Law of Modern Payment Systems and Notes

, by Miller, Frederick H.; Harrell, Alvin C.

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ISBN: 9780314260185 | 0314260188
Cover: Hardcover
Copyright: 6/1/2003

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This book discusses the Uniform Commercial Code (U.C.C.) Articles 3, 4, and 4A in detail. It also explains to what extent provisions and interpretive cases decided prior to the promulgation of Article 4A and prior to the 1990 revision of Articles 3 and 4 are still useful, and why changes made were needed. It discusses issues not generally recognized and treated elsewhere, including the meaning of the new standard of good faith, the relation between "accountability" and "final payment," and consequences of radical truncation.

Preface

iii

Westlaw Overview

The Law Governing Methods of Payment and Evidences of Debt

(37)

Payment Transactions and Evidence of Debt

(8)

Overview

(1)

Methods of Evidencing Debt and Making Payment

(2)

Prevalency and Uses of Negotiable Instruments

(1)

Consumer Transactions

(1)

Commercial Transactions

(1)

Definition of Negotiable Instrument

(1)

Order Paper: Drafts and Checks

(1)

Notes and Certificates of Deposit

(2)

Popular Name Instruments

(1)

Exclusions

(1)

Uniform Commercial Code Article 3: The Primary Law

(3)

Scope of Article 3

(1)

Instruments Not Payable to Order or to Bearer and Checks

(2)

Governing Law When Article 3 Is Not Applicable

(18)

Definitionary Exclusions From Article 3

(1)

Applicability of General Contract Law

(1)

Application of Article 3 by Analogy

(1)

Express Exclusions from Article 3

(1)

Money

(1)

Documents of Title

(1)

Investment Securities

(2)

Payment Orders

(1)

Choice of Law Exclusions

(1)

The Law of Another State

(1)

The Law of Another Country

(1)

International Law

(3)

Federal Law

(1)

Federal Common Law

(5)

Federal Statutes or Regulations

(2)

Negotiable Instruments in Context: Supplementary Governing Law

(7)

Uniform Commercial Code Article 4: Bank Deposits and Collections

(1)

Regulation CC: Funds Availability

(1)

Uniform Commercial Code Article 9: Secured Transactions

(1)

General Provisions of Law Under the Uniform Commercial Code: Article 1

(1)

General Provisions of Law Outside the Uniform Commercial Code: Section 1--103(b) of Article 1

(3)

Form Requirements for Negotiable Instruments

(48)

Introduction

(8)

History of and Reasons for Form Requirements for Negotiable Instruments

(2)

Modern Critique of the Requirements

(1)

Erosion of Negotiable Status

(1)

Problems Where the Form of the Instrument Is Inadequate

(1)

Solutions

(2)

Indirectly Obtaining the Benefits of Article 3

(1)

General Inability to Invoke Rules of Article 3 by Agreement

(1)

Other Methods of Achieving Aspects of Negotiability

(2)

Form Requirements for Negotiable Instruments

(32)

Written Instrument

(1)

Signing

(1)

Creation of Liability on an Instrument

(1)

Definition of ``Signed''

(1)

Weight Accorded to Signatures

(1)

Limited and Unconditional Promise or Order

(1)

Nature of Promise or Order

(1)

Informal Instruments

(1)

Excessive Luggage Encumbering the Promise or Order

(1)

Provisions Relating to Collateral

(4)

Other Provisions

(1)

The Instrument in Relation to the Transaction Out of Which It Arose

(1)

References Versus Incorporation

(1)

Permitted References

(4)

References Not Permitted

(2)

Other Agreements Affecting the Instrument

(2)

Oral Parol Evidence

(2)

Limitations on Sources for Payment

(1)

Other Conditions

(1)

Sum Certain

(1)

Amount Ascertainable from the Instrument

(3)

Provisions Not Creating Uncertainty

(1)

Sum Payable in Money

(1)

Money Not Limited to Legal Tender

(1)

Instruments Payable in Foreign Money

(1)

Payable on Demand or at a Definite Time

(1)

Instruments Payable on Demand

(1)

