Black Letter Outline on Payments Law
Authors:
Nickles, Steve H. / Matthews, Mary Beth
Edition:
2nd
Copyright Date:
2017
28 chapters
have results for payment systems
Chapter XIII Commercial Funds Transfers Under Article 4A 75 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...
- What form of payment system far exceeds all other payment systems as measured by dollar volume?
- an instruction of a sender to a receiving bank, transmitted orally, electronically, or in writing, 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.
- According to the most recent Federal Reserve payments study, debit cards are the most common form of payment as measured by the number of transactions per day (69.5 billion in 2015). The Federal Reserve Payments Study 2016 (initial data release) at 2–3,
- 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 other than 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 beneficiary’s bank, 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).
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Perspective 12 results (showing 5 best matches)
- So how do you handle all these payment systems? Your professor will probably expect you not only to have a basic understanding of the law applicable to each payment system, but also to be able to compare them. On an exam, you may get a question which just relates to one payment system, so you can keep it simple. But the question may give you a fact pattern with a debit card, and then ask you if your answer would change if it was a credit card. So pay attention to the major differences between them. As always, be sure to the answer the specific question that is asked.
- Paying with cash is the most basic, simplest payment system. Since it sets the base line for payments law, we consider it first in Part One.
- “Payments law” is simply the law which applies to a variety of accepted means of satisfying debts such that the persons who are obligated have no further liability. A course in payments law is difficult, however, because over time people have developed a lot of different ways to pay. That result is driven by new transactional patterns, new technology, and economics, but for you it means that you have to figure out half a dozen different payment methods and the different law that applies to each one. The problem is that new systems don’t drive out the old ones, they just tend to fill a particular niche and continue to exist side by side. We know that this can be confusing. So it will probably help you to take a few moments here to understand the broad picture before you focus on the details.
- A transaction that is more familiar to you, but based on the same rationale, is payment by credit card. When you pay with your credit card, you are really substituting the obligation of the bank that issued your card for your own. The merchant that is enrolled into the credit card system (by means of contracts among the parties) agrees to accept that bank’s obligation. Further, the bank that issued your card is bound to pay your charge because of contracts it entered into when it joined the credit card system. At the time you use the card, of course, you simultaneously incur an obligation to pay back the issuing bank. You have essentially borrowed money from the issuer, which you agreed to repay according to the terms of your credit card contract. So it makes sense that the law governing the credit card transaction is primarily private contract law, as modified by federal consumer protections provided by the Truth in Lending Act, 15 U.S.C.A. § 1601–67f, Regulation Z, and the CARD...
- Finally, in Part Five, we consider payment by electronic transfers of funds. If measured by dollar volume, electronic fund transfers (EFTs) far exceed all other payment systems. A person paying by means of an EFT in general uses an electronic means to withdraw or move funds between accounts held at financial institutions. In Chapter Thirteen, we start with commercial funds transfers (also known as wholesale wire transfers). These are EFTs that affect only accounts held by businesses. Funds are moved through banking channels from the account of one business to the account of another business. We consider these separately because the governing law is mainly UCC Article 4. In Chapter Fourteen, we examine consumer EFTs. These are transfers of funds initiated by some electronic means for the purpose of getting a bank to debit or credit a consumer account. Consumer EFTs include ATM transactions, debit cards, and direct deposits or withdrawals carried out through the Automated Clearing...
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Chapter I Currency 22 results (showing 5 best matches)
- Currency is the most basic, simplest payment system, which loosely means an accepted way of paying debts. Payment means satisfying a debt such that the obligor has no further legal liability for the debt once the payment is made and no further interest in the currency, credit, or other money used to effect the 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 payment.”
- In the real lives of typical people, everybody wants cash; and in this country and many other places, everybody accepts 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?
- The older default or general rule is that payment is due in legal tender, i.e., cash. The more modern rule provides that payment or an offer of payment in cash or
- Second, if the parties’ agreement is silent on the means of payment and the obligor offers something other than currency, the obligee can demand payment in legal tender. In this event, however, the obligee must give the obligor any extension of time reasonably necessary to procure the money.
