High Court Cases Summaries on Commercial Law (Keyed to Whaley)
Author:
Editorial Staff, Publisher's Editorial Staff
Edition:
11th
Copyright Date:
2017
106 chapters
have results for payment systems
Parr v. Security National Bank 7 results (showing 5 best matches)
- (Reynolds) Yes. We hold that a bank is given reasonable opportunity to stop payment on a check when the description received is exact in all respects except for a single digit error in the check amount. This is true in spite of the bank’s computerized stop payment system that only searches for checks with the exact amount.
- Parr (P) wrote a check drawn on her account with Security National Bank (Bank) (D) and made payable to Champlin Oil. The following day, she telephoned the Bank (D) and ordered payment stopped on the check. Parr (P) gave the Bank (D) her account number, the check number, the date, the payee and the amount of the check. However, there was a 50-cent error in the amount of the check. Either the next day or the day thereafter, she went to the Bank (D) and issued a written stop order payment, which also contained the same error. [You’d think she could get it right the second time!] The Bank (D) paid the check the following day. Parr (P) sued the Bank (D) seeking recovery for the amount of the check, interest thereon, attorney’s fees and costs. The Bank (D) defended on the ground that its computers were programmed to stop payment only if the reported amount of the check was correct. It asserted that the 50-cent error relieved it of liability. The Bank (D) argued that whether a stop payment...
- Check maker attempted to have bank stop payment on a check and gave all requested information, except for 50-cent error in check amount.
- A bank is given reasonable opportunity to stop payment on a check when the description received is exact in all respects except for a single digit error in the check amount.
- Appeal from judgment seeking recovery for damages for failure to stop payment of check.
- Open Chapter
- Fred Fentress (D) agreed to install a “flood control system” in the home of Eric and Beulah Hodge (D) for $900. In partial payment for the work, Beulah Hodge (D) wrote a check for $500 to “Fred Fentress- A-OK Plumbing.” When Fentress (D) failed to appear on the date set for installation, Eric Hodge (D) telephoned him and announced the contract was “canceled.” Hodge (D) also told Fentress (D) that he would order his bank, Citicorp Savings, not to pay the check. Hodge (D) stopped payment on the check that day. Fentress (D) then presented the check at Kedzie & 103rd Street Currency Exchange (“Currency Exchange”) (P) and obtained payment. When the Currency Exchange (P) presented the check for payment at Citicorp, payment was refused. The Currency Exchange (P) then sued Hodge (D) and Fentress (D) for the amount stated. Fentress (D) was not a licensed plumber as was required under Illinois law.
- . Hodge (D) contends Fentress (D) was not a licensed plumber, and his promised performance under the contract is illegal and bars the Currency Exchange’s (P) claim for payment. Illegality arises under a variety of statutes and is left to local law. However, it is only when an obligation is made entirely “null and void” under local law that illegality exists as a real defense to defeat the claim of a holder in due course. Historically, this court has recognized illegality to arise only when there is a statute affecting both the underlying contract and the instrument exchanged upon it. A transaction which is void negates the obligation to pay arising from it between the contracting parties. However, unless the instrument memorializing the obligation is also made void by statute, an innocent third party may claim payment of it against the maker. Our legislature has declared that any instrument involving gambling or the payment of gambling debts is void. The existence or absence of a...
- Hodge (D) wrote a check and then stopped payment on it for work to be performed by an unlicensed plumber.
- Open Chapter
- Linda and William McNatt (P) needed to buy a computer printing system for their company, Quick-Trip Printers, but they could not afford it. In order to arrange financing, they turned to Burnham Leasing Company (Burnham). Under a lease finance agreement with Burnham, the McNatts (P) selected equipment to be purchased from Itex Systems Southeast, Inc. (Itex) and then negotiated with Itex’s representatives for the purchase of the equipment. Once the purchase terms were negotiated, Burnham stepped in and actually bought the equipment from Itex. Burnham agreed to lease the equipment to the McNatts (P) for a monthly rental payment and then assigned its lease rights to Colonial Pacific Leasing Corporation and Datronic Rental Corporation (the Lessors) (D). Soon after taking delivery of the Itex equipment, the McNatts (P) discovered that it did not function as Itex representatives had promised; consequently, the McNatts (P) withheld lease payments to the Lessors (D) and, in turn, the Lessors...
- A lessee is attempting to sue the lessor of equipment for breach of the implied warranties of merchantability and fitness for a particular purpose. The lessor has filed countersuit against the lessee seeking payment on the lease.
- ...held liable for a breach of warranty. Ordinarily, under a lease finance agreement, the court will not treat the lessor as a seller with warranty liability because, under such an arrangement, the lessor’s role is limited to providing financing for the equipment. The lessor does not warrant that the goods leased will be free of defects and the lessor expects to be paid even though the equipment may be defective or totally unsuitable to the buyer’s needs. In this case, the fact that the Lessors (D) did not intend to warrant the leased equipment was underscored by the hell or high water clause of the lease agreement. Courts will generally regard a hell or high water clause as valid unless there is a finding of fraud in the inducement of the contract. The clause in question in this case states that any defense to a claim for payment which might have been asserted against the original lessor, Burnham, could not be asserted against the Lessors (D); in essence, the McNatts (P) must...
- to a claim for payments and not from taking the
- Open Chapter
Choice Escrow and Land Title, LLC v. BancorpSouth Bank 16 results (showing 5 best matches)
- and password, PassMark verified that the characteristics of that user’s computer were consistent with the information recorded about the customer’s computer. If a user attempted to access InView from an unrecognized computer, the user would be prompted to answer “challenge questions” to verify the user’s identity. If the user answered these questions correctly, the new computer would be added to the list of recognized computers. Third, BancorpSouth (D) allowed its customers to place dollar limits on the daily volume of wire transfer activity from their accounts. Fourth, BancorpSouth (D) offered a security measure called “dual control.” Under this system, when an InView user submitted a payment order, InView would not send the order to the bank immediately. Instead, the request would create a “pending” payment order that would appear in a separate queue in InView. To send a pending payment order to the bank, a second authorized user would have to log in and approve the pending
- ...way that reflects the reasonable expectations of the other party. One of the challenges in applying the good faith doctrine in the Article 4A context is the apparent overlap between a bank’s compliance with “commercial standards of fair dealing” and its compliance with “commercially reasonable” security procedures. While there may be some evidentiary overlap, we do not believe that the two inquiries are coextensive. The objective good faith inquiry concerns a bank’s acceptance of payment orders in accordance with its security procedures. Thus, the focus of our good faith inquiry is on the aspects of wire transfer that are left to the bank’s discretion. The automation of agreed-upon procedures generally ensures that those procedures will operate in a way that is consistent with the customer’s expectations, as long as the procedures do not “unreasonably vary from general banking usage”—in other words, as long as they are commercially reasonable. We have already determined that...
- A bank customer bears the risk of a fraudulent payment order if the bank’s security measures are commercially reasonable, and the bank accepted the payment order in good faith, and in accordance with the security procedure and any written instruction or agreement of the customer.
- (Wollman, J.) No. A bank customer bears the risk of a fraudulent payment order if the bank’s security measures are commercially reasonable, and the bank accepted the payment order in good faith, and in accordance with the security procedure and any written instruction or agreement of the customer. Article 4A was drafted to balance the rights and obligations flowing from payment orders. One of the liabilities balanced by Article 4A is the risk that a third party will steal a customer’s identity and issue a fraudulent payment order. Generally, the bank bears this risk.
- The bank proves that it accepted the payment order in good faith and in compliance with the security procedure and any written agreement or instruction of the customer restricting acceptance of payment orders issued in the name of the customer.
- Open Chapter
Audio Visual Artistry v. Tanzer 7 results (showing 5 best matches)
- The final billing brought the cost to an amount significantly higher than stated in the contract. Tanzer (D) disputed the final bill and AVA (P) sued for payment. After a second lightning strike, occurring after the action was filed, shut down the entire system, Tanzer (D) hired another contractor to make repairs. That contractor identified several significant problems with the installation.
- The system had some bugs, and Tanzer (D) believed that debugging the system would take about three months. Fifteen months later, however, Tanzer (D) was still having significant trouble with the system. The ongoing bugs were exacerbated by a flood in the media room and a lightning strike that damaged a processor and Ethernet card. Even though “acts of God” were not covered under warranty, AVA (P) replaced the damaged components. Nevertheless, Tanzer (D) was dissatisfied and fired AVA (P), requesting a final billing.
- (Designer-Installer of “Smart Home” Systems) v. (Homeowner)
- The parties contracted for the sale and installation of a “smart home” system, and the buyer refused to pay the final invoice.
- The contract acknowledged that Tanzer’s (D) ideas of what his “smart home” should include would evolve over the course of the project, and specifically provided that “[v]erbal agreements throughout the life of the project may also be honored as part of this contract and will be documented by [Audio Visual Artistry (P)].” When Tanzer (D) and his family moved in about eighteen months later, the parties had agreed to numerous changes to the system.
- Open Chapter
In re Smith’s Home Furnishings, Inc. 6 results (showing 5 best matches)
- (Hall, J.) No. Payments made to a creditor secured by a floating lien, who is fully secured on the petition date, are not preferential unless it is shown that the amount of indebtedness under the floating lien was greater than the amount of collateral at some point during the preference period.
- ...by a first-priority floating lien on the prime inventory and the proceeds from it. Under the loan agreement, TCFC (D) would grant approval to various manufacturers, who in turn ship merchandise to Smith’s after receiving the approval. When Smith’s sold a product financed by TCFC (D), it paid TCFC (D) the wholesale price of that product. However, Smith’s did not segregate its sales receipts, but instead deposited all its sales proceeds into commingled bank accounts at the end of each day. Smith’s bank swept the accounts daily, leaving the accounts with balances of zero. The next day, the bank advanced new funds to Smith’s if sufficient collateral was available, which Smith’s would use to pay operating expenses and creditors, including TCFC (D). Because of this, the allegedly preferential payments were not made directly from the proceeds of the sales of TCFC’s (D) collateral. In 1994, Smith’s suffered a substantial loss, causing TCFC (D) to reduce Smith’s line of credit from...
- U.S. Trustee contending that payments to a floating-lien creditor made during the 90-day preference period were preferential, is held not to have met his burden of proving that the creditor was undersecured at some time during the preference period.
- Payments made to a creditor secured by a floating lien, who is fully secured on the petition date, are not preferential unless it is shown that the amount of indebtedness under the floating lien was greater than the amount of collateral at some point during the preference period.
- . In sum, the court found that TCFC (D) could not have received more by virtue of the thirty-six payments than it would have received in a hypothetical Chapter 7 liquidation without the payments, because at no point within the preference period did the collateral value fall below the outstanding debt. Therefore, Smith’s pre-petition transfers to TCFC (D) were not preferential, since TCFC (D) was entitled to 100% of its claims as a secured creditor. The underlying policy behind
- Open Chapter
First Place Bank v. Olympia Logistics & Services, Inc. 6 results (showing 5 best matches)
- A “payment order” is “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[.]” A “beneficiary” is “the person to be paid by the
- (Roberts, J.) No. Title to funds passes when a payment order is accepted. The rights and liabilities for payment orders and wire transfers is governed by Article 4A of the Uniform Commercial Code. Acceptance within the meaning of Article 4A is the key to entitlement to disputed funds.
- Article 4A of the UCC says that a funds transfer is complete when the beneficiary’s bank accepts the payment order. Most of the time, acceptance is when the bank pays the beneficiary, notifies the beneficiary that the order was received, or notifies the beneficiary that his or her account has been credited concerning that order. If the beneficiary bank credits the beneficiary’s account with the payment order, payment of the bank’s obligation occurs when the beneficiary is notified of the right to withdraw the credit. The beneficiary’s knowledge of the credit is not required to effectuate payment if the funds are made available to the beneficiary. Furthermore, an accepted transfer cannot be revoked without the consent of the beneficiary. The beneficiary bank is obligated to pay the beneficiary after accepting the payment order, so the ownership interest in the funds must pass from the originator after the funds transfer is completed.
- Ritz arranged to purchase two watches from Greis (D) for a total price of $47,000. Ritz and Greis (D) agreed that payment would be made by wire transfer to Greis’s (P) bank account. While Ritz was negotiating with Greis (D), he was also negotiating to sell a car to Olympia (D), a company located in Miami. Ritz told Olympia (D) that the car was located outside of Portland, Oregon. Ritz and Olympia (D) agreed on a purchase price of $47,000 for the car. Olympia (D) agreed to make payment by wire transfer. Ritz directed that the payment be sent to an account with the same number as Greis’s (D) account.
- Title to funds passes when a payment order is accepted.
- Open Chapter
Patriot Bank v. Navy Federal Credit Union 10 results (showing 5 best matches)
- Navy FCU (D) has no defenses to payment in this case. It received full payment for the check, and any other defenses, such as Nation’s Auto being out of business, or that payment already was made, belong to Peeso.
- Navy FCU (D) returned the check to Patriot (P), giving as its reason “absence of endorsement guarantee required.” Patriot (P) returned the check to Nation’s Auto, which informed Peeso that the check he gave them was not good. Peeso did not retrieve the original check, but went to Navy FCU (D) and asked that payment be stopped on that check. Navy FCU (D) agreed to stop payment and issued another check to Peeso, made payable to Nation’s Auto. Peeso agreed to indemnify Navy FCU (D) for any claims made against it for refusing payment of the first check.
- (Roush, J.) No. A customer has no right to stop payment on a cashier’s check. A customer has the right to stop payment only on items drawn on his or her own account, but a cashier’s check purchased by a bank customer is not a check drawn on the customer’s account. When a bank issues a cashier’s check, it becomes obligated to pay the check according to its terms. The bank essentially is assuming the obligations of the maker of a promissory note. It may refuse to pay the check based on any defenses it may have, such as non-payment for the check, unless the check is held by a holder in due course. It may not assert any defenses the customer who purchased the check may have had.
- NO STOP PAYMENTS CAN BE ISSUED ON CASHIER’S CHECKS
- Navy Federal Credit Union (D) stopped payment on a cashier’s check that had been deposited with Patriot Bank (P).
- Open Chapter
- (Ruland) No. We hold that a presenting bank does not extend a presentment warranty to a drawee bank, which warrants all signatures to be genuine, and thus is not liable for amounts paid by drawee bank on forged checks. It is undisputed that under the UCC, a drawee bank is liable to its checking account customer for payment of a check on which the customer’s signature has been forged. Further, when the drawee bank honors the forged instrument, the payment is deemed final for a person who or an entity which takes the instrument in good faith and for value. Pueblo (D) asserts that in this case there were no presentment or transfer warranties made to Decibel (P). Presenting warranties appear in Section 4–208(a), which provides in subsection (1) that the warranty to a drawee assures only that there are no unauthorized or missing endorsements on the checks. If a warranty that all signatures were genuine applied, the final payment doctrine contained in
- when a drawer’s name is forged, the drawee who pays or accepts the draft bears the loss. Decibel (P), the drawee bank here, was therefore clearly liable to its customer for paying out on the forged check. Seeking to recoup its loss, Decibel (P) sued Pueblo (D), the presenting bank, contending that it warranted that the signature on the check was genuine, and thus it breached the presentment warranty under § 4–208 by submitting the check to Decibel (P) for payment. The court quickly rejected this argument because such a holding would be contrary to the final payment doctrine, which provides that the drawee bears the loss for payment on a forged drawer’s signature.