Instruments Payable at a Definite Time

(2)

Payable to Order or to Bearer

(1)

Instruments Payable to Bearer

(2)

Instruments Payable to Order

(2)

Seals

(1)

Ambiguities and Omissions in Instruments

(4)

Rules to Forestall Ambiguities

(4)

Omissions Not an Impairment of Negotiability

(1)

Incomplete Instruments

(3)

When an Instrument is Complete, Incomplete, or Not Within Article 3

(1)

Authorized and Unauthorized Complete Instruments

(2)

Rights on Negotiable Instruments

(69)

Issue and the Rights It Creates

(11)

An Instrument Is Not Effective Until Issued

(2)

The Concept of Holder

(1)

Rights of One Not a Holder of an Instrument

(1)

Remitters, Takers, Nonpossessors, and Creditors

(2)

Transferees and Shelter Rights

(3)

Rights of the Holder of an Instrument

(1)

Introduction

(1)

Right to Enforce the Instrument or Discharge Parties on It

(1)

Right to Transfer or Negotiate the Instrument

(1)

Transfer and Negotiation

(17)

Transfer

(1)

Negotiation of a Bearer Instrument

(1)

Negotiation of an Order Instrument

(1)

The Requirements of Indorsement and Delivery

(3)

Who May Indorse

102

(1)

Introduction

102

(1)

Instruments Payable to More Than One Person

102

(2)

Instruments Payable to Estates, Offices, and the Like

104

(1)

Instruments with Misspelled Names, Accommodation Indorsers, and Unauthorized Indorsers

105

(1)

Types of Indorsements and Their Effect

106

(1)

Blank Indorsement

106

(1)

Special Indorsement

107

(1)

Restrictive Indorsement

108

(1)

Types of Restrictive Indorsements

108

(1)

Effect of Restrictive Indorsements

109

(3)

Rescission of Negotiation and Reacquisition

112

(1)

Rescission

112

(2)

Reacquisition

114

(1)

Holder in Due Course Status

115

(31)

Introduction

115

(1)

The Reason and Need for Holder in Due Course Status

115

(2)

Payee As a Holder in Due Course

117

(3)

Elements of Proper Taking

120

(1)

Value

120

(3)

Good Faith and Lack of Notice

123

(1)

Relevant Time for Meeting Requirements

123

(1)

Bad Faith or Knowledge of Agent

124

(1)

Good Faith in General

124

(4)

Notice in General

128

(4)

Specific Notice Provisions

132

(4)

Burden of Proof

136

(3)

Status of a Holder in Due Course

139

(1)

Freedom from Claims and Defenses

139

(1)

Real and Personal Defenses

139

(1)

Setoff (Claims in Recoupment)

140

(2)

Claims

142

(2)

Finality of Payment

144

(2)

Limitations on Holder in Due Course Status

146

(9)

In the UCC

146

(1)

Nonordinary Course Acquisitions

146

(1)

Defenses and Claims of Persons With Whom the Holder Has Dealt

147

(1)

Defenses

147

(1)

Claims

148

(2)

Case Law Limits

150

(2)

State Legislation

152

(1)

Federal Rule

153

(2)

Liability on Negotiable Instruments: The Basic Obligors

155

(37)

Introduction

156

(1)

Basis for Liability

156

(9)

Signature

156

(2)

Preclusion and Ratification

158

(1)

Preclusion

158

(5)

Ratification

163

(1)

Liability and Capacity

164

(1)

The Drawer

165

(11)

Description of Liability

165

(1)

Conditions to Liability

165

(1)

Dishonor

165

(1)

Presentment As a Condition to Dishonor

165

(3)

Time of Presentment

168

(1)

Manner of Presentment

169

(2)

Notice of Dishonor

171

(2)

Protest

173

(1)

Discharge, Evidence, and Excuse

173

(1)

Discharge

173

(1)

Evidence

173

(1)

Excuse

174

(2)

The Drawee

176

(8)

Absence of Liability As Drawee

176

(1)

Liability As Acceptor

177

(1)

Acceptance and Certification

177

(2)