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Chapter XIV Consumer Funds Transfers Under the Electronic Fund Transfer Act 44 results (showing 5 best matches)
- Two other common consumer EFTs are “direct deposit,” often used to deposit employees’ wages and salaries directly into their bank accounts, and “direct payment” (a/k/a “automatic withdrawal”), used by consumers to make recurring payments such as utility bills, tuition, insurance premiums, etc. The backbone network for both of these types of transactions is the Automated Clearing House (ACH) Network—a batch-oriented EFT system maintained between banks for the clearing of electronic payments. ACH transactions are basically payment instructions which direct banks to either debit or credit a deposit account. The ACH system handles billions of transactions and trillions of dollars each year, accounting for 18% by number and 61% in value of noncash payments in 2012. Id. It is administered by NACHA, a not-for-profit self-regulatory association representing nearly 10,000 financial institutions. For a description of an ACH transaction and more,
- 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 fund transfer crosses their networks or otherwise uses their services to affect a consumer account. So, this chapter outlines the main, applicable federal law: the Electronic Fund Transfer Act (EFTA).
- John Smith signed an authorization form, which permitted FNB to pay his electric bill each month to Northwest Electric from John Smith’s personal checking account. In January, Northwest Electric prepared a computer file listing all payments due by its customers, which it forwarded to FNB through the ACH system. FNB therefore transferred $366.17 from John Smith’s account to that of Northwest Electric. Is this transaction governed by the EFTA?
- John Smith ordered a desk by telephone from JJS, and therefore drew on FNB a check for $500 payable to JJS, which he then mailed to JJS. JJS converted the check into an ACH debit entry, which was processed through an ACH system and John Smith’s account was debited for $500. In addition, JJS fraudulently presented the paper check itself for payment to FNB through the bank collection system, and the check was paid. Does John Smith have a cause of action against FNB on the basis of the EFTA? On the basis of Article 4? Does John Smith have a cause of action against JJS?
- As acknowledged by the most recent Federal Reserve payments study, debit cards reflect “the largest increase in number of payments among the payment types considered.” The Federal Reserve Payments Study 2016 (initial data release) at 2, available at
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Capsule Summary Payments Law 84 results (showing 5 best matches)
- Money is any medium of exchange. Currency is symbolic money and is the most basic, simplest payment system. Payment means satisfying a debt.
- ALTERNATIVE PAYMENT SYSTEMS
- 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 other than 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 beneficiary’s bank, 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).
- 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 payment (the ‘beneficiary’) or to instruct some other bank to make payment to the beneficiary.” 4A–104 comment 1.
- Prepaid products include a wide variety of devices and purposes characterized by the payment of funds to the issuer in advance, which are then “loaded” onto the payment device. The devices are not linked to a consumer checking account, and the funds are generally held by the issuer in a bank account maintained by the issuer. The devices may be “closed-loop” (useable only within a closed system like a college campus) or “open-loop” (useable at a wide variety of merchants and locations.) The most common open-loop, reloadable prepaid product is becoming known as a “General Purpose Reloadable” (GPR) card. A temporary GPR card is generally replaced by a permanent card when the consumer “registers” the card after verification of her identity.
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Chapter XII Credit Cards 44 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 merchant, and the bank is the ). Nobody selling anything can participate in the bankcard payment system without operating through a merchant account. 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.
- Four major systems, or networks, provide authorization and settlement services for the bank cards in the United States: Visa, MasterCard, American Express and Discover. Banks are behind or associated with all of them. American Express and Discover are often referred to as closed-loop 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.
- Visa and MasterCard are open-loop 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.
- The charges are then forwarded by or for the merchant bank to the issuing bank for payment through the interchange network connecting member banks. The inter-bank collection of credit card charges is not accomplished through the same channels of the Federal Reserve or other systems for collecting checks, but largely through entirely different and independent, completely private interchange networks maintained separately by the bankcard association.
