a funds transfer, (ii) an originator’s bank from executing the payment order of the originator, or (iii)
- In general, “Article 4A governs a method of payment in which the person making payment (the ‘originator’) directly transmits an instruction to a bank either to make payment to the person receiving the payment (the ‘beneficiary’) or to instruct some other bank to make payment to the beneficiary.” 4A–104 comment 1.
- A check is a means to effect payment by a bank that also carries rights and liabilities reified in the instrument itself. A payment order is a means to effect payment by a bank but has no efficacy itself apart from its role in the payment process Article 4A provides.
- In the funds transfer the instruction contained in the payment order of X to its bank is carried out by a series of payment orders by each bank in the transmission chain to the next bank in the chain until Y’s bank receives a payment order to make the credit to Y’s account. In most cases, the payment order of each bank to the next bank in the chain is transmitted electronically, and often the payment order of X to its bank is also transmitted electronically, but the means of transmission does not have any legal significance. A payment order may be transmitted by any means, and in some cases the payment order is transmitted by a slow means such as first class mail. To reflect this fact, the broader term “funds transfer” rather than the narrower term “wire transfer” is used in Article 4A to describe the overall payment transaction.
- Rights and obligations under Article 4A arise as a result of “acceptance” of a payment order by the bank to which the order is addressed. 4A–209. In the case of a payment order sent to a receiving bank the beneficiary’s bank, acceptance occurs when the receiving bank “executes” the payment order of the sender by sending a payment order to some other bank intended to carry out the payment order received by the receiving bank. 4A–209(a); 4A–301(a). In the case of a payment order sent to the , acceptance usually occurs when the bank receives payment of the sender’s payment order or when the bank pays the beneficiary or notifies the beneficiary of receipt of the payment order. 4A–209(b)(1) and (2).
- Open Chapter
Chapter 10. Letters of Credit 51 results (showing 5 best matches)
- The nature of the draft gives rise to an important distinction in credit law: The distinction between
- The terms of a letter of credit, including the required documents and whether drafts are presented for payment or acceptance, are really decided by the seller and buyer. They decide how little, or how much, is required of the seller in order to get payment or acceptance of drafts drawn under a credit. The buyer then asks her bank, through an to issue a letter of credit containing the terms agreed to by the seller. In this role the buyer is known, technically, as the 5–102(a)(2).
- The foregoing overview illustrates the traditional use of a letter of credit, which is facilitating sales of goods (especially in international transactions) by insuring payment of the price to the seller-beneficiary upon her performance in accord with the terms of the letter of credit. A letter of credit so used is referred to as a The remainder of this chapter is primarily concerned with filling in the most important details about commercial credits. Some attention is paid, however, to A standby credit is a letter of credit that insures payment to the beneficiary not for her performance in a sale or other transaction with the customer, but for the customer’s default in the transaction.
- Seller and Buyer are negotiating a contract for the sale of goods. Seller is unwilling or unable to commit herself without payment in advance. Buyer does not wish to pay for the goods until she gets them. This impasse can be broken by the buyer having her bank issue the seller an Article 5 letter of credit.
- Under the letter of credit arrangement the seller does not get payment in advance, but she gets the next best thing: A virtually undeniable promise by a person likely to remain solvent that the seller will be paid once control of the goods passes to the buyer by the transfer of appropriate documents.
- Open Chapter
Chapter 2. Liability on Checks Under Article 3 412 results (showing 5 best matches)
- Sometimes, in an attempt to settle a disputed claim, the person against whom the claim is asserted issues a check to the claimant for an amount less than the full amount the claimant demands. The check is commonly known as 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.
- In addition to the Article 3 defenses specifically stated in Article 3, the personal defenses to an instrument also include defenses “of the obligor that would be available if the person entitled to enforce the instrument were enforcing a right to payment under a simple contract.” 3–305(a)(2). These defenses derive from the underlying obligation and are based on the contract law that governs it.