- FINAL PAYMENT DOCTRINE: A drawee who pays an instrument with a forged drawer’s signature bears the loss.
- PRESENTMENT BANK: The bank that presents a check to the drawee bank for payment.
- PRESENTMENT WARRANTY: A promise concerning the credibility of a negotiable instrument made to a payor upon presentment for payment.
- Open Chapter
Floor v. Melvin 7 results (showing 5 best matches)
- , now Section 3–419(d), provides that if the signature of the accommodation party is accompanied by words indicating unambiguously that the party is guaranteeing collection rather than payment of the instrument, liability is limited. The instrument may be enforced only if execution of judgment against the other party has been returned unsatisfied, the other party is insolvent or in an insolvency proceeding, the other party cannot be served with process or it is otherwise apparent that payment cannot be obtained from the other party. [This means try to squeeze the blood from the turnip.] Thus, if the guarantee is for collection, the owner of the note must first make use of legal means to collect it from the debtor and to no avail. Only then may it sue the guarantor. [Nothing is easy!] However, if the guarantee is for payment of the instrument, the guarantor may be sued at once, and liability is not dependent upon prosecution of the maker of the instrument. Therefore, the language of...
- A CONTRACT GUARANTEEING COLLECTION CARRIES GREATER PROTECTIONS FOR THE GUARANTOR THAN ONE GUARANTEEING PAYMENT
- If a contract guaranteeing a note is one for collection, rather than payment, there must first be an effort to collect from, or a showing of insolvency of, the maker of the note before the guarantor may be sued.
- If a contract guaranteeing a note is one for collection, rather than payment, must there first be an effort to collect from, or a showing of insolvency of, the maker of the note before the guarantor may be sued?
- GUARANTOR: A person who makes a promise of payment, or performance of an obligation, under a guaranty agreement.
- Open Chapter
- FAILURE TO PRESENT NOTES FOR PAYMENT AND FAILURE TO GIVE NOTICE OF NON-PAYMENT CAN DISCHARGE LIABILITY OF INDIVIDUAL ENDORSER UNDER CERTAIN CIRCUMSTANCES
- (Spiegel) No. The requirements of presentment and notice of dishonor are not excused with respect to an endorser of subsequent notes who had no active participation or knowledge of the note maker’s affairs. Initially it must be said that the contention that the subsequent checks were taken in payment of the obligation and therefore relieved the endorsers of further liability has no merit and is rejected. Pursuant to
- Two individual endorsers of corporate notes sought to have liability discharged for failure to present notes for payment and failure to give notice of dishonor.
- PRESENTMENT: The demand for payment made by the holder of the instrument to the maker of a note or a drawee of a draft.
- ...on the back of the note. An additional two notes were thereafter executed by Dolly (D1), and endorsed on the back by two individuals in lieu of the second promissory note. Five checks payable to Makel (P) were executed simultaneously with the most recent two notes. One of the checks was returned unpaid and the other four were never deposited. Finally, two additional corporate checks were given to Makel (P) by Dolly (D1), one of which was paid [weird methods for repaying loan]. At the end of trial, one individual defendant was dismissed, and judgment was entered against Dolly (D1) who offered no defense. The motion to dismiss the complaint by the individual endorsers on the notes, defendant Goldberg (D2) and defendant Kushner (D3), is before the court for determination. The grounds for the motion to dismiss are: 1) the promissory notes of the corporation had never been presented for payment and thus the obligation of the endorsers, Goldberg (D2) and Kushner (D3), was discharged...
- Open Chapter
Grain Traders, Inc. v. Citibank, N.A. 4 results
- A PAYMENT ORDER IS A SERIES OF INDIVIDUAL TRANSACTIONS UNDER WHICH LIABILITY FOR PAYMENT OR REFUND DOES NOT EXTEND BEYOND THE PERSONS OR BANKS INVOLVED IN ONE PARTICULAR TRANSACTION IN THE CHAIN
- (Chin, D. J.) No. If an originator chooses to transfer funds through an intermediary bank that fails to complete the transfer due to insolvency, the risk of loss falls on the originator who chose the method of transfer. Grain Traders (P) argues that Citibank (D) knew or should have known that the next bank in the chain was experiencing financial problems, and should have, therefore, rejected the payment order. Grain Traders (P) seeks to recover under four causes of action: (1) a refund under
- A company that issued a wire transfer order sought a refund from an intermediary bank in the transfer process on the ground the intermediary bank failed to reject the payment order because the intermediary bank should have known that the transfer would fail due to the insolvency of other intermediary banks.
- Grain Traders, Inc. (P) initiated a funds transfer to effectuate payment of $310,000 to Claudio Goidanich Kraemer. As per Grain Traders’ (P) payment order instructions, the transfer was to be routed as follows: (1) Grain Traders’ account at BCN was to be debited $310,000; (2) the $310,000 was to then be transferred to BCI by way of a $310,000 credit to BCI’s account at Citibank New York (P) and a corresponding debit to BCN’s account at Citibank (P); (3) Citibank (P) was then to instruct BCI to pay Banco Extrader, S.A.—the beneficiary Kraemer’s bank—the total of $310,000 by way of an unspecified transaction; (4) finally, the Banco Extrader was to credit its client’s account the sum of $310,000. The order proceeded as instructed until Citibank (P) credited BCI’s account with instructions to pay Banco Extrader. At about the same time the transfer was to take place, Citibank (P) placed BCI’s account on “hold for funds” status. Citibank (P) took the action because BCI’s account was...
- Open Chapter
Chapter Eighteen. Letters of Credit 4 results
- If a party claims that payment under a letter of credit would aid the beneficiary in facilitating a material fraud on the issuer or applicant, and can demonstrate that it is more likely than not to succeed under its claim, a court should enjoin payment.
- After receiving a shipment of bogus goods, a merchant sought to restrain the payment of drafts under a letter of credit issued upon the merchant’s application to secure the purchase price of the goods.
- Where the seller’s fraud has been called to the bank’s attention before the drafts and documents have been presented for payment, the principle of the independence does not prevent the bank from dishonoring the presentation.
- A letter of credit must be honored unless it is a forgery or unless the underlying transaction or the demand for payment is clearly a sham, and it is apparent that honoring it would facilitate what amounts to a scheme to defraud.
- Open Chapter
Intrinsic Values Corp. v. Superintendencia De Administracion Tributaria 6 results (showing 5 best matches)
- If a party claims that payment under a letter of credit would aid the beneficiary in facilitating a material fraud on the issuer or applicant, and can demonstrate that it is more likely than not to succeed under its claim, a court should enjoin payment.
- If a party is able to demonstrate that payment on a letter of credit would facilitate a material fraud against the applicant or issuer, is a court permitted to enjoin payment?
- provides: “If an applicant claims that . . . [the] honor or . . . presentation [of a document] would facilitate a material fraud by the beneficiary on the issuer or applicant, a court . . . may . . . enjoin the issuer from honoring a presentation . . . only if the court finds that: (d) On the basis of the information submitted to the court, the applicant is more likely than not to succeed under its claim of . . . material fraud.” Superintendencia (P) demonstrated that honoring a presentation would assist the beneficiary in facilitating a material fraud on the issuer or applicant. The record demonstrates that Intrinsic (D) did not perform its obligations under the contract; Superintendencia (P) appropriately notified Intrinsic (D) of its cancellation and obtained an injunction against payment by the issuing bank; and Superintendencia (P) filed suit to prevent Intrinsic (D) from committing a material fraud by presenting documents for payment per the letter of credit. Superintendencia...
- stands for the narrow yet significant principle that an issuer of a letter of credit has a legal duty to refuse payment when making payment would work a material fraud on the issuer or the applicant for the letter. This principle is the most significant exception to the independence principle, which holds that a bank’s obligation to a beneficiary under a letter of credit is independent of the beneficiary’s performance on the underlying contract. The holding of
- PRESENTMENT: The presentation of documents to an issuer of a letter of credit or a confirming bank in an attempt to obtain payment under the letter.
- Open Chapter
Chapter Fourteen. Wrongdoing and Error 2 results
- A depository bank is strictly liable for conversion on a forged endorsement check if it makes payment with respect to the instrument for a person not entitled to enforce the instrument or received payment.
- The time limitations for bringing claims for improper withdrawals or payments may be shortened by mutual agreement.
- Open Chapter
Klingbiel v. Commercial Credit Corp. 4 results
- ACCELERATION CLAUSE: A term contained in an agreement that requires payment of the balance due sooner than the due date because of the happening of some event described in the contract, such as failure to make a payment due under an installment contract.
- Mr. Klingbiel (P) sued Commercial Credit Corp. (Commercial) (D) for the unlawful conversion of his automobile following its repossession by Commercial (D). He purchased his new vehicle from a Ford dealership, and entered into a purchase mortgage contract that provided for a down payment and a series of monthly installment payments. The contract contained acceleration and enforcement provisions, which allowed the unpaid balance to become due forthwith if the seller or its assignee “should feel itself or Vehicle
- provides that a party to a contract with an acceleration term may “accelerate payment or performance or require collateral” when the party “deems himself insecure.” However, such power exists only if the party in good faith believes that the prospect of payment or performance is impaired. In this case, there were no facts presented to show why Commercial (D) felt “
- Vehicle purchase mortgage contract assignee, Commercial (D), repossessed Klingbiel’s (P) vehicle without notice or demand, and before installment payment was due.
- Open Chapter
Chapter Fifteen. Electronic Banking 5 results
- A bank customer bears the risk of a fraudulent payment order if the bank’s security measures are commercially reasonable, and the bank accepted the payment order in good faith, and in accordance with the security procedure and any written instruction or agreement of the customer.
- Title to funds passes when a payment order is accepted.
- A company that issued a wire transfer order sought a refund from an intermediary bank in the transfer process on the ground the intermediary bank failed to reject the payment order because the intermediary bank should have known that the transfer would fail due to the insolvency of other intermediary banks.
- A Florida bank inappropriately accepted a payment order that correctly identified the beneficiary by name, but identified a nonexistent account number.
- A beneficiary’s bank cannot accept a payment order that identifies as the beneficiary’s account number an account that is nonexistent.
- Open Chapter
In re Estate of Rider 3 results
- A bank customer bears the risk of a fraudulent payment order if the bank’s security measures are commercially reasonable, and the bank accepted the payment order in good faith, and in accordance with the security procedure and any written instruction or agreement of the customer.
- A significant body of case law has not developed for the indirect holding system, and the reported cases generally have applied whatever principles were necessary to protect an innocent investor. The securities industry did not want to use principles of bailment, agency, or trust law to describe the basic operations of the indirect holding system, even though agency law governs much in the relationship between the securities industry and its customers. One important goal in
- In the current matter, Wachovia (D) held certain financial assets (securities) for Husband and managed those assets pursuant to the account agreement, by which the bank acted as Husband’s agent. This relationship thus implicates the indirect holding system. Under the terms of the UCC, Husband was an “entitlement holder,” defined as a “person identified in the records of a security intermediary as the person having a security entitlement against the securities intermediary.” He had a “security entitlement” to the “financial assets” in a “securities account” maintained and managed by Wachovia for Husband’s benefit in its capacity as a “securities intermediary.” A “security entitlement” consists of “the rights and property interest of an entitlement holder with respect to a financial asset.” A “financial asset”
- Open Chapter
- Seller sued buyer’s bank for failing to give notice of buyer’s difficulties in making payments on a wine shipment for which payment was due “on arrival.”
- In January 1986, an American company, J & J Wine [“J & J”], ordered a shipment of wine from Rheinberg Kellerei GmbH [“Rheinberg”] (P). Frank Sutton & Co. [“Sutton”], an importer, arranged the deal. For this transaction, Edekabank—Rheinberg’s (P) bank—sent a letter of collection, bill of lading and invoices to J & J’s bank, Brooksfield National Bank of Commerce [“NBC”] (D). NBC (D) passed the letter, bill of lading and invoices on to J & J on March 27. The letter of collection stated that payment was due on receipt of the goods, which the invoices estimated would arrive early in April. The letter, in somewhat broken English, instructed NBC (D) to notify Sutton “in case of any difficulty of lack payment.” In fact, the wine arrived on March 31. J & J never told NBC (D) that the wine arrived. J & J told NBC (D) that they could not pay and asked NBC (D) to hold the letter while J & J got together the money. Sutton told NBC (D) that the wine was still unclaimed at Houston harbor in May....
- Do the instructions of a letter of collection and the International Rules for Collection obligate a buyer’s bank to notify seller’s bank of buyer’s difficulties in payment only when buyer’s bank has knowledge of buyer’s default?
- in collecting J & J’s payment. The District court erred in finding that the letter called for NBC (D) to notify Sutton only in case of J & J’s default. The Rules state that special instructions in letters of collection should be “complete and precise.” Even though the letter could have been clearer, it was sufficient to alert NBC (D) to notify Sutton in case of any “difficulty” in payment. NBC (D) argues that it did not breach its duty under Article 20 (iii)(c) because it did not have actual notice of the wine’s arrival. Essentially, this argument calls for the court to limit Article 20 (iii)(c) to apply only to cases where the buyer’s bank has actual notice of buyer’s default. The Rules serve the same function for international transactions that our UCC does domestically.
- ...Rules for Collection had the same purpose and policy as the corresponding provisions of the domestic UCC. Thus, the court concluded that a domestic financial institution should have the same obligations in international transactions as they would in domestic business. This holding fashions an equitable resolution of the present case. Some reading the decision might argue that it was unfair to hold NBC (the buyer’s bank) liable under either statute, since the debt was really owed by J & J (the buyers). The statutes, however, actually keep the burden on financial institutions quite low by requiring only that they communicate to seller’s bank that the buyer is having difficulty making payments. Like many of the rules governing documents of title, this kind of communication or notice requirement is necessary to prevent parties at various levels of complex transactions form avoiding liability simply by hiding their heads in the sand. All in all, the communication requirement on buyer’...
- Open Chapter
Voest-Alpine Trading Co. v. Bank of China 7 results (showing 5 best matches)
- LETTER OF CREDIT: A financial instrument through which the issuer of the letter, generally a bank, promises to recognize and make payment on a draft or other demand for payment when that demand is made by a third party.
- ...Voest-Alpine Trading USA Corporation (Voest) (P) entered into a contract with Jiangyin Foreign Trade Corporation (JFTC) in which Voest (P) agreed to sell JFTC 1,000 metric tons of styrene monomer. JFTC then obtained a letter of credit through the Bank of China (BOC) (D) for the purposes of paying Voest (P), a letter which contained numerous typographical errors and misspellings. Following the execution of the contract, the market price of styrene monomer dropped significantly and JFTC asked for but was denied a reduction in the price. After the goods were shipped, Voest (P) presented the documents specified in the letter of credit to Texas Commerce Bank (TCB), the presenting bank. TCB then forwarded the documents to BOC (D) seeking payment. Shortly thereafter, on August 11, 1995, BOC (D) sent a telex to TCB stating that it would not pay because of the existence of discrepancies between the presentation documents and the letter of credit. TCB responded that the discrepancies were...
- One important duty that the issuer of a letter of credit must recognize is the duty to properly inspect the presentation documents before making payment on the letter of credit. In carrying out this duty, the issuer makes sure that the documents are in order and that the seller of the goods and beneficiary of the letter has acted in conformance with the terms and conditions of the letter of credit. As this case makes clear, if the issuer does not carefully perform this important duty, it can be held liable for any losses that result to the buyer and applicant for the letter. On a different note, the
- BENEFICIARY: The party, usually a seller of goods, who receives payment under a properly presented letter of credit.