Consequences of Acceptance

179

(5)

The Maker

184

(1)

The Indorser

185

(7)

Description of Liability

185

(2)

Conditions to Liability

187

(1)

Dishonor and Notice of Dishonor

187

(2)

Discharge, Evidence, and Excuse

189

(1)

Order of Liability

190

(2)

Liability on Negotiable Instruments: Accommodation and Agency

192

(15)

Introduction

192

(2)

Accommodation Parties

194

(6)

Definition and Determination of Status

194

(1)

Definition

194

(1)

Determination of Status

195

(2)

Liability to Taker of Instrument

197

(1)

Liability to and of Party Accommodated

198

(2)

Agents

200

(7)

Unauthorized Signatures

200

(1)

Authorized Signatures Creating Principal But Not Agent Liability

201

(1)

Authorized Signatures Creating Agent Liability Alone

202

(5)

Defenses to and Discharge of Liability on Negotiable Instruments

207

(42)

Introduction

208

(5)

Relation Between Liability and Defenses

208

(1)

Procedural Considerations

208

(1)

Real and Personal Defenses

209

(1)

Use of Parol Evidence to Show Defenses

210

(1)

Introduction

210

(1)

Evidence the Instrument Is Not To Be Binding

211

(1)

Evidence of Conditions

212

(1)

Real Defenses, Including Discharge

213

(6)

Infancy and Other Incapacity

213

(1)

Duress

214

(1)

Illegality

214

(1)

Fraud

215

(1)

Discharge

216

(1)

Forgery

216

(1)

Alteration

217

(2)

Personal Defenses, Including Discharge

219

(30)

In General

219

(1)

Personal Defenses Described

219

(1)

Jus Tertii (Defenses Based on the Better Right of a Third Party)

219

(3)

``Counterparts'' of Real Defenses

222

(2)

Unauthorized Completion

224

(2)

Nondelivery, Delivery for a Special Purpose, and Nonperformance of a Condition Precedent

226

(1)

Want or Failure of Consideration

227

(3)

Discharge

230

(1)

In General

230

(3)

Payment or Satisfaction and Tender of Payment

233

(1)

In General

233

(1)

Payment or Satisfaction to the Holder

233

(2)

Adverse Claims

235

(1)

Tender of Payment

236

(1)

Cancellation and Renunciation

237

(3)

Impairment of Recourse or Collateral

240

(1)

Impairment of Recourse

240

(2)

Impairment of Collateral

242

(2)

Waiver of Defense

244

(1)

Statute of Limitations

245

(4)

Liability and Rights Not on the Instrument of Parties to Negotiable Instruments

249

(38)

Liability and Rights With Respect to the Underlying Transaction

250

(7)

Relation Between the Instrument and the Transaction in General

250

(1)

Parity of Rights and Liabilities

250

(1)

Suspension of the Underlying Obligation

250

(2)

Effect of Dishonor or Payment of the Instrument

252

(1)

Instruments on Which a Bank is Liable

253

(1)

Accord and Satisfaction

254

(3)

Warranty

257

(12)

Introduction

257

(1)

Nature of Warranty Obligations

257

(2)

Remedies and Limitations

259

(1)

Warranties Made by a Transferor

260

(2)

Presentment Warranties Made to an Acceptor or Pay-or

262

(1)

No Unauthorized Signature

263

(2)

No Forged Indorsements

265

(3)

No Alterations

268

(1)

Other Bases for Liability and Rights

269

(18)

In General

269

(1)

Negligence

270

(3)

Conversion

273

(1)

Owner's Basis for Suit

273

(2)

Defenses to Action Based on a Forged Indorsement

275

(1)

Effect of Failure to Follow Reasonable Commercial Standards

276

(2)

Effect of Proceeds Remaining

278

(1)

Legally Irrelevant Forged Indorsements

279

(1)

Proceeds Are Correctly Paid

279

(1)

Imposter, Fictitious Payee, and Padded Payroll Cases; Employer's Indorsements

280

(1)

In General

280

(4)

The Need for Proper Indorsement and Due Care

284

(3)