- The main purpose of presentment warranties is to assure the person who pays the instrument that the person presenting the instrument for payment is entitled to the money. Presentment warranties are not insurance that payment was proper by the terms of the contract or other relationship that provides the underlying reason for the payment. There is no warranty against payment beyond these terms, by mistake. Avoiding mistake is within the personal control of the payor and, for reasons of finality, the law is slow to provide any remedy for mistake. On the other hand, the common law of restitution permits recovering mistaken payments in limited (very limited) circumstances. This law has always supplemented the statutory law of negotiable instruments, but Article 3 explicitly codifies a restitution recovery for some mistakes. Restitution from any source is always very limited, however, because the remedy generally cannot reach innocent persons who gave value or who detrimentally relied on...
- Consideration is not an element of the plaintiff’s prima facie case in a suit on an instrument, as it is when a person sues for breach of common-law contract. Nevertheless, “[t]he drawer or maker of an instrument has a defense if the instrument is issued without consideration.” 3–303(b). Moreover, the issuer has a defense to the extent that she was promised performance that has not been duly performed. Id. It is a different issue whether or not the holder of an instrument gave “value” to qualify as holder in due course. See 3–302(a)(2), 3–303(a). The lack of value for that purpose is not itself a defense to payment of an instrument. The issue, in terms of defense to payment, is whether or not the drawer or maker got “consideration” in exchange for issuing the instrument. If not, she has a defense.
- Open Chapter
Chapter 11. Credit Cards 161 results (showing 5 best matches)
- The law does not recognize the same, broad right to stop payment for a cardholder who has charged something to her credit card account. The reason is not that the process always works too quickly to accommodate a stop order. Sometimes the time between using a credit card and settling hard debits and credits between participants in the network is longer than the time between writing a check and final payment by the payor bank. The reason for the absence of a stop-payment right for cardholders is neglect or, more likely, a considered policy decision against the right in credit card systems.
- Let’s start by understanding the relevant common law. Under the common law, and also under UCC Article 9, an assignee stands in the shoes of an assignor. So, if an obligee sells or otherwise assigns to an assignee the obligee’s right to payment from the obligor, the obligor can ordinarily assert against the assignee whatever defenses the obligor has against the obligee-assignor. For example, suppose OR buys goods on credit from EE. The parties sign a simple contract that explains their deal, including OR’s obligation to pay the price to EE. EE then assigns the contract to Bank. Bank notifies OR of the assignment and is free to collect payment from her. It turns out, however, that EE breached some warranty in selling the goods to OR. This breach gives OR a defense to payment or counterclaim under UCC Article 2. Bank is subject to this defense or counterclaim.
- Common-law contract fundamentally governs all of the relationships that are involved in the use of two-party credit cards and bank cards. None of the relationships is governed by a comprehensive, integrated statute of federal or state law. Statutory law most significantly supplements and displaces contracts law in defining the rights and liabilities of cardholders in their relationships with card issuers and, to a lesser extent, the remedial rights of cardholders against merchants when a credit card is used as the means of payment. Special credit card law adds nothing substantive to the main issue between cardholder and merchant, which is the quality of the performance in the underlying transaction between them. This issue is governed by whatever law ordinarily applies to the kind of transaction involved (such as UCC Article 2 in the case of a sale of goods).
- Fifthly, the CARD Act adopted a handful of provisions designed to make the billing statement more cardholder friendly. The statement must now include a warning that making only minimum payments will increase interest and time to repay [15 U.S.C.A. § 1637(b)(11)(A)]. It must further include calculations relating to repayment if only minimum payments are made (plus the total cost of doing so) [15 U.S.C.A. § 1637(b)(11)(B)], and the payment required to eliminate the balance in 36 months Id. The billing statement must further conspicuously disclose the date on which payment is due, together with any late fee [15 U.S.C.A. § 1637(b)(12)(A)]. If late payment will increase the APR, notice of that fact and the increase must be disclosed in close proximity to the due date [15 U.S.C.A. § 1637(b)(12)(B).