- PRESENTATION DOCUMENTS: Documents such as invoices, inspection certificates, and others presented to the issuer of a letter of credit for the purpose of procuring payment under the letter.
- Open Chapter
Any Kind Checks Cashed, Inc. v. Talcott 4 results
- On January 19, Rivera told Talcott (D) that Guarino (D) was a cheat and a thief, and Talcott (D) immediately called his bank to stop payment on the $5,700 check. Talcott’s (D) daughter called Any Kind (P) and told them that payment on the check had been stopped.
- Any Kind (P) cashed a large check made by Talcott (D) after Talcott directed his bank to stop payment, and Any Kind (P) claimed it was a holder in due course of the check.
- In the context of this transaction, the trial court did not err in finding that the $10,000 check was suspicious. Checks of that size are not often cashed at check-cashing outlets. In addition, Guarino (D) was not the typical customer of a check-cashing business. Because of the fees charged, most businesspeople cash checks at banks. In addition, Guarino (D) did not have a history of cashing such large checks without incident. The need for speed in cashing such a large check is consistent with the payee’s fear that payment on the check will be stopped. Fair dealing required some degree of caution before a $10,000 check was cashed.
- Guarino (D) obtained check-cashing privileges at Any Kind Checks Cashed (P) in Florida by filling out a card and providing a Social Security number and a driver’s license. Guarino (D) listed his occupation as “broker.” He cashed a check for $450 without incident. Talcott (D), a ninety-three year old man who lived in Massachusetts, was persuaded by his “financial advisor” Rivera to send a check for $10,000 to Guarino (D), who was Rivera’s partner. The check supposedly was for “travel expenses,” to obtain a return on a valueless investment Rivera had previously sold to Talcott (D). Talcott (D) sent the check on January 10, and Guarino (D) received it on January 11. On January 11, Rivera told Talcott (D) that $10,000 was more than would be needed for traveling expenses, and that $5,700 would be sufficient. Talcott (D) called his bank, and stopped payment on the $10,000 check. The same day, Guarino (D) cashed the $10,000 check at Any Time (P).
- Open Chapter
- priority over all others except as otherwise stated by the remaining UCC priority rules. However, Official Comment 2 (c) to § 9–306, appended at the time of the 1972 version of Article 9, appears to be an exception to the general priority rules although never adopted as authoritative. It provides: “Where cash proceeds are covered into the debtor’s checking account and paid out in the operation of the debtor’s business, recipients of the fund of course take free of any claim which the secured party may have in them as proceeds. What has been said relates to payments and transfers in the ordinary course. The law of fraudulent conveyances would no doubt in appropriate cases support recovery of proceeds by a secured party from the transferee out of ordinary course or otherwise in collusion with the debtor to defraud the secured party.” Accordingly, the bank (D) argues that the subject payment was paid out of Lindsey’s account in the ordinary course of Lindsey’s business without any...
- ...Hesston) for resale. In the security agreements which governed Hesston’s, HCC’s (P), and Lindsey’s relationship, Lindsey granted HCC a security interest in all the equipment it purchased from Hesston and in the proceeds from their sale. Lindsey also agreed to pay HCC (P) immediately from the sale proceeds, but was not required to deposit or segregate proceeds from the sales in a separate account. In 1991, the Indiana State Department of Transportation agreed to purchase 14 Hesston tractors from Lindsey. Financed by HCC (P), Lindsey acquired the tractors from Hesston and received payment from the State in the amount $199,122 on August 15, 1991. The proceeds were then deposited in Lindsey’s checking account at Spring Valley Bank & Trust (Bank) (D), which contained $22,870 at the time of deposit. On August 16, 1991, Lindsey wrote a check on this account payable to the bank (D) for $212,104.75, for debts owed by Lindsey to the bank (D). These debts were evidenced by four promissory...
- ...9 contains § 9–332, which expressly provides that a “transferee of funds from a deposit account takes the funds free of a security interest in the deposit account unless the transferee acts in collusion with the debtor in violating the rights of the secured party.” The general rules concerning proceeds and a secured party’s rights on disposition of collateral are now set forth in § 9–306. This case contains a well-reasoned explanation for its holding, by combining the holdings and policy reasons set forth in other cases and applied to the facts of this case. Note that the appeal was from the granting of summary judgment. The court commented that, “[w]hile the determination of ordinary course is a question of law, sometimes an evaluation of the extent to which the payment was routine or the extent of the recipient’s knowledge will require factual analysis. In such a situation, summary judgment would be inappropriate.” However, the court, after considering the facts concerning...
- Open Chapter
Leeds v. Chase Manhattan Bank, N.A. 6 results (showing 5 best matches)
- A DEPOSITARY BANK MAY BE SUED FOR CONVERSION IF IT MAKES PAYMENT OF AN INSTRUMENT TO ONE NOT ENTITLED TO RECEIVE PAYMENT
- A depositary bank is strictly liable for conversion on a forged indorsement check if it makes payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.
- Is a depositary bank strictly liable for conversion on a forged indorsement check if it makes payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment?
- bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment. An action for conversion of an instrument may not be brought by the issuer or acceptor of the instrument or a payee or indorsee who did not receive delivery of the instrument either directly or through delivery to an agent or a co-payee.” Although the check was not actually delivered to the Leeds (P), it was delivered to Egnasko as Leeds’s (P) attorney, with intent that title be transferred to the Leeds (P), the payees. Thus, the Leeds (P) are entitled to bring this action for conversion as one who “received[d] delivery of the instrument . . . through delivery to an agent.” By crediting Egnasko’s trust account for the face amount of the check, Chase (D) paid the check to “a person not entitled to . . . receive payment.” As a depositary bank under the UCC, Chase (D) is strictly liable for conversion on a forged or stolen instrument, because it made or...
- , which expressly provides that the law of conversion applies to “instruments.” It also partially defines conversion as the taking of an instrument “by transfer, other than negotiation, from a person not entitled to enforce the instruments.” Thus, a bank that makes or obtains payment with respect to a check for one not entitled to enforce it or receive payments is liable for conversion. An official comment to the UCC states that a payee cannot sue for conversion if the check has not been delivered to the payee—such as where a thief steals the check before delivery to the payee, forges the indorsement, and obtains payment from a depositary bank. Without delivery, the payee never becomes the holder of the check nor a person entitled to enforce it. However, if the check is delivered to an agent for the payee, which Egnasko was, then the payee does have a cause of action for conversion against the depositary bank.
- Open Chapter
- . Wachovia (D) disagreed, noting that Schultz (P) had declined to implement “Positive Pay,” a fraud deterrence system. Positive Pay was a software program that allowed customers to transmit to the bank information about every check issued by the customer. When a check was presented for payment, the bank would be able to verify that the information on the check matched what had previously been provided by the customer. If the information did not match, the bank could contact the customer before clearing the check. Schultz (P) did not have Positive Pay in place, so Wachovia (D) paid the check and refused to re-credit Schultz’s (P) account. Schultz’s insurer, Cincinnati Insurance (P), covered the loss and brought a subrogation action against Wachovia.
- SUBROGATION: Payment of a debt or claim by a party, which results in substituting the paying party for the payee. The paying party has the rights and liabilities of the party whose debt or claim is paid.
- The disagreement need not be resolved, because the relevant provisions of the deposit agreement are not “manifestly unreasonable” and are “reasonable under the circumstances.” Reasonableness is a function of technical feasibility and the cost of implementing a program. Cincinnati (P) conceded that it was feasible for Schultz (P) to implement Positive Pay, and that the implementation could have been done relatively inexpensively. Cincinnati (P) argues that requiring Schultz (P) to implement Positive Pay was unreasonable because Schultz (P) mistakenly believed that the cost would be unreasonable. Cincinnati (P) does not allege that Wachovia (D) misled Schultz (P) regarding the cost of the system. The reasonableness of standards or procedures is determined by an objective standard. Relying on subjective beliefs would be an unworkable standard. Summary judgment granted.
- Open Chapter
Canty v. Vermont National Bank 5 results
- (Katz) Yes. A depositor has the burden of proving actual loss due to the bank’s improper payment of an item before the bank must recredit the account. If a bank has paid an item that is not properly payable, it may not charge the customer’s account. If it has done so, it must recredit the account. Although this is the usual response by a bank, the law does permit a bank to refuse to recredit the customer’s account after wrongful payment of an item by subrogating itself to the rights of the presenter of the improperly paid checks. Where a bank’s payment of such an item discharges a legal obligation of the customer, the customer would retain a benefit, and recover the amount of the check as well, all to his profit at the bank’s expense. Canty (P) asserts that there can be no subrogation until his account is first recredited. This is contrary to the provisions of
- , concerned a bank wrongfully paying an item over a stop order, this case concerns the payment of cancelled checks “under circumstances giving a basis for objection by the drawer.” Canty (P) objected to the payment of the canceled checks for a second time. The court held that in order to earn subrogation rights, the Bank (D) did not have to first recredit Canty’s (P) account. The case sets forth a clear description of the burden of proof in these types of cases, with the ultimate holding that a customer must prove actual loss before it may prevail against the bank for wrongful payment of an item.
- A depositor has the burden of proving actual loss due to the bank’s improper payment of an item before the bank must recredit the account.
- Canty (P) had a checking account with Vermont National Bank (the Bank) (D). Canty (P) had problems with the Internal Revenue Service and was asked [more likely told] by it to provide canceled checks to document the previous payment of certain obligations to the IRS. After Canty (P) forwarded the canceled checks to the IRS it [wanting to get even more money] redeposited the canceled checks and the Bank (D) paid them a second time. Canty (P) sued the Bank (D) contending that the checks were wrongfully paid the second time and the Bank (D) should recredit his account for the funds withdrawn. The Bank (D) argued that it did not have to recredit the account unless there was proof of actual loss to Canty (P) from the improper payment to the IRS. Canty (P) moved for summary judgment.
- Must the depositor first prove actual loss due to the bank’s improper payment of an item before the bank must recredit the account?
- Open Chapter
Cherwell-Ralli, Inc. v. Rytman Grain Co. 3 results
- Cherwell-Ralli, Inc. (P) (Seller) and Rytman Grain Co. (D) (Buyer) entered into an installment contract for the sale of grain meal. The contract called for shipments according to weekly instructions from Buyer (D), with payments to be made within ten days after delivery. Almost immediately, Buyer (D) was behind in payments. Seller (P) called these arrearages to Buyer’s (D) attention but continued to make all shipments requested by Buyer (D). Shortly before the last shipment, Buyer (D) became concerned about Seller’s (P) ability to perform under the contract but was assured by Seller (P) that deliveries would continue so long as Buyer (D) continued to make its payments. Buyer (D) sent Seller (P) a check but later stopped payment on it after a truck driver unaffiliated with Seller (P) told him that Seller’s (P) future deliveries were in jeopardy. Buyer (D) made no further payments, either to replace the stopped check or to pay for the nineteen accepted shipments for which balances...
- Buyer (D) and Seller (P) entered into an installment contract for the sale of grain meal. Buyer (D) failed to make payments as required by the contract, and Seller (P) sued for damages.
- . That is, the seller’s delivery must theoretically conform to the contract in every respect or the buyer may hold the seller in breach of contract. However, the UCC is more lenient with respect to installment contracts. In keeping with the common law, the seller is entitled to payment so long as his tender of the goods substantially conforms to the contract, even if his performance is not technically perfect.
- Open Chapter
Corfan Banco Asuncion Paraguay v. Ocean Bank 8 results (showing 5 best matches)
- (Sorondo, J.) No. A beneficiary’s bank cannot accept a payment order that identifies as the beneficiary’s account number an account that is nonexistent.
- provides that acceptance by a beneficiary’s bank cannot occur if the payment order contains an unidentifiable or nonexistent name or account number. Subsection (b), however, provides a safe-harbor when the payment order identifies a beneficiary and an account number that do not coincide with each other, and the beneficiary’s bank is aware of the discrepancy but nonetheless correctly deposits the funds. In such a case, the beneficiary’s bank is shielded from liability, so long as its decision to deposit the funds was correct. The problem is that no such safe-harbor exists when the payment order contains an account number that is
- IF A BENEFICIARY’S BANK ACCEPTS A PAYMENT ORDER ON THE BASIS OF THE NAMED BENEFICIARY AND NOT THE ACCOUNT NUMBER IDENTIFIED, THE BENEFICIARY’S BANK BEARS THE RISK OF LOSS
- A Florida bank inappropriately accepted a payment order that correctly identified the beneficiary by name, but identified a nonexistent account number.
- A beneficiary’s bank cannot accept a payment order that identifies as the beneficiary’s account number an account that is nonexistent.
- Open Chapter
- If property is leased, the lessee acquires no equity in it. If the lessee defaults, the lessor repossesses the property but is not required to sell it and apply the proceeds to the debt. In many “easy credit” consumer transactions, security agreements were set up as leases to avoid the protections for debtors under Article 9. Many of these “leases” provided for lease payments that were roughly the same as payments on a loan for the property would have been, and a nominal “final payment” that gave the lessee ownership of the property.
- In April 2004, Vitco Industries purchased a punch press for $243,000. Approximately eight months later, Key Equipment Finance (“Finance”) paid Vitco $243,000 and Vitco and Finance executed a lease agreement for the press. The lease was for a term of six years, and provided that Vitco was entitled to use the press in exchange for rental payments of $3,591.91. Vitco bore all risk of loss of the press. The lease allowed Vitco the option of purchasing the press for $78,464.70 after five years. The lease recited that the agreed-upon price represented the parties’ best estimate of the fair market value of the press after five years. If Vitco did not exercise the option to purchase after five years, Vitco would be required to continue to make monthly rental payments for another year. At the end of the year, Vitco could either buy the press for fair market value as determined by Vitco and Finance at the end of the lease, renew the lease, continue the lease on a month-to-month basis, or...
- transaction creating a lease are the useful life of the punch press, the absence of limitations on its removal, and the ability of Finance to market it. We are not able to determine whether the payment provisions are more indicative of a lease or of a secured financing arrangement. The economics of the transaction can be cast to demonstrate a lease, but the economics could also be cast to demonstrate a sale subject to a security interest.
- Open Chapter
- Ronald E. Wilder appeared at the offices of American General (D). He said that he had been notified by the U.S. Secret Service that a person applied for a loan in his name. Wilder completed an Affidavit of Forgery, and American General’s (D) branch manager placed a “stop payment” on the check.
- With regard to the burden of loss, the District Court imagined that the one action either party could have taken to prevent the loss was for State Security (P) to have withheld payment until the check cleared. The trial court concluded that State Security chose not to delay the payment because it earned a fee from cashing the check, and that in so doing, it ran the risk that the check may be dishonored. Simply put, that conclusion does not comport with sustainable “ordinary care” analysis. That a business charges a fee for the utilization of its services is not determinative of whether the conduct of that business on the occasion in question lacked “ordinary care.” Under the circumstances of this case, the trial court’s reasoning seems directed more towards the “good faith,” rather than the “ordinary care,” requirement. We have already rejected, however, American General’s (D) claim that State Security’s (P) taking the check lacked “good faith.” More significantly, the trial court’s...
