Payments Law in a Nutshell
Authors:
Matthews, Mary Beth / Nickles, Steve H.
Edition:
2nd
Copyright Date:
2015
22 chapters
have results for payment systems
Chapter 1. Currency 15 results (showing 5 best matches)
- 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 older default or general rule is that payment is due in legal tender, i.e., cash. Even that rule might be subjected to a rule of reasonableness, however. , 530 N.Y. Supp. 2d 493 (Sup. Ct. 1988) (bus system entitled to require tokens because “the absolute language of the legal tender statute is clearly modifiable by the necessary consideration of what is reasonable under the circumstances.”) The more modern rule makes acceptable payment or an offer of payment in cash
- 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.”
- 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?
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Chapter 12. Commercial Funds Transfers 64 results (showing 5 best matches)
- A receiving bank has no duty to accept a payment order unless the bank makes an agreement, either before or after issuance of the payment order, to accept it, or acceptance is required by a funds transfer system rule. If the bank makes such an agreement it incurs a contractual obligation based on the agreement and may be held liable for breach of contract if a failure to execute violates the agreement. In many cases a bank will enter into an agreement with its customer to govern the rights and obligations of the parties with respect to payment orders issued to the bank by the customer or, in cases in which the sender is also a bank, there may be a funds transfer system rule that governs the obligations of a receiving bank with respect to payment orders transmitted over the system. Such agreements or rules can specify the circumstances under which a receiving bank is obliged to execute a payment order and can define the extent of liability of the receiving bank for breach of the...
- , to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary if: (i) the instruction does not state a condition to payment to the beneficiary other than time of payment, (ii) the receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender, and (iii) the instruction is transmitted by the sender directly to the receiving bank or to an agent, funds-transfer system, or communication system for transmittal to the receiving bank.
- Together, checks and credit cards are still the most common form of payment as measured by the number of transactions per day. However, commercial electronic fund transfers (a/k/a commercial or wholesale wire transfers) far exceed all other payment systems as measured by dollar volume on a daily basis. Each wholesale wire transfer is usually six figures or more, and total payments over the principal funds transfer services exceed $4 trillion per day.
- CHIPS provides a final intraday settlement system, continuously matching, netting, and settling queued payment orders throughout the business day. All CHIPS payment orders are settled against positive balances and are simultaneously offset by incoming payment orders, or some combination of both. To facilitate this process, the funding participants jointly maintain an account (CHIPS account) on the books of the Federal Reserve Bank of New York. Each CHIPS participant must fund this account via a Fedwire funds transfer to fulfill its pre-funded opening-position requirement. These required balances are then used to settle payment orders throughout the day.
- There are two principal wire transfer services through which commercial funds transfers are effected between banks: Fedwire and CHIPS (The Clearing House Interbank Payments System). In regard to Fedwire:
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Chapter 3. Check Collection 73 results (showing 5 best matches)
- See Supporting the Nation’s Payment Systems: Check Processing.
- Most typically, of course, the payor bank pays the check by pushing cash across the counter within minutes of presentment. The delivery of the cash is, in Article 4, “final payment” under 4–215(a)(1), subject to limited, restitution recovery by Payor for payment by mistake set out in 3–418. The effect of final payment is that Payor Bank has satisfied its contractual obligation to Drawer (under the deposit agreement between them), and the obligation of Drawer on the check and on the underlying obligation are discharged. 3–602 & 3–310(a–b).
- 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.
- B. RESTITUTION FOR MISTAKEN PAYMENT DESPITE FINAL PAYMENT
- 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
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Chapter 4. Checking Accounts 48 results (showing 5 best matches)
- See Supporting the Nation’s Payment System: Check Processing,
- 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
- The “customer or any person authorized to draw on the account” may stop payment. 4–403(a). If the signature of “more than one person is required to draw on an account, any of these persons may stop payment.” Id. The payee of a check, therefore, may not stop payment. Id. comment 2.
- 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).
- Wrongful payment means that the payor bank has paid a check that is not properly payable under the deposit agreement with the customer against whose account the check was drawn. The payment, though wrongful against the customer, is fully effective under Article 4 to make final any settlements and to discharge liabilities under Article 3. The bank, however, is not entitled to charge the customer’s account for the amount of the item. To do so is wrongful against the customer, who is entitled to have her account re-credited and in appropriate circumstances to recover other damages the wrongful payment caused.
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Chapter 13. Consumer Funds Transfers 50 results (showing 5 best matches)
- 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).