- The bank also sells, opens, and maintains credit card accounts for businesses that have agreed to honor the card as a means of payment for whatever they sell. In this role the business is the (a/k/a ). Nobody selling anything can participate in the bankcard payment system without operating through a . Either the merchant herself must maintain such an account, or she must process her credit card payments through a third person who owns such an account with a merchant bank.
- Open Chapter
Chapter 3. Check Collection 160 results (showing 5 best matches)
- How “final” is final payment under 4–215? The answer is that “final” means “final” under Article 4 and Regulation CC, but that 3–418 provides a limited exception for Payor Bank when payment is made by mistake. There is a statutory right to recover in cases of stop orders and forged checks. 3–418(a). In all other cases, recovery for mistaken payments is determined “by the law governing mistake and restitution.” 3–418(b).
- Read 3–418 in its entirety. Note that 3–418(a) does not apply here, since payment was not on the mistaken belief that payment had not been stopped or the signature of the drawer was not forged. The mistake involved the amount of funds in the drawer’s account. Section 3–418(b), however, does apply since the check was paid “by mistake and the case is not covered by subsection (a).” Unlike 3–418(a), 3–418(b) does not explicitly provide that Payor Bank can recover “the amount of the draft from the person to whom or for whose benefit payment was made.” Rather, mistaken Payor Bank may “to the extent permitted by the law governing mistake and restitution * * * recover the payment from the person to whom or for whose benefit payment was made.” Thus, Payor Bank must take a trip through 1–103 to other state law to determine whether there is any right to recover. Furthermore, that right may, under 3–418(b), be limited if Payor Bank failed to exercise ordinary care.
- Under earlier law, a few cases held that final payment was made when the internal process of posting was completed and that an otherwise timely return before the midnight deadline was not effective. This approach required an inquiry into whether that process of posting had been completed. Presently, there is no reference to “process of posting” in 4–215. It is therefore clear that Payor Bank has until its midnight deadline to return the item regardless of any internal payment decisions. In short, final payment does not occur if the item is returned before midnight even though Payor Bank had, at one point, completed the process of posting and decided to pay it. This internal decision does not amount to final payment or limit Payor Bank’s right of return by the midnight deadline under 4–301.
- In all cases, however, the right to recover is limited by 3–418(c): A person who “took the instrument in good faith and for value or who in good faith changed position in reliance on the payment” will not be liable. The amount of the check can probably be recovered from a payee who did not take the check in good faith and for value or did not in good faith change position in reliance on the payment. In a direct recovery from the payee, the effect is that the “instrument is deemed not to have been paid or accepted and is treated as dishonored, and the person from whom payment is recovered has rights as a person entitled to enforce the dishonored instrument.” 3–418(d).
- Cashing the check in this case is not final payment resulting from presenting the check for payment in cash over the counter, which only happens when the bank to which the check is presented is the payor bank. As stated in the text, the depositary bank is not the payor bank; and giving a customer cash in such a case is, in itself, a provisional settlement that the depositary bank can recoup under 4–214.
- Open Chapter
Chapter 4. Checking Accounts 101 results (showing 5 best matches)
- A wrongful payment is still final payment. But if the payment was mistaken, Payor Bank may have a restitution claim against a person who took the instrument for value but not in good faith or a person who took in good faith but has not “changed position in reliance on the payment.” 3–418(c). Review the related discussion in Chapter 3
- In sum, 4–303 attempts to resolve priority problems in a manner consistent with the principles of final payment and accountability in 4–215 and 4–302. Unless there is an earlier final payment or action is taken after a fixed cutoff hour, the relevant time for action is Payor Bank’s midnight deadline.