- ...afternoon, the imposter presented the check to State Security Check Cashing, Inc. (D), a check cashing business. At the time the imposter appeared in State Security’s (D) office, only one employee, Decker, was on duty. Decker considered the same driver’s license that the imposter presented to American General (P), and reviewed the loan documents related to the check. She also compared the check to other checks issued by American General (P) which had been cashed previously by State Security (D). Deeming the amount of the check relatively “large,” Decker called State Security’s (D) compliance officer to confirm that she had taken the proper steps in verifying the check. The compliance officer directed Decker to verify the date of the check, the name of the payee on the check, the address of the licensee, the supporting loan paperwork, and whether the check matched other checks in State Security’s (D) system from American General (P). Decker confirmed the results of all of...
- Open Chapter
Bank of America N.T.S.A. v. Sanati 4 results
- ...The “discharge for value” rule can not be invoked in a case where the alleged preexisting debt or lien is at best a probable yet undetermined interest in a portion of funds. We must first note that the law in effect at the time of the transfer was not that of Article 4A. Rather, general common law principles govern this case. Under those principles, the recipient of an unauthorized transfer of funds could defend against a claim for restitution only if there had been detrimental reliance upon receipt of the funds by an innocent beneficiary or if the beneficiary had a good faith belief that the transfer was intended as a full or partial payment of a preexisting debt owed by the originator to the beneficiary, the latter defense known as the “discharge for value” rule. Even if Article 4A were to apply to this case, as Mrs. Sanati (D) argues, we believe that she has failed to raise a triable issue of fact as to whether Mr. Sanati owed her a preexisting debt. In essence, § 4A–303...
- AN ORIGINATOR’S BANK THAT HAS MADE AN ERROR IS ENTITLED TO RECOVER EXCESS PAYMENT TO A DESIGNATED BENEFICIARY UNDER COMMON LAW PRINCIPLES OF MISTAKE AND RESTITUTION
- May the beneficiary of a wire transfer for an erroneously greater amount than authorized by the payment order defend an action for restitution on the ground that there the beneficiary has a quasi-community property interest in the funds transferred?
- This case illustrates the general policy that a bank’s liability under Article 4A should be kept to a minimum in order to keep the cost of wire transfers low. An executing bank ordinarily is bound by its execution errors that result in a completed funds transfer, but is expressly allowed to recover any unwarranted payment from the designated beneficiary. The California Court of Appeals was of the opinion that express adoption by Article 4A of the law of mistake and restitution—which permits executing banks that erroneously transfer a greater amount than that authorized to recover from the beneficiary—also incorporated the defenses available under that body of law. Therefore, the only defense available to Mrs. Sanati (D) was that of the “discharge for value” rule. But the court of appeals rejected the argument that an unliquidated debt, such as a “quasi community property interest,” was sufficient to qualify as a “preexisting debt” under that rule.
- Open Chapter
- Teradyne (P) accepted Teledyne’s (D) purchase order to buy a T–347A transistor test system for the list price of $98,400 minus a discount of $984. This amount was also the system’s fair market value. Teledyne (D), the buyer, canceled its order when the T–347A was packed and ready for shipment. Teradyne (P) refused to accept the cancellation despite Teledyne’s (D) offer to purchase a $65,000 Field Effects Transistor System instead. Teradyne (P) spent an estimated $614 to dismantle, test, and reassemble the T–347A to prepare it for sale to another purchaser. Teradyne (P) had the purchase order from the other purchaser prior to the cancellation and sold the T–347A to the other purchaser for $98,400. The equipment involved here represented a standard product of Teradyne (P), and Teradyne (P) had the capacity to duplicate the equipment for a second sell had Teledyne (D) honored its purchase order.
- ...be read in light of § 1–106(1) which provides that remedies should be applied so that “the aggrieved party may be put in as good a position as if the other party had fully performed.” This principle prompted the justices in this case to ignore the language of § 2–708(2), which provides a “due credit for payments or proceeds of resale.” If the court were to take this sentence literally, Teledyne (D) would be given a credit of $98,400, because those were the proceeds Teradyne (P) received from its resale of the equipment to another buyer. Therefore, Teradyne (P) would not have lost any profits and would not be entitled to any damages. Most commentators agree that courts should simply ignore the “due credit” language in lost volume cases such as this one. Teradyne (P) was a “volume seller” because it would have made the sale to Teledyne (D), the breaching buyer, and to the party who purchased Teledyne’s (D) equipment. Therefore, it should be entitled to its lost profits,...
- ..., and installers who directly handled the T–347A, as well as fringe benefits paid to those employees which amounted to 12% of wages. Teradyne (P) argues that the wages and benefits of the testers and other employees should not be deducted because they would not have been affected if each of the testers and other employees handled one product more or less. However, we find that the work of these employees entered directly into producing and supplying the T–347A as much as did the work of the fabricators which was a cost included by the trial court. The fringe benefits of 12% of wages should also have been deducted as a direct cost. Teledyne (D) also contends that Teradyne (P) was required to mitigate its damages by accepting Teledyne’s (D) offer to purchase a Field Effects Transistor System instead of the T–347A. There is no right to mitigation of damages where the offer of a substitute contract is conditioned on surrender by the injured party of his claim for breach. Teradyne (P...
- Open Chapter
Plymouth Savings Bank v. U.S. I.R.S. 3 results
- [Treasury regulations/definitions], an “account receivable” is a right to payment for goods sold or services rendered, while a “contract right” is a right to payment under a contract that is not yet earned by performance. Dionne’s agreement with the Bank (P) was a “commercial transactions financing agreement,” and her contract with the Hospital was “commercial financing security.” Dionne signed her contract with the Hospital exactly 45 days after the IRS (D) filed notice of its tax lien. Therefore, if Dionne “acquired” rights to the proceeds of the contract simply by signing it, then the Bank’s (P) lien trumps the IRS’s (D) because it would fall within the safe harbor for after-acquired property. If Dionne did not acquire rights to the money when she signed the contract, then the IRS’s (D) lien takes priority. Because, under
- CHATTEL PAPER: Writings that set forth both an obligation of payment for and a security interest in specific goods.
- ...all cash and non-cash proceeds arising from her rendering of services; all general intangibles including proceeds of other collateral; and all of Dionne’s inventory, receivables, contract rights or other personal property. Later that year, Dionne defaulted on her loan leaving $65,465 unpaid. Dionne also failed to make FICA payments. On February 2, 1995 the IRS (D) assessed her liability at $62,767, and filed a tax lien on February 14. Exactly 45 days later, on March 31, 1995, Dionne signed a contract whereby she agreed to help Jordon Hospital (the Hospital) obtain a license to operate a nursing home, and the Hospital agreed to pay her $300,000 in three installments. Dionne fully performed as agreed, but the Hospital did not pay her the final installment of $75,000. The Bank (P) sued the Hospital to recover this sum. The court ruled that the Bank (P) had security interest in the $75,000 because it was proceeds arising from Dionne’s personal services. However, the court did not...
- Open Chapter
- First Financial (P) did not have a banking relationship with Citibank (D), but it forward-processed checks drawn on Citibank (D) through an agreement J.P. Morgan Chase (“Chase”). Forward processing is the act of sending electronic versions of deposited checks forward to their drawee banks for payment; upon acceptance, payment is transmitted back to the depositary bank.
- After determining that a cashier’s check presented for payment was drawn on an invalid account, the paying bank returned the check, but notice of the return came too late to prevent a large loss to the depositary bank.
- When a bank fails to exercise ordinary care and act in good faith in returning a check presented for payment to a depositary bank, the depositary bank still must prove the paying bank’s negligence was a proximate cause of its loss.
- (Lawrence, J.) No. When a bank fails to exercise ordinary care and act in good faith in returning a check presented for payment to a depositary bank, the depositary bank still must prove the returning bank’s negligence was a proximate cause of its loss.
- On July 7, First Financial (P) sent an image of the check to Chase with a cash letter detailing the items being forwarded for payment. On Thursday July 8, Chase sent an image of the check to Citibank (D). Citibank (D) determined that the check was drawn on an invalid account and marked it as such. It also determined that First Financial’s (P) endorsement on the check was illegible, so it allegedly did not know which bank accepted the check for deposit. Significantly, the court determined that no reasonable jury would reach the same conclusion, and Citibank (D) should have returned the check directly to First Financial (P). Instead, Citibank (D) merely returned the check to Chase. Chase did not have a “downstream” agreement with First Financial (P), meaning it had not agreed to pass back checks that had bounced or were rejected.
- Open Chapter
Ward v. Federal Kemper Insurance Co. 5 results
- (Adkins) No. The mere possession of a check, without negotiation, does not constitute the acceptance of the funds. A check is a draft or bill of exchange—an order by a drawer, the Insurance Co. (D), to a drawee, the Bank, to pay money to a payee, Ward (P). When the drawer draws a check on the drawee and delivers the check to the payee, the check is generally considered a conditional payment of the underlying obligation. The conditions are that the check be presented and honored. Until then, no one is directly liable on the check itself. The underlying obligation on the insurance policy is similarly suspended until those conditions are met.
- This case examines who is considered the owner of the money presented by way of a check. The answer requires a determination of when a check is considered accepted for payment. The holding of the case shows that mere possession is not sufficient. There must be presentment of the check for payment. The court noted that the relationship between drawer and drawee is one of creditor and debtor, and the drawer does not own the funds it has on deposit with the drawee. Under former
- TRUE OWNER OF MONEY, IN FORM OF CHECK DRAWN UPON BANK, IS DETERMINED BY WHETHER CHECK WAS PRESENTED FOR PAYMENT AND HONORED
- DRAWEE: The person ordered in a draft to make payment.
- DRAWER: The person who signs or is identified in a draft as the one ordering payment.
- Open Chapter
Messing v. Bank of America, N.A. 3 results
- (Krauser) No. Section 3–501(b)(2) provides that the person making presentment of an instrument for payment must give “reasonable identification.” We must determine whether a thumbprint signature requirement is a form of reasonable identification. We conclude that it is for a number of reasons. First, it is an effective, reliable, and accurate way to authenticate a writing on a negotiable instrument. Second, the process of providing such a signature is not unreasonably convenient in that an inkless device is used, which leaves no ink stains or residue. Third, the procedure is reasonable and necessary in light of the growing incidence of check fraud. We also reject Messing’s (P) contention that the Bank (D) dishonored the check when it did not make payment on the date of presentment. There can be no dishonor if presentment fails to comply with the terms of the instrument, an agreement of the parties, or other applicable law or rule. It is undisputed that the Bank (D) had the authority...
- IF “PRESENTMENT” OF A CHECK FOR PAYMENT IS NOT PROPER, THE REFUSAL TO PAY DOES NOT CONSTITUTE “DISHONOR”
- defines and describes presentment, and § 3–502 describes dishonor. Dishonor of a check does not occur if the check was not properly presented for payment. In this case, Bank of America (D) had a deposit agreement with its customer, the account holder, which permitted the bank “to establish physical and/or documentary requirements” of payees who seek to cash a check drawn on the customer’s account. The court rejected Messing’s (P) argument that a thumbprint signature was not “reasonable identification,” since he had already provided a driver’s license and a credit card. The court also rejected Messing’s (P) argument that the bank “dishonored” the check upon presentment of the check for payment, because the check—having been improperly presented without a thumbprint signature—was never accepted by the Bank (D), and thus there was no “dishonor” of the check. Note that the drawer’s liability only comes into play if the check is first presented to the drawee bank and then dishonored by...
- Open Chapter
- [now § 9–320(a)] [buyers of farm products take subject to security interests]. Under § 1631(e), a buyer of farm products takes subject to a security interest if, within one year before the sale, the buyer has received from the seller written notice of the security interest containing certain required information, including notice of any payment obligation. Here, Farm Credit (P) sent proper notice to F&A (D). F&A (D) argues that Farm Credit’s (P) notice of the $4333 payment obligation was ambiguous. We hold that it was not ambiguous. In fact, Farm Credit (P) was entitled to all the sale proceeds, not just $4333 a month. The requirement that the creditor provide notice of any payment obligation allows the creditor to accept less of the proceeds if it desires. We also disagree with F&A’s (D) argument that an assignment agreement was required before it had to pay Farm Credit (P). While Farm Credit’s (P) notice requested an assignment, § 1631(e) does not require an assignment. Section...
- ...of farm products to take free of security interests created by the seller even if the security interest is perfected and the buyer knows of the security interest. A security interest is protected in three situations. Two situations depend upon a state establishing a central filing system whereby buyers can obtain information about financing statements filed for products they tend to buy. The other exception is the notice at issue here. The notice required by the Food Security Act is much more detailed than that required in a financing statement, and includes the debtor’s social security number or taxpayer identification number, and the type, county, crop year, and amount of the farm products. While § 1631 of the Food Security Act preempts the UCC with respect to defining a buyer in the ordinary course, the UCC still applies with respect to perfecting a security interest against an attack by a bankruptcy trustee and in analyzing whether a creditor waived a security agreement or is...
- Open Chapter
Azur v. Chase Bank, USA 6 results (showing 5 best matches)
- The approach taken by the D.C. Circuit is the better one. A cardholder may, in certain circumstances, vest a fraudulent user with the apparent authority to use a credit card by enabling the continuous payment of the credit card charges over a period of time. By identifying apparent authority as a limitation on the cardholder’s protections under § 1643, Congress recognized that the cardholder is oftentimes in the best position to identify fraud committed by its employees. Here, Azur’s (P) negligent omissions led Chase (D) to reasonably believe that the fraudulent charges were authorized. Azur (D) failed to separate the approval and payment functions within his cash disbursement process. If Azur (P) had occasionally reviewed his statements, he would have likely noticed that checks had been written to Chase (D). Because Chase (D) reasonably believed that a prudent business person
- , the court stated that it was not the failure to inspect the monthly billing statements that clothed a manager with apparent authority to use a corporate credit card account. Instead, apparent authority came from the repeated payment without protest of all of the fraudulent charges on the account. By identifying apparent authority as a limit on the cardholder’s protection under § 1643, Congress recognized that a cardholder has certain obligations to prevent fraudulent use of its card. DBI’s troubles stemmed from the failure to separate the approval and payment functions within its cash disbursement process. This was not a case involving an occasional transgression, or of payment without notice, as might occur when a cardholder authorizes automatic monthly payments. Where a cardholder repeatedly paid thousands of dollars in fraudulent charges for almost a year after monthly billing statements identifying the fraudulent user and itemizing the fraudulent charges were provided, no...
- The lengthy discussion of apparent authority seems unnecessary. The court had already held that Azur (P) was not entitled to reimbursement for the payments on the fraudulent charges. On the other hand, TILA limits the cardholder’s responsibility for unauthorized charges, thus making the credit card company bear the risk of loss. The discussion of apparent authority helps clarify which charges truly are unauthorized.
- Vanek was hired to be Azur’s (P) personal assistant. Her responsibilities consisted of picking up and opening Azur’s (P) personal bills, preparing checks for Azur (P) to sign, mailing payments, and balancing Azur’s (P) checking and savings accounts. Azur (P) stated that it was Vanek’s job alone to review Azur’s (P) credit card and bank statements, and to contact the credit card company to discuss any odd charges. Azur (P) also gave Vanek access to his credit card number, so she could make purchases at his request.
- ...authorization, from a Chase (D) credit card account in Azur’s (P) name. Azur (P) was the sole cardholder and only authorized user. Azur (P) recalled opening a credit card account with Chase’s (D) predecessor, but he was unaware that he had a Chase (D) credit card. The fraudulent charges were reflected on at least 65 monthly billing statements sent by Chase (D), and Vanek paid the bills either by forging checks with Azur’s (P) signature, or by making on-line payments from Azur’s (P) checking account. In seven years, Vanek misappropriated over $1 million from Azur (P). In April 2004 and May 2005, Chase (D) detected potentially fraudulent transactions, called the account’s home telephone number, and left a message on the number’s answering machine. Chase (D) eventually received calls from someone who validated the card activity. Although Chase’s (D) records indicate that the caller was female, Chase (D) did not use voice recognition or gender identification as a means of security...