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Chapter XV Electronic Funds Transfers Which Do Not Debit a Consumer Bank Account 33 results (showing 5 best matches)
- So why would people prefer a virtual currency over the other payment devices we have discussed so far? Proponents argue that virtual currencies are faster, cheaper, more secure than current payment systems, and not subject to reversal. Transactions are not subject to the costs of maintaining a bank account, nor to the merchant discount and interchange fees charged by traditional credit, debit and even GPR card systems. Transactions can be accomplished around the clock and worldwide with the simple use of an Internet connection.
- Alternative Payment Systems
- One gap is for sellers who are unwilling to take the risks inherent in accepting checks (insufficient funds, stop orders) but who are not enrolled in the systems entitling them to take debit or credit cards. Sometimes labeled “person-to-person” or “peer-to-peer payments” (P2P), these sellers may be occasional sellers like those selling over eBay.
- Alernative Payment Systems
- As one author put it, “Bitcoin is not an institution, business, or person—it is not even an entity. Bitcoin is essentially a collection of users embracing a payment mechanism. * * * Once acquired, there is no expectation that the users ever repay the bitcoin system.” Kaplanov,
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Appendix A Answers to Review Questions 105 results (showing 5 best matches)
- A receiving bank is not required by Article 4A to accept a payment order—it is viewed as a mere request. However, FNB may have a contract with Smith, Inc. or with the funds transfer system that requires it to do so. If FNB breaches a contract to accept a payment order, FNB would be liable for damages for breach of contract (although not for consequential damages). 4A–305(d).
- Jane Jones is not discharged by payment, since the payment to Mother did not meet the definition of payment in 3–602(a). Payment was made the person entitled to enforce the instrument (John Smith). The right person paid the wrong person. However, Jane Jones might have a personal defense of payment if Mother was acting as the agent for John Smith. Payment of the underlying obligation does not technically discharge the liability, and could not be asserted against a HDC.
- Yes. A “funds transfer” means a series of transactions beginning with a payment order, made for the purpose of making payment to a beneficiary. 4A–104(a). A “payment order” means an instruction sent to a receiving bank, which can be transmitted in a simple writing like this one. 4A–103(a)(1). The payment order need not be electronic (although it usually will be).
- Jane Jones is discharged by payment. Payment by the drawee banks meets the definition of payment in 3–602(a) because the drawee bank has paid
- Because Jane Jones is the “customer” of FNB, she is entitled to stop payment under 4–403(a). Because John Smith is a “person authorized to draw on the account”, he is also entitled to stop payment. Id. The payee, Abraham Lincoln, has no right to stop payment. 4–403, comment 2.
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Summary of Contents 16 results (showing 5 best matches)
Table of Contents 32 results (showing 5 best matches)
- The usual name for this subject 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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Part two Paying by Check 2 results
- 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. In return for your deposit, you get 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.
- There are several, general areas of concern with respect to checks as a means of payment:
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Chapter X Paying Documentary Drafts Under Articles 3, 4, and 7 16 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 “payment against documents.” This scheme permits a simultaneous exchange of goods for cash or other payment, even when the buyer and seller are located far apart, by addressing payment to documents covering the goods rather than to the goods themselves.
- 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. 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 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.
- Jane Jones (located in New York) wishes to sell goods to John Smith (located in Los Angeles) for $5000. In order to give up her control of the goods only upon payment by John Smith, Jane Jones utilizes “payment against documents.” Jane Jones therefore delivers the goods to Lincoln Trucking, which issues a negotiable tangible bill of lading to her order. At this point, who is the holder of the bill of lading? Who is in control of the goods?
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Chapter II Requisites of a Check Under Article 3 7 results (showing 5 best matches)
- 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.