- In this case, the race is between Customer’s stop order and Payor Bank’s final payment of payee’s check. To illustrate, suppose Customer issues a check for $1,000 to Payee in payment for an oriental rug on Monday, October 5. On Tuesday, October 6, Payee deposits the check in Depositary Bank and Customer discovers that the rug is not merchantable. On Wednesday, October 7, the check is presented for payment to Payor Bank in the morning and Customer issues a proper oral stop order to Payor Bank in the afternoon. If Payor Bank does not dishonor the check by midnight, Thursday, October 8, there will be final payment. Does the oral stop order give Payor Bank “a reasonable opportunity” to act on it before any events occur under 4–303?
- Without more, Customer is entitled to have its account re-credited in the amount of $5,000. There was a “wrongful” payment. In addition, Customer is entitled to any damages established under 4–403(c) for the wrongful dishonor of the check issued to Payee #2. 4–403(c). Clearly, the $7,500 check would have been honored if Payor Bank had not improperly paid the $5,000 over the stop payment order. Customer, however, has the “burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a stop-payment order.” 4–403(c).
- Even with knowledge of death (but not incompetence), Payor Bank has a limited power to pay. The “bank may for 10 days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.” 4–405(b). The reason is to permit “holders of checks drawn and issued shortly before death to cash them without the necessity of filing a claim in probate.” Id. comment 2. There is a broad category of persons who can claim an interest in the account [surviving relatives, executors, creditors] and all they must do is give a direction to stop payment. The conditions of a stop payment order under 4–403 are not imposed on a “death” stop order. See 4–405 comment 3.
- Open Chapter
Chapter 9. Tying Drafts to Documents of Title 69 results (showing 5 best matches)
- Now that you understand the basic principles of documents of title law, you can better appreciate and more critically evaluate the payment scheme known as “
- The procedure for getting the buyer’s acceptance is basically the same as that involved in getting payment from the buyer when she is to pay against documents. There are only two basic differences, both of which are obvious: First, in credit against documents, the seller draws a time draft, rather than a demand draft, ordering the buyer to pay the instrument following a specified period after acceptance. Second, although the documentary draft is routed to the buyer through banking channels (just as in the case of a draft requiring payment), the presenting bank presents the draft for acceptance rather than for payment. See 4–503(1).
- If a right to the payment of money is not negotiable under the provisions of Article 3, the consequences are that the writing is not an instrument and Article 3 is altogether inapplicable. Article 7 is different in this regard. It generally applies to both negotiable and non-negotiable documents. Making the distinction is important only in applying particular rules within Article 7, not in deciding whether the statute, as a whole, is the general source of governing law.
- So far, the discussion of payment against documents has assumed that the goods are covered by a negotiable document. Payment against documents can be structured, however, so that the goods are shipped under a non-negotiable bill of lading. In this event, the seller retains control of the goods by consigning them to herself or her agent so that the carrier is obligated to deliver the goods according to the seller’s instructions. 7–403(a) & 7–102(a)(9). The seller or her agent will instruct the carrier to surrender the goods to the buyer upon the buyer’s payment of the draft.
- The presenting bank is obligated to present the documentary draft to the buyer-drawee for payment. The bank can, and probably will, make presentment by sending the buyer, who is the drawee, a written or electronic notice that the bank holds the item for payment. See 4–212(a). In this event, the draft is deemed presented when the notice is received by the buyer-drawee. 3–501(b)(1). Upon receiving payment of the draft, the presenting bank is obligated to deliver the documents to the drawee. 4–503(1).
- Open Chapter
Chapter 13. Consumer Funds Transfers 159 results (showing 5 best matches)
- Suppose you are a third-year law student. You seldom attend classes and read very little … saving yourself for the upcoming bar exam. You decide the time is right to move up from the old, reliable bike. Using your signing bonus as a down payment, you buy a new car: a Ford SUV. The payment is $750 a month. (The signing bonus was nice but not too big.)
- As recently recognized by the Federal Reserve Board, “Debit cards now play a prominent role in the U.S. payments system. Debit card payments have grown more than any other form of electronic payment over the past decade, increasing to 37.9 billion transactions in 2009. Debit cards are used in 35 percent of noncash payment transactions, and have eclipsed checks as the most frequently used noncash payment method.” 76 FR 43394–01, 43395 (July 20, 2011).