- Open Chapter
Chapter Two. Basic Concepts 1 result
Galyen Petroleum Co. v. Hixson 3 results
- Payee of checks sued drawee bank for dishonor of drawer’s checks presented to it for payment, although drawer had funds on deposit.
- ...Bank (D1) but which were refused even though the drawer Hixson (D2) had funds on deposit with Bank (D1). Hixson (D2) had an account with Bank (D1), but owed it money on promissory notes. Hixson (D2) issued three checks to Galyen (P) on different occasions, but they were returned unpaid for insufficient funds. The evidence showed that at the time of presentment, Hixson (D2) had funds in the account, but the funds were set off by the Bank (D1) to credit Hixson’s (D2) promissory note account. However, at that time the credited notes were not then due. [Bank (D1) wanted to make sure that it got its money from that untrustworthy Hixson (D2).] The notes provided that the Bank (D1), as payee of the notes, had the right of setoff against any deposit balances of Hixson (D2), the maker of the notes, and that it could apply the deposit balances against payment of the notes, whether due or not. Summary judgment was entered in favor of Bank (D1) and against Galyen (P). On appeal, Galyen (...
- , a “check or other draft does not of itself operate as an assignment of funds in the hands of the drawee available for its payment, and the drawee is not liable on the instrument until he accepts it.” Furthermore, it is well established that a check, of itself, and in the absence of special circumstances, is neither a legal nor an equitable assignment of the drawer’s funds in the hands of the drawee. Therefore, the holder of the check has not right of action against the drawee, and no valid claim to the fund of the drawer in its hands, even though the drawer has on deposit sufficient funds. In this case, there are no special circumstances or agreements claimed. [Bank (D1) took the money just in time. Hixson (D2) went bankrupt.] Thus, Galyen (P) had no standing to bring a cause of action against the Bank (D1) for the dishonor of any of the three checks. Summary judgment was properly granted. Affirmed.
- Open Chapter
Clovis National Bank v. Thomas 5 results
- BY CONSENTING TO SALE OF COLLATERAL AND NOT DEMANDING PAYMENT, CREDITOR WAIVES ITS SECURITY INTEREST
- Bunch sold cattle with the implicit knowledge and consent of his secured creditor, Clovis National Bank (P). Clovis National Bank (P) did not demand payment, thereby waiving its security interest.
- By consenting to the sale of collateral and not demanding payment, a secured creditor waives its security interest.
- By consenting to the sale of collateral and not demanding payment, does a secured creditor waive its security interest?
- .... Two checks were given by Thomas (D), a licensed cattle auctioneer, who handled the sales for Bunch. Clovis (P) was aware that Bunch was selling cattle covered by the security agreements. Bunch then consigned cattle to Thomas (D) for sale. Clovis (P) had no actual knowledge of these sales. Bunch’s son, Bunch Jr., owned a brand of cattle called “Swastika K.” Bunch or his son acquired cattle that were branded Swastika K. No security agreement was given by Bunch or his son to Clovis (P) for these cattle. Clovis (P) thereafter requested that Bunch sell the remainder of his cattle, including the Swastika K cattle. With Clovis’s (P) knowledge, Bunch trucked cattle to Thomas’s (D) place of business. Clovis (P) told Thomas (D) that it had an interest in the cattle. After the cattle were sold, Clovis told Thomas (D) that it would be “nice” if the check for the cattle would be made payable to the Bunches and to Clovis (P). Clovis (P) did not demand payment or ask Thomas (D) not to...
- Open Chapter
Sztejn v. Henry Schroder Bank Corp. 5 results
- After receiving a shipment of bogus goods, a merchant sought to restrain the payment of drafts under a letter of credit issued upon the merchant’s application to secure the purchase price of the goods.
- Where the seller’s fraud has been called to the bank’s attention before the drafts and documents have been presented for payment, the principle of the independence does not prevent the bank from dishonoring the presentation.
- (Shientag, J.) Yes. Where the seller’s fraud has been called to the bank’s attention before the drafts and documents have been presented for payment, the principle of the independence does not prevent the bank from dishonoring the presentation. It is well established that a letter of credit is independent of the contract between the seller and the buyer. As a general rule banks are not permitted to delay paying drafts drawn on letters of credit on the ground that the merchandise shipped is inadequate. But this rule presupposes that the documents accompanying the draft are genuine and conform in terms to the requirements of the letter of credit. The fact that a bank is sheltered from liability if it pays a draft before receiving notice of the seller’s fraud, does not prevent it from refusing to honor payment after receiving such notice. No hardship is caused by permitting a bank to refuse payment where fraud is claimed, where the merchandise is bogus, where the draft and documents...
- This case was decided well before the UCC was drafted, but presents the second of the two most litigated issues in the area of letters of credit. The most important exception to the independence principle—the notion that a letter of credit is wholly separate from the underlying commercial transaction—relates to enjoining payment of drafts drawn on a letter of credit on the ground of fraud by the beneficiary. It is obvious that the whole point of letters of credit is to generate the expectation that payment will be made upon the presentation of documents. Thus, a broad reading of the fraud exception threatens the commercial viability of letters of credit. Section 5–109 now addresses the issue of fraud. It allows, but does not require, an issuing bank to refuse payment if the documents are forged or materially fraudulent, or in order to prevent the beneficiary from perpetrating a material fraud on the issuer or the applicant. But the section requires the issuer to pay the draft if it...
- ...(P) and his associate contracted with Transea Traders, Ltd. (Transea) (D), an Indian corporation, for the purchase of certain bristles. Mr. Sztejn (P) then contracted with J. Henry Schroder Banking Corporation (Schroder) (D) for the issuance of an irrevocable letter of credit to Transea. The letter provided that drafts by Transea for a portion of the purchase price would be paid by Schroder upon shipment of the bristles and presentation of an invoice and bill of lading. Transea (D) placed fifty crates filled with cow hair, and other worthless material on board a steamship, procuring a bill of lading from the steamship company. Transea (D) then drew a draft under the letter of credit to the order of Chartered Bank (D), delivering the draft and the documents to the same. Chartered Bank (D) then presented the draft and accompanying documents to Schroder (D) for payment. Mr. Sztejn (P) sought to prevent Schroder (D) from honoring the drafts and have the letter of credit declared null...
- Open Chapter
In re Fabers, Inc. 3 results
- only wanted the money from the sales of the rugs. The entire agreement was to secure Fabers’s payment of the proceeds from the sale of the rugs to the dealer (P). In other words, the consignment of the rugs was intended as security for the payment of the sales price. It was not a “true consignment.” To solve the problems associated with consignments, the drafters of the Code put all consignments into Article 9 and, with minimal exceptions, required the consignor to comply with Article 9 filing requirements to perfect a purchase money security interest in consigned goods.
- PURCHASE MONEY SECURITY INTEREST: A security interest retained by the seller in the goods sold to guarantee the payment of the purchase price, or the interest retained by a financing agency that makes a loan to enable a buyer to purchase an item.
- . The consignment was intended to secure the payment of the sales price of the carpets. The dealer (P) did not establish that Fabers was “generally known by [its] creditors to be substantially engaged in selling the goods of others” and did not fall within the other exceptions to
- Open Chapter
Winter & Hirsch, Inc. v. Passarelli 2 results
- Dominic and Antoinette Passarelli (D) approached the Equitable Mortgage & Investment Corporation (“Equitable”) to borrow $10,000. The Passarellis (D) executed a note providing that they agreed to repay a total of $16,260 over a period of 60 monthly payments of $271 each. The note also contained a confession of judgment clause, provided for payment to the bearer, and was secured by a trust deed. It is uncontested that the maximum legal rate of interest was exceeded by Equitable on this note. Winter & Hirsch (P), a company in the business of purchasing loans, gave a check for $11,000 on February 18, 1963 to Equitable with a notation that the funds were for “the Passarelli deal.” However, the Passarellis (D) did not receive the $10,000 until February 28, 1963, ten days later. The Passarellis (D) defaulted on the note and Winter & Hirsch (P) obtained a judgment by confession.
- ...usurious interest rate being charged and thus could not have become a holder in due course. The Passarellis (D) point out that Winter & Hirsch’s (P) name is on the loan application and that they were told by Equitable that Winter & Hirsch (P) might give them the $10,000. Also, the monthly payments on the note were to be made to the office of Ralph Brown, an attorney for Winter & Hirsch (P). The most compelling fact to this court is that Winter & Hirsch (P) issued its check to Equitable on February 18, ten days before the money was given to the Passarellis (D). Thus, Winter & Hirsch (P) gave the money to Equitable before the Passarellis (D) executed the note which Winter & Hirsch (P) claims to have bought from Equitable. This fact makes the entire line of cases cited by Winter & Hirsch (P) inapposite. The cases cited hold that a loan may be purchased at more than the usury rate if the purchaser is without knowledge that the original note was tainted with usury. In the instant...
- Open Chapter
Triffin v. Somerset Valley Bank 4 results
- A purchaser of forged checks claimed he was a holder in due course and entitled to payment for the checks.
- ...D) was notified that people were cashing counterfeit Hauser (D) payroll checks. The checks were stamped with Mr. Hauser’s facsimile signature, which was identical to the stamp used on Hauser (P) paychecks. Hauser (D) stopped payment on the checks. Somerset Valley Bank (the Bank) (D) received more than 80 forged Hauser (D) checks valued at $25,000. In 1999, Triffin (P) purchased 18 dishonored Hauser (D) checks from check cashing companies. The check cashing companies stated that they cashed the checks for value, in good faith, without notice of any claims or defenses to the checks, without knowledge that the signatures were unauthorized or forged, and with the expectation that the checks would be paid. All the checks were marked by the Bank (D) as “stolen” and stamped with the warning “do not present again.” Triffin (P) then sued the Bank (D), Hauser (D), and each of the payees to enforce Hauser’s (D) liability on the checks. Triffin (P) argued that Hauser (D) was negligent in...
- (Cuff, J.) Yes, an assignee of a negotiable instrument is a holder in due course even if he has notice of defenses to the instrument so long as the assignor was a holder in due course. First, the checks were negotiable instruments. They were payable to a bearer for a fixed amount on demand and did not state any other undertaking by the person promising payment aside from the payment of money. Each check appears to be signed by Mr. Hauser by a facsimile stamp. Whether the checks were authorized is a separate issue from whether they are negotiable. The next issue is whether Triffin (P) is a holder in due course. Each of the check cashing companies were holders in due course. They submitted affidavits that they cashed the checks for value, in good faith, without notice of any claims or defenses, without knowledge that any of the signatures were unauthorized or fraudulent, and with the expectation they would be paid upon being presented to the drawer bank. Where a
- Because the check writing companies were holders in due course, they had the right to sue the purported maker, Hauser (D), for payment of the checks in this case. Under the shelter rule, the check cashing companies could assign these rights to Triffin (P), even if Triffin (P) had knowledge otherwise. Comments 2 and 3 to § 3–202 explain that it is inherent in the character of negotiable instruments that any person in possession of an instrument that is payable to that person or to the bearer is a holder. A holder in due course may even take the instrument from a thief and be protected against the claim of a rightful owner. While the equities may favor Hauser (D) over Triffin (P), the free negotiability of checks is a cornerstone of our longstanding banking practices.
- Open Chapter
Benedict v. Ratner 4 results
- PREFERENCE: When an insolvent debtor repays one creditor over another, it is said that he prefers that creditor and that the payment is an unlawful preference, which can be avoided (recovered and put back into the estate) by the trustee in bankruptcy.
- ...lists were provided to him every month. Under the terms of the agreement, Ratner (D) had the right to require all collections to be applied to the repayment of his loans at any time. However, until he did so, the company was allowed to use the monies it collected on the accounts in any way it deemed necessary. Hub continued to carry on its ordinary business and to incur indebtedness with no efforts made to repay the loans. There was no requirement that Hub make any effort to repay the loan or to account to Ratner (D) in any way unless Ratner (D) made an appropriate demand upon it. The arrangement was supposed to be kept secret. On September 17, 1921 Ratner (D) demanded that the proceeds of certain accounts be paid over to him and the company complied. On September 26, 1921, the company was adjudicated bankrupt in involuntary proceedings. Benedict (P) was named first as receiver and then as trustee. He began collecting the payments on the accounts receivable. Ratner (D) filed...
- ...belong to it is inconsistent with a true assignment. Instead, such an arrangement is fraudulent as to outside creditors. There is an analogous rule with regard to mortgages. A mortgagor’s reservation of full control over the property might prevent the creation of an effective lien in the mortgagee, and New York’s law holds such mortgages void. The law must be consistent regardless of the nature of the property given as collateral, i.e. whether the property is real, personal or intangible. In the instant case, the arrangement allowed the company to use the proceeds of its accounts in any way it chose, without requiring an accounting to Ratner (D). The arrangement was inconsistent with a transfer of title to the accounts, and was not effective to create a lien on the accounts in Ratner’s (D) favor. Since the original assignment was fraudulent in law, the payments made to Ratner (D) pursuant to his September 17 request constituted voidable preferences under the Bankruptcy Act...
- cents on the dollar for their part, there was Ratner (D) claiming to be a secured creditor and demanding full payment for his loans out of the bankruptcy estate. This is what was bothering the Court. It simply does not make good commercial sense to allow creditors and debtors to create secret liens on property. Doing so would increase the costs and risks associated with commercial financing and the extension of credit because a creditor could never be assured that the collateral he accepted in return for a loan really belonged to the party seeking the loan. The Court in
- Open Chapter
Chapter Twenty-Seven. Default 1 result
- is different from the warranty that a check has not been altered, although the effect of both provisions is the same. It is a warranty that the person presenting an instrument to the drawee for payment is the “person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft.” This warranty puts the obligation to detect a forgery squarely on the presenting bank. Reliance on this warranty would not have required the discussion of how to allocate a loss when there is no evidence.
- Open Chapter
Chapter Eleven. The Nature of Liability 5 results
- If a contract guaranteeing a note is one for collection, rather than payment, there must first be an effort to collect from, or a showing of insolvency of, the maker of the note before the guarantor may be sued.
- A guarantor’s obligation under a payment guaranty cannot be discharged based upon impairment of collateral where the guarantor has expressly consented to the release of the collateral.
- Where the party personally endorsing the note consents to the agreement between the note’s maker and payee to extend the time when payment is due, there is no discharge of the endorser on the obligation on the note.
- Two individual endorsers of corporate notes sought to have liability discharged for failure to present notes for payment and failure to give notice of dishonor.
- Payee of checks sued drawee bank for dishonor of drawer’s checks presented to it for payment, although drawer had funds on deposit.
- Open Chapter
Chemical Bank v. PIC Motors Corp. 6 results (showing 5 best matches)
- A guarantor’s obligation under a payment guaranty cannot be discharged based upon impairment of collateral where the guarantor has expressly consented to the release of the collateral.
- Can the guarantor’s obligation under a payment guaranty be discharged based upon impairment of collateral where the guarantor has expressly consented to the release of the collateral?
- GUARANTY: An agreement whereby one promises payment, or performance of an obligation.