Article 4: Provisional and Final Payment

287

(91)

Article 4: Scope and Key Concepts

289

(16)

Scope of Article 4 and Choice of Law

289

(1)

Scope of Article 4

289

(3)

Choice of Law

292

(1)

Modification by Agreement and Preemption by Federal Rule

293

(5)

Definitions and Important Concepts

298

(1)

Item

298

(1)

Bank

299

(1)

Depository Bank

299

(1)

Payor Bank

299

(1)

Intermediary Bank

299

(1)

Collecting Bank

299

(1)

Customer

300

(1)

Agency

300

(1)

Banking Day

301

(1)

Midnight Deadline

301

(1)

Settle

301

(1)

Branches: Seperate Office of a Bank; Separate Data Processing Center

302

(1)

Types of Checks

302

(1)

Electronic Presentment

303

(1)

Bank Insolvency

304

(1)

The Payor Bank: Provisional Settlement Versus Final Payment

305

(27)

Settlement

306

(1)

Initial Settlement

306

(2)

Provisional Versus Final Settlement/Payment

308

(4)

Final Payment

312

(2)

Methods of Making Final Payment

314

(1)

Payment in Cash

314

(1)

Reserving the Right to Revoke

315

(1)

The Midnight Deadline

316

(3)

Final Settlement and Accountability Under Article 4

319

(2)

Avoidance of Payment on Restitutionary Grounds

321

(4)

Funds Availability Under Article 4

325

(2)

Notice of Dishonor and Return of the Item

327

(3)

Defenses and Excuses for Failure to Send Timely Notice of Dishonor

330

(2)

Final Payment and the Midnight Deadline for Collecting Banks

332

(14)

Introduction

332

(1)

Provisional Settlement by a Collecting Bank

333

(6)

Excuses for Failure to Meet the Midnight Deadline

339

(1)

Measure of Liability When a Collecting Bank Misses Its Midnight Deadline

340

(4)

Settlement by Remittance or Other Means

344

(2)

Funds Availability and Federal Reserve Regulation CC

346

(31)

Introduction

346

(1)

Regulation CC, Subpart B---Funds Availability Requirements

347

(1)

Funds Availability Schedules

347

(1)

Exceptions and Safeguards

348

(3)

Disclosure Requirements

351

(1)

Civil Liability

351

(1)

Regulation CC, Subpart C---Collection of Checks

352

(1)

Expeditious Return of Dishonored Checks

353

(1)

The Two--Day/Four--Day Test

354

(1)

The Forward Collection Test

354

(1)

Impact on Article 4---The Payor Bank

355

(1)

Identification of Returned Checks and Notice of Return---Duties of the Payor Bank

355

(1)

Notice of Return

355

(1)

Notice of Nonpayment: Identifying the Depositary Bank

356

(1)

Duties of Returning Banks---Regulation CC Section 229.31

356

(1)

The Scope of Section 229.31

356

(1)

Expeditious Return

357

(1)

The Return Process: Comparison to UCC Article 4

357

(2)

Settlement, Charges, and Other Notices

359

(1)

Duties of Depositary Banks

360

(1)

Acceptance by Depositary Banks

361

(1)

Payment for Returned Items

361

(1)

Notice to Customer

362

(1)

Warranties of Paying and Returning Banks

363

(4)

Truncation

367

(1)

Introduction

367

(1)

Check Truncation

367

(1)

Forward Collection Settlements Deemed Final; Impact on Article 4

367

(1)

Indorsements

368

(1)

Conclusion: Impact of Regulation CC on UCC Articles 3 and 4

369

(1)

The Mandatory Availability Rules and the Depositary Bank

370

(1)

Impact of Regulation CC on the Midnight Deadline

371

(1)

Provisional Settlement

372

(1)

Direct Return of Dishonored Items

372

(1)

Payable---Through Drafts

372

(1)

Remote Data Processing Centers

372

(1)

Truncation

373

(1)

Indorsement

373

(1)

Comparative Fault

373

(1)

Variation by Agreement

373

(1)

Standard of Care and Measure of Damages

374

(1)

Good Faith

375

(1)

Implications for the Future

376

(1)

Summary and Conclusions

377

(1)

The Bank-Customer Relationship

378

(90)

When Is Payment of a Customer's Check Required, Permitted, or Prohibited?