- Consumers sometimes telephone their banks and ask to debit funds from their checking or savings accounts and “wire” the funds to somebody, such as a kid in law school somewhere. This wire transaction is an EFT but is probably not covered by Regulation E, which excludes “[a]ny transfer of funds that is initiated by a telephone communication between a consumer and a financial institution making the transfer and does not take place under a telephone bill-payment or other written plan in which periodic or recurring transfers are contemplated.” 12 C.F.R. § 1005.3(c)(6).
- The differences in these electronic payment systems are mainly in the underlying technologies; their functionalities; and—to some extent—how they are priced and how the contract between the issuer and user allocates risks and other costs. What they share are fundamental duties imposed by preemptive federal law whenever a consumer electronic funds transfer crosses their networks or otherwise uses their services to affect a consumer account. So, this chapter also explains the federal law.
- 1. An Originator—whether that’s an individual, a corporation or another entity— initiates either a Direct Deposit or Direct Payment transaction using the ACH Network. ACH transactions can be either debit or credit payments and commonly include Direct Deposit of payroll, government and Social Security benefits, mortgage and bill payments, online banking payments, person-to-person (P2P) and business-to-business (B2B) payments, to name a few.
- Open Chapter
Chapter 14. Funds Transfers Which Do Not Debit a Consumer Bank Account 88 results (showing 5 best matches)
- Unless the particular card contract provides a means of reversal or chargeback, payment is likely to be deemed final when value is spent. There will generally be no means for stopping payment or otherwise reversing the transaction. The very stingy, expensive remedy of common-law restitution against the person who received payment is likely to be the only recourse.
- PayPal is Only a Payment Service Provider * * * and is not your agent. * * * If you do hold a Balance, that Balance represents an unsecured claim against PayPal and is not insured by the FDIC. PayPal will combine your Balance with the Balances of other Users and will invest those funds in liquid investments in accordance with State money transmitter laws. PayPal will own the interest or other earnings on pooled Balances.
- Laura H. Brown, Candace M. Davis, Lois S. Woodward, & Ryan S. Stinneford, Current Developments in Deposit Products and Payment Systems, 68 Bus. Law. 603 (Feb. 2013).
- Even should Regulation E protections be applied to prepaid cards, consumers would not be protected from issuer insolvency. As recognized by the Board in its report to Congress in 1997, “ * * * Regulation E does not cover some important risks faced by consumers using stored-value products, such as loss (where no unauthorized use occurs) or expiration of the instrument or insolvency of the issuer.” However, such nonbank issuers are likely to be subject to federal or state laws regulating money transmitters, a few of which are based on the Those statutes license and regulate money transmitters in regard to security and net worth requirements, and therefore provide at least a limited degree of financial protection. In fact, one of the goals stated in the Prefatory Note to the UMSA is to provide “a consistent approach to the licensing and regulation of
- A GPR card is issued for a set amount in exchange for payment made by a consumer. A GPR card is reloadable, meaning the consumer can add funds to the card. While this ANPR refers to a “card,” these devices may include other mechanisms, such as a key fob or cell phone application, that access a financial account. This ANPR does not seek information about “closed loop” cards, debit cards linked to a traditional checking account, non-reloadable cards, payroll cards, electronic benefit transfers (EBTs), or gift cards.
- Open Chapter
- Payment against documents is fully discussed in Chapter 9 , beginning with a short lesson on some of the law of documents of title. You cannot understand the former until you understand the latter. More fundamentally, understanding payment against documents requires that you know something about ordinary drafts. You know about checks, which are a form of draft. Chapter 8 discusses the major, special concepts and rules that attend drafts that are not checks—ordinary drafts.