- (Fein) No. A guarantor’s obligation under a payment guaranty cannot be discharged based upon impairment of collateral where the guarantor has expressly consented to the release of the collateral. Because the guaranty is fully integrated, it cannot be modified by a parol
- , a party is not discharged if the agreement provides for waiver of discharge. After noting that a party may waive any obligation upon the part of a creditor, including the obligation of the creditor not to impair the security, the court found that Siegel (D2) had waived his right to discharge the obligation under the terms of the payment guaranty.
- Open Chapter
In re Grabowski 1 result
In re Short 3 results
- On June 20, 1992, the Shorts (D) bought bedroom furniture from Anderson Warehouse Furniture (“Anderson”). The Shorts (D) entered into a retail installment contract with Anderson under which they were not charged interest for one year and were required to pay the entire balance on June 20, 1993. Anderson assigned the contract to American General Finance, Inc. (“American”). The Shorts (D) did not make any payments under the contract. On July 16, 1993, the Shorts (D) executed a note with American in which they consolidated the June 20 contract obligation with another note to American for $3,642.33. The documentation for the July 16 note describes the security as a “continued purchase money interest” in the Shorts’ (D) furniture and other household items. The Shorts (D) made one payment under the July 16 note of $248.38 and a partial payment of $146.00. On January 4, 1994, the Shorts (D) [who really liked their furniture] filed for bankruptcy. The Shorts (D) moved to avoid American’s...
- determine whether the refinanced loan substantially changes the debtor’s obligation. This approach gives effect to the parties’ intent. Under either the dual status rule or the case-by-case approach, American retained a purchase-money lien on the Shorts’ (D) bedroom furniture. Since the Shorts (D) made no payments under the June 20 note, it is unlikely the parties intended to extinguish the Shorts’ (D) obligation under that note. The July 16 note merely enabled the Shorts (D) to pay for the furniture over a longer period of time. In addition, the parties’ intent was expressly stated in the July 16 note, which describes the security as a “continued purchase money interest” in the Shorts’ (D) furniture. The only difficulty with holding that the new loan is both purchase-money and nonpurchase-money is in allocating payments to the two interests. Under the “first in, first out” allocation method, payments are applied to the oldest debts first. Accordingly, once the Shorts (D) pay the...
- sets forth how payments are allocated between the purchase-money and nonpurchase-money components of the loan. However, because this case involves consumer goods,
- Open Chapter
Coxall v. Clover Commercial Corp. 2 results
- Coxall (D) began experiencing mechanical difficulties with the car soon after he purchased it, and so he made no payments on the installment contract. Clover (D) took possession of the car four months after the purchase, on February 19. The next day, Clover (D) sent two letters to Coxall (P). The first stated that Coxall (P) could redeem the car by paying $5,969.28, plus storage charges and a redemption fee. The second notified Coxall (P) that the car would be offered for private sale after noon on March 3. On March 3, the car was sold back to Jafas Auto Sales for $1,500. On April 22, Clover (D) wrote to Coxall (P) demanding payment of a “remaining balance” of $4,998.
- Although Clover (D) is not entitled to a deficiency judgment, it is entitled to recover the amounts owed to it prior to the repossession, as well as the repossession charges. Coxall (P) is not discharged from all liability under the contract. When the car was repossessed, there were three monthly payments unpaid, totaling $1,001.04, plus late charges of ten percent, or $100.11. Clover (D) claimed $325 for repossession and other charges, but since no documentation for this amount is provided, Clover (D) will not be allowed to recover that amount. Judgment is entered for Coxall (P) in the amount of $745.09, representing the difference between his statutory damages and the amount recoverable by Clover (D). Utho Coxall did not appear, and made no claim for damages, so judgment is entered against him for $1,101.15, plus interest.
- Open Chapter
In re Wild West World, L.L.C., Debtor 2 results
- Larson (P) claimed a security interest in an amusement ride purchased by Wild West World (D), because the sales agreement said that title would not pass to Wild West World (D) until final payment was made.
- In 2005, Wild West World (D) bought an amusement ride from Larson (P). The purchase agreement provided that title to the ride would remain with Larson (P) until the final payment was made. This was the practice in the amusement ride industry. The ride was delivered to Wild West (D) no later than March 5, 2007, and Larson (P) filed its financing statement with the Kansas Secretary of State on June 8, 2007. After Wild West (D) filed its bankruptcy petition, Larson (P) claimed an unpaid balance on the ride of $164,824.
- Open Chapter
Chapter Twenty-Four. Priority 3 results
- Larson (P) claimed a security interest in an amusement ride purchased by Wild West World (D), because the sales agreement said that title would not pass to Wild West World (D) until final payment was made.
- Bunch sold cattle with the implicit knowledge and consent of his secured creditor, Clovis National Bank (P). Clovis National Bank (P) did not demand payment, thereby waiving its security interest.
- By consenting to the sale of collateral and not demanding payment, a secured creditor waives its security interest.
- Open Chapter
Chapter Thirteen. Banks and Their Customers 8 results (showing 5 best matches)
- Check maker attempted to have bank stop payment on a check and gave all requested information, except for 50-cent error in check amount.
- A bank is given reasonable opportunity to stop payment on a check when the description received is exact in all respects except for a single digit error in the check amount.
- A depositor has the burden of proving actual loss due to the bank’s improper payment of an item before the bank must recredit the account.
- Navy Federal Credit Union (D) stopped payment on a cashier’s check that had been deposited with Patriot Bank (P).
- A customer has no right to stop payment on a cashier’s check.
- Open Chapter
Chapter Four. Warranties 2 results
- A seller of yarn, although acknowledging the yarn sold to be defective, nevertheless sued the buyer for payment on the grounds that the buyer had waited too long to complain of the defect.
- A lessee is attempting to sue the lessor of equipment for breach of the implied warranties of merchantability and fitness for a particular purpose. The lessor has filed countersuit against the lessee seeking payment on the lease.
- Open Chapter
Chapter Ten. Holders in Due Course 3 results
- Any Kind (P) cashed a large check made by Talcott (D) after Talcott directed his bank to stop payment, and Any Kind (P) claimed it was a holder in due course of the check.
- A purchaser of forged checks claimed he was a holder in due course and entitled to payment for the checks.
- Hodge (D) wrote a check and then stopped payment on it for work to be performed by a licensed plumber.
- Open Chapter
- Wesley Heights Realty, Inc. (D) made a check for $1,400.00, payable to the order of a customer of Falls Church Bank (P). The customer deposited the check in his account and was given a provisional credit for that amount. The customer was allowed to withdraw $140.00 from his account before the bank discovered that Wesley Heights (D) had stopped payment on the check. The check was returned to Falls Church Bank (P) dishonored, and the customer had “skipped,” leaving nothing in his account on which to charge the $140.00. Falls Church Bank (P) then demanded payment from Wesley Heights (D) and filed suit when Wesley Heights (D) refused.
- Open Chapter
- U.S. Trustee contending that payments to a floating-lien creditor made during the 90-day preference period were preferential, is held not to have met his burden of proving that the creditor was undersecured at some time during the preference period.
- Payments made to a creditor secured by a floating lien, who is fully secured on the petition date, are not preferential unless it is shown that the amount of indebtedness under the floating lien was greater than the amount of collateral at some point during the preference period.
- Aptix Corp. v. Quickturn Design Systems, Inc.
- Open Chapter
- Payor bank held check without payment, return or notice of dishonor, beyond fixed time period.
- , the purpose of this case is to explain the rule regarding final payment and when the payor bank becomes
- DEPOSITARY BANK: The first bank to take an item even though it is also the payor bank, unless the item is presented for immediate payment over the counter.
- ...) assured Illinois National (D2) that additional funds would be deposited, and Empire (D1) therefore agreed to hold the check until Tuesday morning, October 2. Since there were still inadequate funds to pay the check, Illinois National (D2) marked the check “not sufficient funds,” placed it in the mail for return to the Federal Reserve Bank and sent notice of dishonor by telegram to the Federal Reserve Bank. The check was never paid and shortly thereafter, Empire (D1) was adjudicated bankrupt. Rock (P) sued Empire (D1) and Illinois National (D2). An officer of Empire (D1) who had signed the check was also sued, but was never served. The bankruptcy stay order prevented prosecution of Empire (D1), and thus Rock (P) proceeded solely against the payor bank, Illinois National (D2). Rock (P) asserts liability against Illinois National (D2) on the ground that as the payor bank it became liable for the amount of the check because it held the check without payment, return or notice of...
- Open Chapter
- A letter of credit must be honored unless it is a forgery or unless the underlying transaction or the demand for payment is clearly a sham, and it is apparent that honoring it would facilitate what amounts to a scheme to defraud.
- Hook Point began construction on the development, and later determined that market conditions had become unfavorable. Hook Point (P) defaulted on the loan agreement by, among other things, failing to pay property taxes, to make interest payments due under the notes, or to pay the principal due under one note. BB & T (D) gave Hook Point (P) notice of default in September 2010 and accelerated the loans under the terms of the Loan Agreement on December 21, 2010. On the same day, BB & T (D) tendered a demand letter to First Reliance, seeking to draw the full amount of the LC.
- (Pleicones, J.) No. A letter of credit must be honored unless it is a forgery or unless the underlying transaction or the demand for payment is clearly a sham, and it is apparent that honoring it would facilitate what amounts to a scheme to defraud. A court may issue a preliminary injunction only when the moving party shows that it will suffer irreparable harm unless it is granted the injunction, that it has a likelihood of success on the merits, and that there is no adequate remedy at law.
- ...instrument designed to reduce the need for the parties in a transaction to trust one another by adding an intermediary bank to the transaction. This intermediary bank extends credit to one party so that the other need not do so. The usefulness of a letter of credit depends on its being the virtual equivalent of cash. This understanding is embodied in the independence principle. That principle states that courts recognize that the obligations created in the letter of credit are independent of the obligations of the underlying contract. Nevertheless, courts have carved out a very narrow exception to the independence principle. Aside from permitting the intermediary bank to refuse to honor forged documents presented in order to draw on the letter of credit, courts will enjoin the payment of LCs for “fraud in the transaction” when the conduct of the beneficiary of the LC has so vitiated the entire transaction that the legitimate purposes of the independence of the issuer’s...
- Open Chapter
Valley Bank of Ronan v. Hughes 1 result
- Valley Bank (P) exercised its right to charge back the account and collect the $800,000 from Hughes (D). Hughes deposited $607,838 from his retirement account into his Valley Bank (P) account, and executed a promissory note for $400,000, secured by mortgaged property. Part of the note would pay off an existing mortgage on the property, and the balance was to satisfy the charge-back in Hughes’s (D) account. Hughes (D) was under the impression, based on conversations with Valley Bank’s (P) president, that the note and loan agreement were to satisfy government auditors, and that a new agreement might be reached after resolution of the “fraud situation.” Hughes (D) also understood that the loan might not be forgiven. One (late) payment was made on the note, and when no other payments were made, Valley Bank (P) sent a notice of default and acceleration on October 15, 2000. Hughes (D) requested that Valley Bank (P) forebear foreclosure until the end of the year. Valley Bank (P) agreed,...
- Open Chapter
Aptix Corp. v. Quickturn Design Systems, Inc. Your search matches the chapter title
Hutzler v. Hertz Corp. 3 results
- DRAWEE: Person ordered in a draft to make a payment.
- , an instrument is converted if a bank makes payment to a person not entitled to obtain payment.
- ...dealing with two separate areas of the law: agency and negotiable instruments. With respect to agency law, an attorney has at least apparent authority to receive payment from a settling tortfeasor. After paying the attorney, a tortfeasor is discharged from liability. The rule has long been that a debtor’s liability is discharged when a check payable to the creditor is wrongfully indorsed by the creditor’s agent and is paid by the drawee bank. Therefore, Hertz’s (D) tort liability was discharged when it paid Yudow. Hertz (D), the drawer, had no obligation to look for a forged indorsement. Otherwise, there would be an element of risk and uncertainty whenever one pays by check to an authorized agent. Moreover, because it takes some time for a check to reach the drawer, even if the drawer discovered the forgery, this would be of little practical value to the payee. As between two innocent parties, Hutzler (P) and Hertz (D), Hutzler (P) must bear the loss here because she chose a...
- Open Chapter
- In 1989 Herzog (P) bought the assets of Tru-Flex Metal Hose Corporation from McGowen (D), and formed a subsidiary of Herzog (P) (also called Tru-Flex) to hold them. Herzog (P) then assigned an asset purchase agreement to its wholly-owned subsidiary, Tru-Flex. The agreement required annual payments from Tru-Flex to McGowen (D) of $500,000 for five years. Later in 1989 two promissory notes were issued by McGowen (D) to Tru-Flex for the sum of $400,000. The parties disagree about the purpose of the notes. Herzog (P) claims it loaned McGowen (D) $400,000 and the notes are McGowen’s promises to repay that loan. McGowen (D) admits having received the $400,000, but argues that it was not a loan but rather a partial prepayment of the next year’s installment due under the asset purchase agreement. McGowen (D) believes that the only purpose of the notes it gave Tru-Flex was to enable McGowen (D) to postpone the realization of taxable income by making the $400,000 payment look like a loan....
- There is no condition precedent here. McGowen (D) does not contend that something had to happen before payment was due, but rather than Herzog (P) could never demand payment. Based on our review of history, we do not believe the special purpose defense is limited only to “condition precedent” cases as Herzog (P) argues. Rather, the special purpose defense encompasses all cases in which the instrument was not intended to create an enforceable obligation. The trend of our law has been to relax strict rules. Furthermore, the purpose of the parol evidence rule is to prevent parties to a written contract from changing its terms by reference to side agreements. Here, McGowen is not trying to change the terms of the promissory note, but to show that the notes were not intended to create a legally enforceable obligation. Herzog (P) made no attempt to discount the notes to a third party who could have claimed the status of a holder in due course and enforced the notes against McGowen (D)....
- Open Chapter
Peters v. Riggs Natl. Bank, N.A. 4 results
- The time limitations for bringing claims for improper withdrawals or payments may be shortened by mutual agreement.
- Graves opened bank accounts with Riggs Bank (D) in 1980 and 1986. The rules and regulations relating to the accounts provided that Riggs (D) would not be liable for unauthorized charges or payments unless the customer notified Riggs (D) within sixty days of the mailing of the statement describing the charge or payment. At some time prior to June 2002, Graves won the lottery. She deposited the proceeds in her accounts at Riggs (D). On June 8, 2002, Graves suffered a stroke. She was hospitalized and had no ability to communicate. Graves died on November 9, 2002.
- ...his mother’s safe deposit box, and then learned Graves had won the lottery. Graves’s bank accounts showed balances of $2174.18 and $159.81. Peters was appointed personal representative of his mother’s estate in April 2003. That month, he learned that Graves’s account held over $92,000 in August 2002, but one month later, the balance was $58,935.98. Peters (P) formally requested more information from Riggs (D), and six weeks later Riggs (D) supplied some records but said it was still investigating. Riggs (D) provided more documentation in June 2003. Peters (P) apparently believed Riggs (D) was continuing its investigation. On November 7, 2003, Peters (P) notified Riggs (D) that Riggs (D) may have improperly permitted payments and withdrawals, but he would await the results of Riggs’s (D) investigation before making a formal claim. Riggs (D) failed to provide any additional information, and on August 4, 2004, Peters (P) filed a complaint with Superior Court. Riggs (D) moved for...