- 3–109(a). The unofficial essence of payable to bearer is that anyone who possesses or holds the instrument can enforce it, which negatively implies that payment is not limited to a particular person or people. The issuer intends payment to anybody with the instrument. Thus, an instrument that expresses this intent in so many words is, officially, payable to bearer. 3–109(a)(1). The most common expressions of this intent, which meet the test of “payable to bearer”, are:
- does not state any time of payment.
- 3–108(a). Most instruments that are payable on demand are so payable for the last reason: they make no express provision for time of payment.
- states that it is payable to bearer or to the order of bearer or otherwise indicates that the person in possession of the promise or order is entitled to payment;
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Chapter VI Checking Accounts Under Article 4 49 results (showing 5 best matches)
- 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. 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).
- An order by Customer closing a bank account is treated like a stop payment order for purposes of “wrongful payment” disputes, whether the question is effectiveness, duration, damages or subrogation. 4–403 & 4–407. Thus, the stop payment analysis, above, applies to orders closing the account.
- 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.
- In these situations, Customer or its representative will claim that payment was wrongful and seek to have its account recredited for the amount of the check. In addition, Customer may have consequential damages if the wrongful payment results in a wrongful dishonor of subsequent items.
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Appendix D Glossary 22 results (showing 5 best matches)
- Payment against documents
- is another term for direct payment. direct payment.
- Direct payment (a/k/a “automatic withdrawal”)
- means a draft to be presented for acceptance or payment if specified documents are to be received by the drawee before acceptance or payment. 4–104(a)(6).
- is the fee paid by a merchant to the acquiring bank that holds its merchant account in a credit card system. The fee is generally set at around 2–3% of the transaction, and compensates the acquiring bank for its participation in the system.
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Chapter III Liability on a Check Under Article 3 35 results (showing 5 best matches)
- The third 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:
- Essentially, dishonor is the failure of a drawee bank to pay a check, usually upon proper presentment which is a demand for payment. When a check is presented over the counter to the drawee bank for immediate payment, dishonor occurs if this presentment is duly made to the drawee and the check is not paid on the day of presentment. 3–502(b)(2).
- If a check is duly presented for payment to the payor bank otherwise than for immediate payment over the counter, the check is dishonored if the payor bank makes timely return of the check or sends timely notice of dishonor or nonpayment under Section 4–301 or 4–302, or becomes accountable for the amount of the check under Section 4–302.
- 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 “to 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).
- There is also no payment and no discharge if a right person pays the wrong person. The rule requires payment to a person entitled to enforce, who is usually the holder of the instrument.
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Chapter XI Letters of Credit Under Article 5 13 results (showing 5 best matches)
- The nature of the draft gives rise to an important distinction in credit law: The distinction between payment credits and time, usance, or acceptance credits. With a payment credit, the beneficiary presents a sight or demand draft calling for payment, and the issuer honors the credit by paying the draft. With a time, usance, or acceptance credit, the beneficiary draws a draft payable at a specified future date after presentation, and the issuer honors the draft by accepting it, thereby creating a banker’s acceptance. In either case, the seller-beneficiary gets her money sooner or later, but the delay in payment under an acceptance credit is a cost to the seller which she may shift to the buyer in negotiating the price of the goods. This cost is incurred whether the seller holds the accepted draft until maturity or sooner discounts the draft to a third party.
- 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, which 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).
- 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.
- 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 application agreement, to issue a letter of credit containing the terms agreed to by the seller. In this role the buyer is known, technically, as the applicant. 5–102(a)(2).
- 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.
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Appendix C Answers to Practice Examination Questions 6 results (showing 5 best matches)
- A payment order pursuant to a commercially reasonable security procedure is effective. 4A–202(b). Once the payment order has been accepted, it would be too late to cancel it. 4A–211(b).
- The payee of a check whose indorsement is forged has a conversion action against the bank that pays over a forged indorsement. 3–420(a). FNB is making payment to a person not entitled to receive payment. Johnson can therefore
- McIroy bank had stopped payment. So McIlroy’s wrongful payment over the stop order did not cause any damage to Buchanan.