- A seller of goods can insure that she is actually paid by not delivering the property until she gets cash, or its equivalent, in hand. Of course, the typical buyer will not wish to pay for the goods in advance of delivery. The answer is a simultaneous exchange of goods for cash. When the seller and buyer are located far apart, this kind of exchange is made possible through the use of a documentary draft and a payment scheme known as “payment against documents.”
- In this scheme, the seller ships the goods by carrier to the buyer’s city. The carrier gives the seller a receipt for the goods which is known as a bill of lading. A bill of lading is a kind of document of title and, as such, it represents the goods and controls their disposition. The seller attaches this document to a draft drawn by her against the buyer. The set of two writings is called a documentary draft, which is handled for collection by banks. The seller’s bank will take the documentary draft and, as agent for the seller, send it to a bank in the buyer’s city. The latter bank, upon receiving the documentary draft, will present it to the buyer for payment. Upon paying it, the buyer gets the document of title and thereby gets control of the goods. The payment is then sent by the presenting bank to the seller’s bank and deposited in the seller’s account.
- A check is not an entirely reliable means of paying for property or services. A seller who takes the buyer’s check in exchange for property or services is not certain to get payment from the drawee-bank. The check can be dishonored for a variety of reasons (insufficient funds, stop order, etc.) that leave the seller-payee with nothing more than a cause of action against the buyer-drawer. The result is that, although the seller intended a cash deal, she ends up having sold on credit. To make matters worse, this unintended credit is probably unsecured.
- The seller could virtually eliminate these risks by asking the buyer to pay with a cashier’s check. The problem is that this means of payment shifts risks to the buyer, who may therefore refuse the deal or require compensation.
- Open Chapter
Part II. Paying by Check 13 results (showing 5 best matches)
- You are not alone in putting your money in a bank account and paying for stuff using checks written against the account. Although the number of payments by debit card in 2012 more than doubled the number of payments by check, there are still huge numbers of checks written. An estimated 32.8 billion checks were paid in the United States in 1979, 49.5 billion in 1995, but only 18.3 billion in 2012. The use of checks peaked sometime in the mid-1990s, as retail electronic payments and other means of retail payment gained ground. The number of checks paid actually declined 6.6 percent per year from 2000 to 2012.
- How do checks work as a payment system? Basically you swap the money you deposit for debt the bank owes you. The bank does not keep your money in a bag with your name on it. The money you deposit belongs to the bank, and you get—in return for your deposit—a credit balance to your checking account. The bank then reduces the debt it owes you, i.e., your account balance, by paying the bank’s money to people whom you order the bank to pay. You give these orders by writing checks against your account.
- The 2013 Federal Reserve Payments Study—Recent and Long-Term Trends in the United States: 2000–2012, 15 (Exhibit 2), available at http://www.frbservices.org/files/communications/pdf/general/2013_fed_res_paymt_study_detailed_rpt.pdf.
- Okay. You read the previous chapter. Government-backed currency (real cash $$$$$) is hugely common, and you probably have a lot of experience using it as a means of payment. There are real problems with currency, however. The risk of loss is high. You can recover from the thief if you can find her, she is solvent, and you can afford the price of recovery. Also, the costs of managing currency are high. All those wads of bills and especially the coins in your pocket or purse are heavy. Plus, your Mother told you never to send currency through the mail; and you typically don’t do so even if you are willing to accept the risk of loss and even if the distant payee would accept cash.
- There are six general areas of concern with respect to checks as a means of payment:
- Open Chapter
Half Title 2 results
Title Page 4 results
Chapter 5. Check Fraud—Allocating Risk and Loss Between Payor Bank and Customer 90 results (showing 5 best matches)
- Whether or not the bank can prove a loss, the customer is precluded from asserting her unauthorized signature or an alteration by the same wrongdoer on any item paid in good faith by the bank “if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.” 4–406(d)(2). This language covers the case of a string of forgeries or alterations by the same wrongdoer. The bank need not establish that it suffered a loss because, in this kind of case, the law presumes loss.