- (Washington, C.J.) Yes. The time limitations for bringing claims for improper withdrawals or payments is a statute of repose, and the time period provided may be shortened by mutual agreement.
- Open Chapter
London Leasing Corp. v. Interfina, Inc. 4 results
- Where the party personally endorsing the note consents to the agreement between the note’s maker and payee to extend the time when payment is due, there is no discharge of the endorser on the obligation on the note.
- (Crawford) No. Where the party personally endorsing the note consents to the agreement between the note’s maker and payee to extend the time when payment is due, there is no discharge of the endorser on the obligation on the note. There is no question that summary judgment should be granted against Interfina (D1). The issue presented is whether summary judgment should be entered against Evans (D2).
- Interfina, Inc. (D1) made and delivered to London Leasing Corp. (London) (P) a promissory note in the sum of $52,000.00. Interfina’s (D1) President, Evans (D2), signed the note on behalf of the corporation, and he also personally endorsed the note. The note was not paid on its due date. Thereafter, Interfina, Inc. (D1), by its President Evans (D2) in his corporate capacity only, entered into letter agreements with London (P) extending the time for payment of the note. London (P) filed a motion for summary judgment against Interfina (D1) and Evans (D2) for the sum of $19,500.00 due on the note. Evans (D2) contends that the extension agreements, which were not signed by him in his personal capacity, discharged him from personal liability on the note because he did not personally consent to the extension.
- , subsections (c) and (i), formerly § 3–606. As the section provides, the endorser or accommodation party is discharged from an obligation if the party entitled to enforce the instrument and the principal agree to extend the due date for payment. Under subsection (i), there is no discharge of the obligation if the endorser or accommodation party has consented to the extension. Note on the consent need not be express, but may be implied. Evans (D2) made a far-fetched argument that he did not
- Open Chapter
- In 1987, Central Washington Refrigeration, Inc. (P) contracted to install a set of cold storage rooms for an orchard. Central (P) contracted with McCormack Engineering (D) to purchase the refrigeration coils for the installation. McCormack (D) specially manufactured the coils according to Central’s (P) specifications. The coils were delivered in August 1987 and installed in the cold storage rooms. The orchard experienced problems with the rooms from the start. After several repair attempts and an intervening bankruptcy by the orchard, the orchard defaulted on payments to Central (P), and Central (P) sued for payment. In March 1989 the orchard counterclaimed for damages against Central (P). In May 1992, over four-and-a-half years after the coils were delivered, Central (P) filed a third-party complaint against McCormack (D) alleging the coils were defective. The third-party complaint sought contribution or indemnity from McCormack (D) for any damages Central (P) was obligated to pay...
- Open Chapter
Triffin v. Dillabough 4 results
- The language on the back of the money orders does seem to create a condition on their payment. Is it simply “additional language beyond that contemplated” by the Code and a restatement of other law as the majority finds? Or is it an express condition to payment that renders the money orders non-negotiable? Both justices make good arguments. In addition to finding that the money orders were negotiable instruments, the majority also found that Triffin (P) was a holder in due course who bought the money orders without notice of any claims or defenses against them. However, shouldn’t Triffin (P) have known that something was wrong with the money orders because they were stamped “Reported lost or stolen. Do not redeposit”? Finally, who took a loss here? Clearly, American Express (D) did because it had to pay the full value of the stolen money orders. Chuckie’s was also hurt, because it paid out the full value of the money orders but received less than their full value when it sold them...
- ...to an agent. On December 11, 1990, Stacey Dillabough (D) presented two stolen American Express money orders to Chuckie’s, a check cashing business. They were for $550 and $650, and listed Dillabough (D) as the payee and David W. (last name illegible) as the sender. On February 25, 1991, Robert Lynn (D) presented a stolen American Express money order to Chuckie’s for $200 which listed himself as payee and Michael Pepe as the sender. Charles Giunta, the owner of Chuckie’s, recognized both Dillabough (D) and Lynn (D) from previous transactions. Dillabough (D) and Lynn (D) provided identification and endorsed the money orders. Unaware that the money orders had been stolen, Giunta paid them. Because American Express (D) had reported the money orders stolen on its fraud log, when they were presented for payment at the United Bank of Grand Junction, they were returned unpaid to Chuckie’s stamped “Reported Lost or Stolen. Do not redeposit.” Chuckie’s then sold the money orders to Triffin...
- ...unconditional order on the front directing the drawee to “PAY THE SUM OF” a specified amount “TO THE ORDER OF” the payee. The legend on the back provides as follows: “Do not cash for strangers. This money order will not be paid if it has been altered or stolen or if an endorsement is missing or forged. Be sure you have effective recourse against your customers.” We do not agree with American Express (D) that this language renders the order to pay conditional on the money order not being stolen, altered, or forged. In a similar case, the Louisiana Court of Appeals construed a similar legend on the back of a money order. The court found that the language on the form did not convert the money order into a conditional promise to pay, but merely operated as a warning to the party cashing the money order to protect itself. American Express (D) argues the legend in the present case is different in that it explicitly conditions payment on the money order not being altered, stolen...
- ...precludes a finding of negotiability. The statute distinguishes implied conditions and express conditions. An express condition renders an instrument non-negotiable. The use of the word “if” clearly and explicitly conditions payment on the money orders not being stolen, altered, or forged. The majority’s reasons for departing from the statutory language are strained. The majority relies on a Louisiana case decided before the UCC was adopted. A decision by an intermediate Louisiana court interpreting French legal principles should not override the explicit language of a Pennsylvania statute. The majority supports its conclusion by claiming that the conditions on the back of the instruments merely reflect other provisions of the law rather than create a condition. The statutory defenses are ineffective against holders in due course. The language at issue here is operative even against holders in due course. Therefore, the language here sweeps beyond the statutory defenses and...
- Open Chapter
In re Wood 1 result
- Larkin (P) and Wood (D) were attorneys. On March 15, 1977, Larkin (P) loaned $10,000 to Wood (D). Wood (D) executed a demand promissory note, but did not make any payment on the note for five years. On June 3, 1982, Wood (D) agreed to pay Larkin (P) $1000 to be applied to the accrued interest and that subsequent payments would be applied first to interest and then to principal. In the agreement, Wood (D) assigned to Larkin (P) his right to receive contingency fees in two litigation matters. On September 9, 1983, Wood (D) filed for bankruptcy. Wood (D) [a typical attorney] sought to avoid Larkin’s (P) security interest in the contingency fees. The Bankruptcy Court found for Wood (D), holding that Larkin’s (P) security interest was not perfected and was not exempt from filing under
- Open Chapter
Waddell v. L.V. R.V. 2 results
- Waddell (P) purchased a new motor home from L.V. R.V., d.b.a. Wheeler’s (D). Before taking possession of the motor home, Waddell (P) specifically asked that Wheeler’s (D) make certain repairs, including servicing the engine cooling system, installing new batteries, and aligning the door frames. Wheeler’s (D) told Waddell (P) that the repairs had been made, and Waddell (P) took possession of the motor home.
- Waddell (P) noticed problems with the cooling system and the doors on the motor home shortly after taking possession of it. Waddell (P) returned the motor home to Wheeler’s (D) for repairs. Wheeler’s (D) made several attempts to repair the motor home, but Waddell (P) continued to experience problems with it. Between September 1997 and March 1999, the motor home was in Wheeler’s (D) service department for a total of seven months while Wheeler’s (D) attempted repairs. Waddell (P) demanded a full return of the purchase price in March 1999, and attempted to resolve the matter during the summer of 1999. Wheeler’s (D) did not respond until early 2000.
- Open Chapter
Hogan v. Washington Mutual Bank, N.A. 2 results
- DEED OF TRUST: A conveyance of title by written instrument creating a trust in real property which is used as security for performance of an obligation, such as payment of a debt on land. It is similar to a mortgage, though it differs in form. The deed of trust is executed in favor of a disinterested, third-party trustee, whereas a mortgage is executed to the creditor directly.
- Hogan (P) purchased to parcels of real estate in the late 1990s. In 2004, Hogan (P) took out two loans from Long Beach Mortgage Co. and secured them with a deed of trust on each property. He did not keep up with loan payments and the properties went into foreclosure pursuant to the deeds of trust. The trustee’s notice of the sale of the first property named Washington Mutual (WaMu) (D) as the beneficiary of the deed of trust for the property. The notice for the second sale named Deutsche Bank (D) as the beneficiary.
- Open Chapter
In re Carrier IQ, Inc. 3 results
- Carrier IQ (D) represents that its software is a “network diagnostics tool” for cell phone service providers. It is alleged that in reality, the software collects, and transfers, sensitive personal data off of a user’s mobile device. The typical user has no idea that it is running and cannot turn it off. Because it is always running, the consumers (P) allege that it “taxes the device’s battery power, processor functions, and system memory.”
- The assets of Carrier IQ (D) were acquired by AT&T in 2015, so the company is defunct. In August 2016, the District Court approved a settlement in this case. The settlement calls for the payment of $9 million to purchasers of devices on which the Carrier IQ (D) software was installed.
- ome deployments the data and content intercepted by the Carrier IQ (D) software was sent in unencrypted, human-readable form into the system logs of the affected devices.
- Open Chapter
Bank of America v. Kabba 2 results
- (enforcement of a lost, stolen or destroyed instrument) or 3–418 (payment or acceptance by mistake).
- Bank of America (BOA) (P) filed a foreclosure action against the Kabbas (D) in March 2010. The complaint alleged BOA (P) held the mortgage on Kabbas’ (D) home and the underlying note, as a successor to the original lender. In fact, BOA (P) did not hold the note, and ten months later, it filed a document, entitled “Assignment of Real Estate Mortgage,” signed by Mortgage Electronic Registrations Systems, Inc. (“MERS”), a clearinghouse of sorts for mortgages. While the document indicated that BOA (P) was the original lender’s “successor by merger,” it stated that the
- Open Chapter
Heritage Bank v. Bruha Part 2 2 results
- doctrine reflects an important public policy. When a bank is in trouble, the FDIC deploys teams of specialists who literally walk into a bank at closing time—typically on a Friday—and, over the course of just a few days, try to determine whether the bank can be saved. Although depositors’ assets are usually not at risk given the “deposit insurance” aspect of the FDIC’s mission, speed is essential to maintain trust in the banking system. The specialists are like insurance adjusters assessing the damage of an accident.
- secretly promised the maker that it would never seek to enforce the notes at issue and had taken the notes to make it look like it had more assets than it actually did. The FDIC learned of the secret agreement when it demanded payment on the notes. The Supreme Court reasoned that, because the FDIC often must act very quickly when it takes over a failed bank, it must be able to rely on the bank’s records to get an accurate picture of the bank’s true financial position. It therefore cannot be bound by secret agreements the bank had with its customers. Significantly, the
- Open Chapter
- (Flaum) Yes. The issue before us is whether Standard’s (D) return of the checks comports with the Board’s Regulation CC sec. 229.30(c)(1) [final payment does not occur where payor bank returns the item to the presenting bank before close of business on the next banking day or where a highly expeditious means of transportation is used], which extends the UCC’s
- Open Chapter
Jones v. Approved Bancredit Corp. 1 result
- the normal remedy of withholding payment when there has been a misrepresentation or other valid reason to refuse payment. Many courts have solved this problem by denying holder in due course status to the finance company where it maintains a close business relationship to the dealer whose paper it buys. In such situations, the finance company should not be able to hide behind the UCC and obtain an unfair advantage over the purchaser. Other courts have justified this rule by arguing that a finance company is better able to bear the risk of the dealer’s insolvency than the buyer and is in a better position to protect its interests against unscrupulous dealers. The cases look to factors which show that the finance company cannot claim that it was a good faith innocent purchaser of the instrument. Relevant factors include whether the finance company approves the standards of the dealer, whether it has agreed to take all or a predetermined quantity of the paper that meets such standards,...
- Open Chapter
Hilliman v. Cobado 2 results
- Hilliman (P) bought a herd of cattle from Cobado (D). Eventually, the parties entered into three security agreements, denominated as “collateral security mortgage” and “chattel mortgage.” Under the terms of the sale, the buyer was to make monthly payments, and Cobado (D) was given a chattel mortgage in a certain number of cows. The latter two agreements provided for seizure of the collateral by permitting the secured party to enter the debtor’s premises peaceably and take possession of the collateral, and the debtor agreed not to resist or interfere. Although there was no default in the required payments, Cobado (D) was disturbed by the buyer’s practice of culling poorer cattle from the herd. Without warning, Cobado (D), accompanied by two deputy sheriffs, arrived at the premises of Mr. and Mrs. Szata (P2). The deputy sheriffs advised them that Cobado (D) was there to repossess the collateral under the agreement. Mr. Szata (P2) said that he was not in default, and that Cobado (D)...
- The case demonstrates that the courts will ignore a clause in a security agreement that authorizes repossession and requires the debtor to agree not to resist or interfere, if a breach of the peace occurs. It also sets forth the type of conduct that will constitute breach of the peace. Although there was no physical altercation, the conduct by Cobado (D) produced violence (by beating the cows), consternation, and disorder. Another significant point in the case is that the right of repossession, even when the agreement expressly provides for entry onto the premises, is limited and exercisable only without a breach of the peace. Note that the repossession here was done in the presence of the debtors, even though there was no default in payment.
- Open Chapter
J.B.B. Investment Partners, Ltd. v. Fair 2 results
- On July 11, 2103, Halliburton sent to Fair (D) a draft of the final settlement. On July 16, Halliburton sent an e-mail to Fair (D) stating that he would get Rabic’s (P) signature once he received Fair’s (D) signature and a check for the initial payment. Fair (D) later sent an e-mail suggesting a call or a meeting to discuss the situation. Halliburton sent an e-mail on that same day, saying that the parties should sign the final settlement, and that Rabic (P) and J.B.B. (P) were not going to stay the lawsuit until they had a signed deal. Fair (D) did not sign the July 11 writing.
- Fair (D), an inactive member of the California Bar, was the founder of the managing member of two limited liability companies (LLCs), Boulevard and Cameron. Rabic (P), an individual, and J.B.B. (P), a limited partnership, invested in Boulevard and Cameron. After investing, J.B.B. (P) and Rabic (P) claimed that they had discovered Fair (D) had acted fraudulently, and the parties tried to negotiate a settlement. Russo, one of the plaintiffs’ attorneys, e-mailed a settlement offer to Fair (D) on July 4, 2013. The offer stated, among other things, that Fair (D) would enter a stipulated judgment for $350,000, and that the lawsuit would be stayed pending payments by Fair (D). The final section of the offer also said that a yes or no answer was required, and that Fair (D) needed to say ‘I accept’. . . .” The offer and e-mail did not have a signature line or signature block, and the e-mail sent to Fair (D) was not signed by Rabic (P) or Buckheit (P).
- Open Chapter
- ...contain any provisions concerning rules to apply for setoff, although the term is mentioned in passing in certain sections of the Code. The right to setoff developed through common law and exists in virtually all states today. However, federal legislation places certain restrictions on the right of setoff. For example, setoff is generally prohibited in cases involving customers’ credit card debts, so that the bank issuing the credit card may not setoff the bank account to satisfy overdue payment on the credit card. In addition, setoff may only be had against general accounts, such as checking and savings accounts, of the depositor. In this case, the court was reluctant to permit the Bank (D) to set off the loan since Ritzer was insolvent when the loan was made. Thus, if the company had been solvent at the time the note was signed, and thereafter became insolvent, the Bank (D) may have prevailed. An exception to the general rule provides that if the depositor is insolvent, a right...