- The ACH payments system was designed to allow corporations and consumers to reduce or eliminate the use of paper checks to make routine payments. Therefore most of the payments transferred over the ACH network represent recurring credit payments intended for the accounts of the receivers. Typical payments are salaries, consumer and corporate bill payments, interest and dividends, and Social Security and other entitlement programs originated by the U.S. Treasury. However, because of the ACH’s ability to process large volumes of payments efficiently and its ability to allow an originator to debit the banking account of the payer, it increasingly is used for other types of payments, such as insurance premiums, purchases of stock, and consolidation of corporate cash balances.
- IT Booklets—Retail Payment Systems—Payment Instruments, Clearing, and Settlement—The Automated Clearing House (ACH)—The ACH Network, at http://ithandbook.ffiec.gov/ (last visited Oct. 29, 2014).
- The automated clearing house (ACH) network is a batch-oriented, electronic funds transfer system for the interbank clearing of electronic payments for participating depository financial institutions. ACH transactions are basically payment instructions which direct a financial institution to either debit or credit a deposit account. First developed by bankers in California in the 1970s, the ACH Network currently moves “almost $39 trillion and 22 billion electronic financial transactions each year.” Originally transferring data by paper, magnetic tapes, and diskettes, the current network is an electronic payment system which in the U.S. “moves more than 20 percent of all electronic transactions each year.”
- The only public-sector processor is the FED ACH, which is an electronic payment delivery system owned by the Federal Reserve. FED ACH exclusively handles all ACH transfers of federal funds. The Debt Collection Improvement Act of 1996 required the federal government to convert most of its nearly one billion annual payments from paper check to electronic funds transfers (EFT), including federal salary, benefit, vendor and miscellaneous payments disbursed either by the U.S. Department of the Treasury or by other agencies.
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Chapter 11. Credit Cards 50 results (showing 5 best matches)
- What is it about the bankcard system that gives credibility to payment by credit card so that merchants readily accept Visa or MasterCard credit cards as a means of payment? It is nothing in the UCC.
- 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 ). 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.
- 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.
- Four major systems, or networks, provide authorization and settlement services for the bank cards in the United States: Visa, MasterCard, systems. Basically, the same firm issues the card to cardholders and enrolls merchants to accept the card; and to a larger degree the issuer itself vertically controls and handles all transaction and payment operations associated with the use of the card.
- systems. Thousands of banks operate horizontally under each association’s banner independently issuing cards and signing up merchants. Because the issuer of a card and the merchant who accepts it are often tied to different banks, an interchange system settles accounts between them; and third-party processors typically act as intermediaries for merchants and banks in the card payment network.
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Chapter 14. Funds Transfers Which Do Not Debit a Consumer Bank Account 28 results (showing 5 best matches)
- 3. ALTERNATIVE PAYMENT SYSTEMS
- embracing a payment mechanism. * * * Once acquired, there is no expectation that the users ever repay the bitcoin system.”
- Fred H. Miller, UCC Study Committee on Payment Systems Postponed, 65 Consumer Fin. L. Q. Rep. 437, 438 (2011).
- 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).
- Remarks by Chairman Alan Greenspan, Regulation of Electronic Payment Systems, U.S. Treasury Conference on Electronic Money & Banking: The Role of Government (Sept. 19, 1996), available at http//www.federalreserve.gov/boarddocs/speeches/1996/19960919.htm (last visited Nov. 5, 2014).
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Outline 36 results (showing 5 best matches)
Index 29 results (showing 5 best matches)
Part II. Paying by Check 6 results (showing 5 best matches)
- 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.
- 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.
- There are six general areas of concern with respect to checks as a means of payment:
- 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.
- When you give someone a check the person does not immediately turn around and tell you to pay it. The whole idea is that the person will take it to your bank and your bank will pay it for you. The process of getting the check to your bank for payment is known as the check collection process, which is governed by UCC Article 4. Most important, Article 4 defines the process of how and when a check is dishonored or paid, and so Article 4 determines the state of your liability on the check and the underlying obligation for which the check was given and taken.
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- 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.”
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Chapter 9. Tying Drafts to Documents of Title 18 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 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).
- 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 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).
- Ordinarily, when the sales contract provides for payment against documents, the buyer is not entitled to inspect the goods before paying for them. 2–512(1) & 2–513(3). So, when the seller’s draft is presented to the buyer for payment, the buyer will inspect the document of title to insure that the bill describes goods of the kind and quantity she ordered. The credibility of this description is backed by what is, in effect, a warranty by the issuer of the document that the issuer has the goods described and that the goods are as described in the document. This warranty is stated in terms of the carrier’s liability for nonreceipt or misdescription:
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Chapter 6. Shifting Check Fraud Losses 22 results (showing 5 best matches)
- 3–418(c). It is a defense to any action by any payor to recover payment or escape acceptance made on any instrument without regard to the nature of the error the payor made as to the state of the drawer’s account. So the defense is available whether the loss to the payor was caused by a forged drawer’s signature; an overdraft; payment over a stop order; or any other circumstance giving reason for the payor bank’s complaint. Behind 3–418(c) is the argument for finality of payment, and this argument applies whatever the payor’s reason for avoiding payment or acceptance. Also behind 3–418(c) is the additional reason that the drawee is responsible for knowing the state of the account before acceptance or payment.