- Buchanan is the drawer of the check, and has the right to stop payment, even orally—an oral stop order is good for 14 days. 4–403(b). McIlroy Bank must therefore stop payment if the order is received in a time and manner affording the bank a reasonable opportunity to act on it. Since McIlroy received the order in the morning, and the check was not paid till late that same afternoon, the check was probably
- Lincoln may try to argue that the check was finally paid by FNB when the midnight deadline passed on Wednesday, and thus that Lincoln has the defense of discharge. However, in order to discharge Lincoln, the payment must have been made made to a person entitled to enforce the check. 3–602(a). After the forged indorsement by Grant, neither Grant nor 2NB could be a person entitled to enforce it. Lincoln must pay $10,000 to Johnson.
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Chapter IV Suing on a Check Under Article 3 26 results (showing 5 best matches)
- The naming of several payees together is often a convenient device for a person who owes one obligation to several persons. If all such named payees indorse an instrument to negotiate it or if all sign a receipt for payment, the distribution of the proceeds need not concern the party issuing the instrument. But everybody is concerned when less than all of the payees transfer the instrument or obtain payment for themselves alone.
- Case #3. Corporation draws a check payable to Bank. The check is given to an officer of Corporation who is instructed to deliver it to Bank in payment of a debt owed by Corporation to Bank. Instead, the officer, intending to defraud Corporation, delivers the check to Bank in payment of the officer’s personal debt, or the check is delivered to Bank for deposit to the officer’s personal account. If Bank obtains payment of the check, Bank has received funds of Corporation which have been used for the personal benefit of the officer. Corporation in this
- The story is different if the check is payable to A and B. If B alone gets the money, A—though entitled to a single recovery—can go after B and B’s bank, the drawee bank, and the drawer. The banks are liable for conversion to the extent provided by 3–420. At least to the extent of A’s individual interest, the drawer is still liable to A on the check. B alone was not a person entitled to enforce. Thus, there was no payment to such a person. Thus, there was no payment that discharged the drawer’s liability on the check. 3–602(a).
- A special exception applies when a check payable to an identified person is deposited with a bank for collection. Suppose drawer buys goods from seller and gives the seller a check for the price of the goods. The seller deposits the check in her bank, which usually is not the drawee bank. The seller’s bank, known as the depositary bank, will act for the seller in presenting the check to the drawee bank for payment.
- The plaintiff presented an instrument and got paid but the payment was a mistake and the person who paid the plaintiff recovers from her, leaving the plaintiff without possession of the instrument but with the right to collect from the person who rightfully was liable on the instrument and should have paid the plaintiff. 3–418(d).
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Chapter VIII Bank Checks Under Articles 3 and 4 34 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.
- Jane Jones bought land from John Smith for $50,000. Since John Smith was unwilling to receive payment by an ordinary check, he required that Jane Jones bring a cashier’s check to the closing. Jane Jones therefore purchased a cashier’s check from FNB, which was drawn by FNB on FNB and made payable to John Smith. Jane Jones delivered the check to John Smith at the closing. Before John Smith presented the check for payment to FNB, Jane Jones learned that the title to the land was defective. Jane Jones therefore requested that FNB stop payment on the cashier’s check. Must FNB stop payment? If FNB chooses to do so, can it raise Jane Jones’ defense?
- FNB purchased land from John Smith for $50,000. FNB therefore drew a teller’s check on 2NB payable to John Smith for $50,000. After delivering the check to John Smith at the closing, FNB learned that the title to the land was defective. FNB therefore requested that 2NB stop payment on the teller’s check. Must 2NB stop payment?
- 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.
- 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.
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Chapter IX Paying Against Ordinary Drafts 13 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.” 3–413(a).
- 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.
- What is the advantage of “payment against documents” as compared to payment by check?
- 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.”
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Chapter V Check Collection Under Article 4 54 results (showing 5 best matches)
- 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 terms, “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.