- ...Bank (D) cannot claim a right to priority to Ritzer’s account based upon insolvency when at the time it loaned the money Ritzer was insolvent. [It can only claim stupidity!] The Bank (D) also claims a right to setoff based upon its rules and regulations which reserves to itself the right to apply any balance in the depositor’s account to payment of any indebtedness, due or to become due. If this were permitted, it would have the effect of accelerating the due date of the promissory note. There was nothing in the note concerning acceleration, other than by lack of performance. There was nothing in the note stating that it was made upon the security in the account. Accordingly, the rules and regulations are in direct conflict with the promissory note contract. The terms of the note control over the language of the rules. The intent of the parties in executing the note was that it become due in 90 days, not upon demand. Thus, the Bank (D) had no contractual right to treat the...
- Open Chapter
In re Arlco, Inc. 2 results
- claim is satisfied, and those goods happen to include the very goods or proceeds the reclaiming seller has a right to, can the seller enforce his reclamation right. The reclaiming seller has no rights in any other goods, so if his goods do not remain, he must resort to standing in line with all the other While preservation of the UCC priority system may require tolerating occasional minor inequities, equity will intervene in extraordinary situations. As discussed in this case, bad faith will except a case from the general rule governing priority of claims.
- ...about whether CIT gave value and qualifies as a good faith purchaser for value. We therefore grant summary judgment on the issue of CIT’s good faith and find that CIT qualifies as a good faith purchaser for value. As we have previously noted, although a seller’s reclamation right is subject to the rights of a good faith purchaser, the good faith purchaser’s rights do not automatically extinguish the reclamation right. Therefore, Galey (P) argues that it is entitled to an administrative claim or lien in lieu of its right to reclamation because otherwise the presence of a good faith purchaser would effectively extinguish its claim. Galey (P) argues that because there will be surplus collateral after CIT is paid in full, payment of its administrative claim or lien should come from that collateral. The Trustee does not argue that Galey’s (P) claim is extinguished, but that once the goods subject to a reclamation demand are liquidated and the proceeds used to pay the secured creditor...
- Open Chapter
In re Duckworth 1 result
- the debts to be secured. The court held that the lender could not use parol evidence against the trustee to show that it had a security interest in the collateral to assure payment of the later loans. Collateral could be used to secure future debts if the security agreement provided as much, but the absence of such language could not be cured by parol evidence, at least as against the Bankruptcy trustee. This was so even if the evidence showed that the original parties had intended to include such language. Recognizing that its decision was contrary to the evident intent of the original parties to the loans, the First Circuit concluded that the more general effects of the lender’s proposed cure would be worse than sticking to the text of the security agreement.
- Open Chapter
Sea Air Support, Inc. v. Herrmann 1 result
- Soon after this decision, the Nevada legislature amended its laws to permit casinos to sue on credit instruments received in payment of gambling debts. The only thing surprising about this change was that it took until 1980 to make it. If Sea Air (P) had been a holder in due course, it still would have been unable to enforce the check, because under
- Open Chapter
Price v. Neal 2 results
- Price (P) agreed to pay any bills of exchange that Sutton drew on Price (P). Lee forged Sutton’s name on two bills made payable to Ruding. After several people endorsed the bills, Neal (D) received them. Neal (D) gave Price (P) notice of the first bill and Price (P), through his servant, later paid it. When Neal (D) later presented the second bill to Price (P), Price (P) wrote “Accepted, John Price” on the back and ordered his bankers to pay the bill when it was presented for payment. Price (P) later learned that Lee forged Sutton’s name on the bills. He sued Neal (D) for return of the money. Price (P) argued that he could recover from Neal (D) because he paid the bills by mistake and that he could not recover from Sutton or from Lee, who was hung for forgery [a good way to reduce prison overcrowding]. Neal (D) argued that he could keep the money because Price (P) was negligent in failing to check whether Sutton actually signed the bills.
- The rule from this old English case remains in force today. It assures an innocent presenter of a draft finality once the presenter has received payment from the drawee. This finality puts an end to the transaction and defines the parties’ liabilities. The drawee bank is presumed to know the drawer’s signature, even in light of a perfect forgery job. The rule of
- Open Chapter
- ...seriously misleading” if the statement would not be found by a search of the records of the filing office under the debtor’s correct name using the filing office’s standard search logic. Formerly, courts used a reasonableness standard to determine if a misnomer in a financing statement was sufficient to identify a debtor. Recent revisions to Article 9 have been enacted to lessen the importance of fact-intensive, case-by-case determinations and simplify the filing system as a whole. A financing statement is effective if a computer search run under the debtor’s correct name produces the statement with the incorrect name. If it does not, the statement is ineffective as a matter of law. The rule strikes a balance between allowing flexibility for human errors and avoiding a rule that would place an inappropriate burden on searchers who would have to make searches under the correct name and under foreseeable or likely errors. The burden is on the creditor to make a correct...
- Open Chapter
Ellig v. Molina 1 result
- The letter Molina (D) wrote after the Elligs (P) sought to return the ring confirmed Molina’s (D) oral promise to refund 110% of the purchase price. Molina (D) made several arguments to avoid having to pay. The main argument was that Article 2 requires a written contract and the letter was not “sufficient” as a writing. The court disagreed. A “sufficient” writing is one that “(1) indicates that an agreement with obligations exists between the parties, (2) is signed, and (3) specifies a quantity of goods.” Molina (D) himself drafted and signed the writing, which conceded that an agreement existed and that the version of events Mrs. Ellig (P) wife stated was correct. The price was set forth in the series of invoices and documents evidencing wire transfers from Mr. Ellig (P) to Molina (D). Although the payment documents were signed, they carried “indicia of reliability” to meet the statutory requirements.
- Open Chapter
Sullivan v. United Dealers Corp. 1 result
- ...March 26, 1963, and on April 9, 1963, the Sullivans (D) executed and delivered a promissory note and mortgage for $ 18,224.64 to Memory Swift. That same day, Memory Swift negotiated the note and assigned the mortgage to United Dealers Corp. (P), a finance company. On June 25, 1963, United (P) negotiated the note to a bank. After the negotiation of the note to United (P) but before it negotiated the note to the bank, the Sullivans (D) delivered a written statement to United (P) that the foundation of the house had been properly installed and that all framing on the house was sturdy and all work was performed in a workmanlike manner. Beginning in August 1966, the Sullivans (D) made monthly payments according to the terms of the note but then defaulted. In April 1966, the bank transferred the note back to United (P) for value, without recourse. United (P) then sued the Sullivans (D) for collection of the note and foreclosure of the mortgage. The Sullivans (D) argued that United (...
- Open Chapter
Cook Specialty Co. v. Schrlock 1 result
- Machinery Systems, Inc. (MSI) (D1) entered into a contract to sell Cook Specialty Co. (Cook) (P) a hydraulic press brake machine valued at $28,000.00. The machine was lost in transit and the buyer, Cook (P), sued to recover the loss. The delivery terms of the contract were “F.O.B. MSI’s warehouse in Schaumburg, Illinois.” R.T.L. (D2) was the carrier used to deliver the machine from MSI’s (D1) warehouse to Cook (P) in Pennsylvania. MSI (D1) obtained a certificate of insurance from the carrier, with a face amount of $100,000.00 and a $2,500.00 deductible. While R.T.L. (D2) was transporting the machine from the warehouse to Pennsylvania, the machine fell from the truck. The police cited R.T.L. (D2) for not properly securing the load. Cook (P) recovered damages from the carrier’s insurer for the applicable policy limit of $5,000.00. Cook (P) contends that [by
- Open Chapter
Klocek v. Gateway, Inc. 1 result
- , and instead follow cases holding that, since payment often precedes detailed communications, additional terms included with the product operate as a proposal, which the buyer is deemed to accept by using/keeping the product after having sufficient time to read the terms. We are not persuaded that this approach is the one which state courts should follow.
- Open Chapter
- ...G (P) began “field warehousing” its oil at Allied’s request. Field warehousing involved storing oil in tanks leased by Allied and sublet to Lawrence American Field Warehouse Corp. (D) who acted as a warehouser. Allied would purchase oil from P & G (P) or other producers. The oil was then shipped “to the seller’s order, and stored for the seller’s account” in Field’s (D) tanks. Allied would make a 20% down payment at the time Field’s (D) tanks received the oil. Allied paid the “balance by sight draft with a bill of lading attached, or cash in advance of shipment. . . .” In March and April of 1963, P & G (P) shipped to its own account over 9,000,000 pounds of soybean oil to be stored in Field’s (D) tanks. Field (D) issued warehouse receipts for the oil, and noted on monthly statements that Field (D) was warehousing the oil. Then, the oil disappeared. P& G (P) sued Lawrence (D) for conversion of the missing oil. The trial court granted summary judgment for P & G (P) and awarded it...
- Open Chapter
- . The policy of both pre-Code law and of the Code is that instruments should be as concise as possible and uncluttered by other promises, orders, obligations or powers. The promissory note here contains a term which gives Richmond (D) the option to cancel Woodworth’s (P) interest in Richmond (D) if he defaults on the note. The term also provides that Richmond (D) will have no obligation to repay any payments it has received. This term is clearly a promise by the maker, Woodworth (P), that his partnership interest will be forfeited in the event of default. It is more than a recitation of security or an agreement to protect collateral; it is a forfeiture provision. In the case of
- Open Chapter
In re Howell Enterprises, Inc. 1 result
- ...) accounts receivable. Bar Schwartz Limited (“Bar Schwartz”) wanted to buy rice and pay for it with a commercial letter of credit. Howell (D) would not accept the commercial letter of credit as payment and Bar Schwarz would not buy rice from Tradax (P). So Tradax (P) and Howell (D) [very creatively] agreed that Tradax (P) would sell rice to Bar Schwartz under Howell’s (D) name. Howell (D) agreed to transfer the proceeds of the letter of credit to Tradax (P) once it matured. The companies’ names were used interchangeably throughout the transaction. Howell (D) listed the Bar Schwartz transaction as an account receivable on its books. After the rice was delivered to Bar Schwartz, Howell (D) received Bar Schwartz’s letter of credit. However, before the letter of credit matured, Howell (D) filed for bankruptcy. First National (D) claimed its perfected security interest in Howell’s (D) accounts receivable, including the Bar Schwartz letter of credit. Tradax (P) brought this action...
- Open Chapter
- .... Inexplicably, the total value of the bonds was $94,000. Institutional was able to sell only $45,000 of the bonds to Church members. In July 1964, Institutional’s President Lawrence Hayes [“Hayes”] borrowed $25,000 from First American National Bank [“First American”], using $27,000 worth of the Church’s bonds as collateral. In February 1965, Hayes fraudulently had $25,000 worth of numbered Church bonds printed. These bonds had the same numbers as those securing Hayes’s bank loan. Also in February 1965, Hayes had larger denomination Church bonds printed for sale to Christian Foundation Life Insurance Company [“Christian Life”]. Hayes’s fraud was discovered when the duplicate bonds were presented for payment at the Church’s bank, Union Bank of Mena [the “Bank”]. UCC § 202–3(c) states: “Except as otherwise provided in the case of certain unauthorized signatures on issue (Section 8–205), lack of genuineness of a security is a complete defense even against a purchaser for value...
- Open Chapter
Kunkel v. Sprague National Bank 2 results
- ...transaction, Morken granted Hoxie (D) a purchase money security interest (“PMSI”) in the cattle. Hoxie (D) perfected its security interests by taking possession of the cattle. The feedlot agreement between Hoxie (D) and Morken provided that Hoxie (D) would sell the cattle in its own name for slaughter, would receive direct payment from the packing house, would deduct the feeding and purchase expenses from the sale proceeds, and remit the balance to Morken. However, Hoxie (D) needed Morken’s authority to sell the cattle and Morken determined the sales price. Morken then filed for bankruptcy. Hoxie (D) then sold the cattle to Iowa Beef Processors (“IBP”) and deducted the care and feeding expenses. Sprague (D) and Hoxie (D) both claim the remaining $550,000 in sale proceeds. While this case was pending, Hoxie (D) gave Sprague (D) notice of its competing security interest. Hoxie (D) and Sprague (D) filed cross-motions for summary judgment. The bankruptcy court granted Hoxie’s (D...
- provides that the creditor giving notice must state that it has or expects to have a PMSI. Therefore, the PMSI creditor can wait to notify other secured creditors after it has acquired and perfected its security interest. Finally, Sprague (D) argues that Hoxie (D) does not have “superpriority” in the proceeds of the cattle sales because Hoxie (D) received payment two or three days after delivering the cattle to IBP.
- Open Chapter
- Michigan law, which governed the action, recognizes the common-law duty of inquiry. Generally, if a check is drawn to the order of a bank, and the drawer of the check does not owe the bank any money, the bank can only pay the funds to a person the drawer specifies. “[I]t takes the risk in treating such a check as payable to bearer and is placed on inquiry as to the authority of the drawer’s agent to receive payment.”
- Open Chapter
- ...document Culver (D) signed was a form promissory note. The form contained blanks to insert the terms of the loan. At the time Culver (D) signed the note, the blanks had not been completed. Only the name of the payee, Rexford State Bank, was printed on the forms. Later, some unknown individual completed the note indicating the principal amount as $50,000, the execution date as August 2, 1984, the maturity date was February 2, 1985, and the interest rate as 14.5% until maturity and 18.5% thereafter. Although Culver (D) received only $30,000, the Rexford State Bank did deposit $50,000 into an account controlled by Kalliel. The $30,000 apparently came from that account. When Rexford State Bank became insolvent, the Federal Deposit Insurance Corporation (“FDIC”) (P) purchased a number of the bank’s assets, including the note at issue here. At that time, FDIC (D) had no notice of the events that occurred before it purchased the note. Culver (D) has made no payments on the note and...
- Open Chapter
- ...(D) experience with the cotton industry and willful ignorance as to the existence of the liens on the cotton constitute reason to know that AAC’s (P) defense to the EWRs existed. While some jurisdictions have required suspicious circumstances for a finding of reason to know, others hold that willful or deliberate indifference to relevant information is a basis for such a finding. The evidence in the record indicates that a genuine issue of fact exists concerning the merchants’ (D) notice of AAC’s (P) claims. The merchants (D) testified that they do not perform lien searches on cotton. However, when buying directly from the producer or in a state with a central lien filing system, most do perform such searches. Further, when dealing with sales via contract for future delivery, they require the seller to warrant that there are no liens on the cotton. These facts imply that the merchants (D) certainly knew of the possibility of the existence of liens. Whether their failure to...
- Open Chapter
- Publication Date: August 23rd, 2017
- ISBN: 9781683288749
- Subject: Commercial Law
- Series: High Court Case Summaries
- Type: Case Briefs
- Description: High Court Case Summaries on Commercial Law contains well-prepared briefs for each major case in Whaley’s casebook on commercial law. High Court briefs are written to present the essential facts, issue, decision and rationale for each case in a clear, concise manner. While prepared briefs can never substitute for the insight gained by actually reading a case, these briefs will help readers to identify, understand, and absorb the core “take away” knowledge from each case. Moreover, these briefs are followed by a useful legal analysis, which provides extra tips and contextual background about each case, connecting the case to the broader concepts being developed throughout the casebook. This book also supplies case vocabulary, which defines new or unusual legal words found throughout the cases. Finally, to enhance the reader’s recall, there is a corresponding memory graphic for each brief that portrays an entertaining visual representation of the relevant facts or law of the case.