- 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:
- 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:
- (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.
- 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.)
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Chapter 2. Liability on Checks Under Article 3 88 results (showing 5 best matches)
- The third and final limit of 3–602(a) is that the actual payment must match the statutory definition of “payment” that applies here, which requires that payment is made:
- Interestingly, the mechanics of “payment” for any kind of instrument are not fully described. The medium obviously is money; but procedural aspects are not specified, including the means of payment and the point at which payment is accomplished. These matters are important because they affect how and when the risks shift with respect to the funds.
- 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...
- (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.
- A person who signs an instrument becomes liable to pay it. It is natural, therefore, that her payment of the instrument should end her liability on it. The law confirms and reaches this outcome by way of discharge, by providing that “[t]o the extent of a payment * * * the obligation of the party obliged to pay the instrument is discharged * * *.” 3–602(c). Also, by separate rule, payment of the instrument usually discharges the underlying obligation. 3–310(b–c).
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Chapter 8. Ordinary Drafts Under Articles 3 and 4 6 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.”
- 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.
- How does Thomas present the draft to Mohammad for payment or acceptance? He could present the draft directly himself—in person or through some form of snail mail.
- 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).
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Chapter 10. Letters of Credit 12 results (showing 5 best matches)
- The buyer is required to reimburse the issuer for paying the letter of credit. In effect, therefore, the buyer is paying for the goods when the bank honors the seller’s demand for payment under the letter of credit. Thus, the buyer must pay for the goods before actually getting them. The buyer, however, gets the next best thing. She gets control of the goods upon payment because the bank will not pay the seller unless the seller transfers documents covering the goods.
- payment credits
- 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
- 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.
- is “a definite undertaking * * * by an issuer [the buyer’s bank] to a beneficiary [the seller] at the request or for the account of an applicant [the buyer] * * * to honor a documentary presentation by payment or delivery of an item of value.” 5–102(a)(10).
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Chapter 7. Bank Checks 23 results (showing 5 best matches)
- 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.
- 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.
- 2. S sold goods to B who paid for them using a cashier’s check issued by Bank. The goods were defective, and B asked Bank to stop payment of the check. Because B was a valued customer, Bank dishonored the cashier’s check when S presented it for payment. S sued Bank on the instrument. Bank should not be allowed to assert B’s breach of contract claim as a defense.
- Even when banks are liable as issuers of cashier’s check, drawers of teller’s checks, or acceptors of certified checks, they retain the power to deny their liability and refuse payment even when they lack the right to do so. This power is held by anybody who is liable on an instrument, but there is more of a problem when the payor is a bank. The expectation of payment is higher when a bank is obligated on an instrument, and it leads to extraordinary reliance equally on cashier’s, teller’s, and certified checks.
- Note that the customer asking the bank to certify her check is not presenting for payment or any other purpose. The request neither imposes nor triggers any obligations or liabilities. “The drawee of a check has no obligation to certify the check, and refusal to
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Chapter 5. Check Fraud—Allocating Risk and Loss Between Payor Bank and Customer 16 results (showing 5 best matches)
- 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 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
- 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.)
- 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.
- The duty on the customer is not imposed unless the bank either (1) returns or makes available the checks paid or (2) provides information sufficient to allow the customer to identify them. 4–406(a). Which course the bank follows is a matter of bank-customer agreement; but if their agreement requires the bank only to provide identifying information, the duty on the customer requires adequate information—“sufficient to allow the customer reasonably to identify the items paid.” 4–406(a). Images of the items will do but are not required. It is sufficient that the bank describes the checks by item numbers, amount, and dates of payment. 4–406 comment 1. It is not necessary for the bank to identify the payee of each item and the item’s date. The customer should be able to determine these two pieces of information from her own records based on the number of the check, its amount and date of payment supplied by the bank.
- The effect of a customer’s breach of the 4–406(c) duty is described by 4–406(d). Basically, if the bank proves that it suffered a loss because the customer failed to discover or report an unauthorized payment, the customer is precluded from asserting the alteration or the customer’s unauthorized signature against the bank. See 4–406(d)(1).
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- 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.”
- 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.
- 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.
- 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.
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Table of Cases 1 result
Half Title 1 result
Title Page 1 result
- 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.