- www.philadelphiafed.org/about-the-fed/who-we-are/payment-system
- Section 4–104(a)(11) defines “settle” as paying “in cash, by clearing-house settlement, in a charge or credit or by remittance, or otherwise as agreed. A settlement may be either provisional or final.” In the forward collection process, a bank to which a check is forwarded for collection or presented for payment is expected to settle with the forwarding or presenting bank. Under Article 4, at least, these settlements are usually provisional. They are conditioned upon final payment by Payor Bank under 4–215(a). Thus, provisional settlements “become final upon final payment of the item by the payor bank.”
- A check has little efficacy until presented to the drawee for payment. Presentment itself is required and defined by Article 3. Article 4, however, governs the largely banking process of getting a check presented and hopefully paid. This process is called check collection and is the focus of this chapter, particularly the end result of the process which is either payment or dishonor of the check by the drawee bank (which Article 4 calls the payor bank, 4–105(3)).
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Chapter VII Check Fraud Under Articles 3 and 4 35 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:
- An instrument is * * * converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.
- 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 * * * to determine 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 notify the bank of the relevant facts.” 4–406(c).
- An important side issue here is why, in either example, B 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, 3–602(a) and ( c) (discharge requires payment to a person entitled to enforce a 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 later in this chapter.)
- 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.
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Appendix B Practice Examination Questions 6 results (showing 5 best matches)
- When Buchanan discovered that the autograph was a fake, Buchanan telephoned McIlroy Bank early one morning to stop payment. McIlroy Bank informed Buchanan that it would not stop payment until Buchanan put his stop order in writing. Before Buchanan could get to McIlroy Bank to do so, the check was paid to Grant late that same afternoon in cash at a drive-through teller’s window. Grant still has the cash.
- An Article 4A payment order transmitted to a commercial account at Reagan’s bank pursuant to a commercially reasonable security procedure, which amount Reagan then withdrew.
- Washington left a briefcase containing his checkbook and his rubber signature stamp in an airport waiting room. Adams found them, stamped the drawer’s line on one of the checks “George Washington,” and drew a check on First National Bank (FNB) in the amount of $3000 payable to the order of Adams. Adams then indorsed the check “Pay to Jefferson, John Adams,” and delivered it to Jefferson in payment for services previously rendered. Jefferson, not knowing of any problem, indorsed the check “Thomas Jefferson” and deposited it into his checking account at Second National Bank (2NB).
- Buchanan drew a $2000 check on McIlroy Bank payable to the order of Lincoln for the purchase of a baseball that Lincoln falsely represented had been autographed by Babe Ruth. Lincoln indorsed the check, “Pay to Johnson, Abraham Lincoln,” and delivered it to Johnson to satisfy an overdue house payment that Lincoln owed Johnson for the prior month. Johnson, who was ignorant of the falsehood, indorsed the check “Andrew Johnson,” and delivered it to his no-good son-in-law, Grant, as an early Christmas present to enable Grant to buy presents for the family.
- Carter gave his payment device and the necessary means to utilize it to his employee, Reagan, to purchase a $40 tank of gas for the company van on June 10. Before returning the device that evening, Reagan used it without permission to purchase $100 worth of
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Payments Law 1 result
Index 27 results (showing 5 best matches)
Title Page 1 result
- Publication Date: April 13th, 2017
- ISBN: 9781634603171
- Subject: Commercial Law
- Series: Black Letter Outlines
- Type: Outlines
- Description: Black Letter Outlines are designed to help a law student recognize and understand the basic principles and issues of law covered in a law school course. Black Letter Outlines can be used both as a study aid when preparing for classes and as a review of the subject matter when studying for an examination. Each Black Letter Outline is written by experienced law school professors who are recognized national authorities in their subject area. The Payments Law Outline summarizes and explains the fundamental law applicable to a broad variety of current payment systems, including checks, drafts, credit cards, debit cards, prepaid cards, and digital currencies.