- Typically, a bank sends its checking-account customer a statement of account that shows payment of items from the customer’s account, either by mail or electronically. In so doing the bank returns or makes available to the customer either the items themselves or information sufficient to allow the customer reasonably to identify the items. Article 4 does not directly require this accounting; but if the bank provides such a statement, Article 4 imposes a duty on the customer to examine the items or information with “reasonable promptness * * * whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly
- The check was subsequently produced by the check-writing machine and mailed to the Employee’s box. She got the check, indorsed it in the name of GM, and deposited the check to an account in Depositary Bank which Employee had opened in GM’s name. The Bank had opened the account without requiring Employee to produce any resolution of the corporation’s board or other evidence of authorization of Employee to act for GM. In due course, the check is presented for payment; Depositary Bank receives payment; and Employee is allowed to withdraw the credit by wire transfer to a foreign bank.
- Another similarity between 3–404(a) and (b) is that they both protect not only a person who pays an instrument in circumstances to which the rules apply. Both rules also protect a person who takes an instrument for value or for collection. For example, using the 3–404(b) problem to illustrate, suppose that instead of Y herself presenting the check and getting payment from the drawee bank, she promptly indorsed in F’s name and cashed or deposited the check at C Bank. This bank presented the item for payment but B Bank, the drawee, dishonored. C Bank is a holder because of 3–404(b). It can sue Y as indorser and, more importantly, X as drawer. Moreover, if C Bank is a holder in due course, it can take free of X’s defenses and claims, including any defense based on Y’s tackiness.
- An important side issue here is why, in either example, would complain against the payor bank for charging the item to her account. S’s loss is obvious. Where is B’s loss? It turns out that because of the employee’s lack of authority to indorse for S, payment by the drawee was improper because payment was not made to a person entitled to enforce the instrument. As a result, B was not discharged on the instrument, see 3–602(c) (discharge requires payment to a person entitled to enforce à la 3–301); so she was not discharged on the underlying obligation. 3–310(b). B thus remains liable to the payee. If this liability to the payee is enforced, B effectively will “pay” twice, inasmuch as her account has already been debited for the amount of the check. There is the loss to B. (The fuller truth, however, is that S usually enjoys additional actions against other people and often shifts the loss to them instead of B. These other actions are considered in the next chapter.)
- Open Chapter
Chapter 8. Ordinary Drafts Under Articles 3 and 4 16 results (showing 5 best matches)
- Instead of ordering Mohammad to pay the draft on demand, Ellen could write the draft ordering Mohammad to pay at a definite future time. In this case Thomas would have to wait until the time for payment before he could present the draft to Mohammad for payment.
- Thomas can reduce his worry by presenting the draft to Mohammad before the time for payment. This earlier presentment, however, is not for payment. It is for acceptance, which means Mohammad signs the draft and becomes liable on it as an acceptor. Then, if Mohammad does not pay the draft when the draft is due, Mohammad is liable to Thomas on the instrument as “acceptor.”
- Mohammad’s acceptance does not let Ellen off the hook. She remains liable on the draft and is obliged to pay. So, if Mohammad accepts and dishonors the draft when payment is due, Thomas can sue Mohammad or Ellen on the instrument. If Thomas sues Ellen, she in turn can sue Mohammad on the instrument. The effect of Mohammad’s acceptance of the draft changed Ellen’s liability on the draft from her original liability as drawer to the liability of an indorser. 3–414(d). An acceptor who dishonors a draft is liable to an indorser.
- Another possibility is presenting through banking channels. Article 4 applies to items, which includes checks but is not limited to them. “ ‘Item’ means an instrument or a promise or order to pay money handled by a bank for collection or payment.” 4–104(a)(9).
- Thomas takes the draft to his bank which sends the draft to Mohammad’s bank. The purpose is not to present the draft to Mohammad’s bank for payment. Mohammad’s bank is not the drawee. Rather, the purpose of sending the draft to Mohammad’s bank is “for collection.” Mohammad’s bank then presents the draft to Mohammad for payment by him.
- Open Chapter
Chapter 7. Bank Checks 47 results (showing 5 best matches)
- Some courts have suggested, in applying a variety of technical justifications, that the bank that issues a cashier’s check is strictly, absolutely liable thereon to any holder of the instrument. The rationale for this view is that a cashier’s check is regarded in the commercial world as the equivalent of cash, and to allow the issuing bank to assert defenses to payment would undermine the useful purposes of cashier’s checks as substitutes for money.
- In a very large number of cases the courts have considered if payment can be stopped on a cashier’s check. This broad concern involves two entirely separate issues. The easier issue is whether the bank that issues the cashier’s check becomes liable to the person who procured it, i.e., the remitter, by refusing to dishonor the instrument upon the remitter’s request. The second and harder issue is whether an issuing bank that refuses payment of its cashier’s check, either on its own or at the request of the remitter, can escape liability to the payee or other holder of the instrument.
- 1. B satisfied an obligation to S by giving S a cashier’s check B procured from Bank. In exchange for the cashier’s check, B had given Bank her personal check drawn on another financial institution. B’s personal check bounced. For this reason Bank dishonored the cashier’s check when S presented it for payment. S sued Bank on the cashier’s check. Bank can raise its defense of lack or failure of consideration unless S is a holder in due course who did not deal with the Bank. S may be a holder in due course even though she is the payee of the cashier’s check.
- Issues about stopping payment of certified checks arise less often, but the analysis is fundamentally the same. The drawer lacks the right herself to stop payment, and the bank’s right—as acceptor—to assert defenses seems limited to the same extent as the defensive rights of a bank that issues a cashier’s check.
- Suppose that B buys goods from S who demands payment in the form of a cashier’s check. B purchases a cashier’s check from Bank and delivers the instrument to S. B quickly learns that the goods are defective and asks Bank not to pay the cashier’s check and to return to B the money she paid Bank for the check. Must Bank honor B’s request?
- Open Chapter
Outline 118 results (showing 5 best matches)
Index 42 results (showing 5 best matches)
Table of Cases 10 results (showing 5 best matches)
- Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, In re . . . . . . . . 461
- Kain, In re . . . . . . . . 35
- Omegas Group, Inc., In re . . . . . . . . 8
- Seller Antitrust Litigation, In re eBay . . . . . . . . 498
- Standard Financial Management Corp., In re . . . . . . . . 379
- Open Chapter
- The usual name is “electronic fund transfers” (EFTs). This name is unnecessarily confusing. What is being transferred are funds, i.e., monetary value; and the funds are not any more electronic here than sitting in your checking account. The electronic part that is important with this payment system is causing the movement of funds electronically. So, this book alternately uses the name “electronic transfers of funds.”
- Open Chapter
Advisory Board 11 results (showing 5 best matches)
- Robert A. Sullivan Professor of Law Emeritus,
- Professor of Law, Michael E. Moritz College of Law,
- Professor of Law Emeritus, University of San Diego Professor of Law Emeritus, University of Michigan
- Professor of Law, Chancellor and Dean Emeritus, Hastings College of the Law
- Professor of Law, Yale Law School
- Open Chapter
Table of Statutes 74 results (showing 5 best matches)
Table of Regulations 7 results (showing 5 best matches)
- Publication Date: January 6th, 2015
- ISBN: 9780314290311
- Subject: Commercial Law
- Series: Nutshells
- Type: Overviews
- Description: This text summarizes and explains the fundamental law applicable to a broad variety of current payment systems. Coverage includes issues of liability, transfer, holder in due course status, and check collection applicable to negotiable instruments (checks, notes, drafts) governed by UCC Articles 3 and 4, as well as letters of credit and documents of title governed by UCC Articles 5 and 7. The text further examines the rights, obligations, and federal protection applicable to credit and debit cards. Finally, this title addresses recent legal developments in regard to a variety of electronic fund transfers, prepaid cards and digital currencies.