380

(25)

The Concept of ``Properly Payable''

380

(3)

The 1990 Article 4 Revisions: Customer Overdrafts; Postdated Checks

383

(1)

``Properly Payable'' Under Article 4: A Partial Index to Relevant Provisions

384

(1)

Stop-Payment Orders and Other ``Legals''

385

(1)

Stop Payment Orders

385

(4)

Payment of an Altered Item Over a Stop Order: Good Faith and Ordinary Care

389

(2)

Alternatives to Stopping Payment

391

(1)

Can Payment be Stopped on a Cashier's or Similar Bank Check?

392

(2)

Can the Customer Stop Payment?

394

(1)

Can the Bank Stop Payment?

394

(1)

Bank Liability for Dishonor of a Cashier's or Similar Check

395

(3)

Refusal to Pay a Cashier's or Similar Check: Measure of Liability

398

(1)

Lost, Destroyed, or Stolen Cashier's, Teller's, or Certified Checks

399

(1)

Certification

400

(1)

Receipt of Legal Process

400

(2)

Death or Incompetence of the Drawer

402

(1)

Final Payment, the ``Four Legals,'' and the Bank's ``Cutoff'' Hour

403

(2)

Consequences of Wrongful Payment and Wrongful Dishonor

405

(8)

Introduction

405

(1)

Wrongful Dishonor

406

(1)

The Revision of Section 4--402

406

(2)

Limitations on Bank Liability for Wrongful Dishonor

408

(2)

Wrongful Payment---Bank Liability and the Right to Subrogation

410

(2)

Postdated Checks

412

(1)

Rights and Obligations of Bank Customers

413

(25)

The Bank--Customer Relationship

413

(1)

Does the Bank Have a Fiduciary or Other Special Duty?

414

(1)

Non--Code Consequences

414

(3)

Code Consequences

417

(2)

Regulation of Depositary Services Pricing

419

(1)

Modification by Agreement

420

(3)

Customer's Duties Under Section 4--406

423

(1)

Customer's Duty to Examine Checks

423

(4)

Impact of Revised Section 4--406

427

(2)

The New Role of Comparative Negligence and Good Faith

429

(2)

Other Revisions to Section 4--406

431

(2)

Payor Bank's Obligation to Examine Checks

433

(2)

Check Truncation and MICR Encoding

435

(3)

Conclusion

438

(1)

NOW and Share Drafts

438

(2)

The Basic Law of Bank Accounts

440

(11)

The Traditional Concept and Modern Variations of a ``Bank Account''

440

(2)

Common Law Classifications of Deposit Accounts

442

(1)

General and Special Purpose Accounts

442

(1)

General or Special Purpose

443

(1)

The Basic Bank Account Relationship

444

(1)

Creating a Depositary Account

444

(3)

Nature of the Bank--Customer Relation

447

(1)

Fundamental Duties and Liabilities of the Bank

447

(1)

General Deposits

447

(2)

Special Deposits

449

(1)

Fiduciary Duty of Disclosure

449

(1)

Duties of the Customer

450

(1)

Termination of the Relationship

450

(1)

The Bank Secrecy Act

451

(1)

Banker's Lien, Setoff, Garnishment and Security Interests in Bank Accounts

451

(17)

Banker's Lien

451

(2)

Setoff

453

(1)

Background and Legal Basis

453

(1)

Maturity of the Debt

454

(1)

Mutuality of Obligation

455

(1)

Absence of Deposit Restrictions

456

(1)

Competing Claims

456

(1)

Wrongful Dishonor

457

(1)

Secured Creditor

458

(1)

Garnishing Creditor

459

(1)

Tax Claims and Internal Revenue Service Levies

460

(1)

Depositor's Trustee in Bankruptcy

461

(2)

Duty of Set-off

463

(1)

Garnishment

464

(1)

Security Interests in Deposit Accounts

465

(3)

UCC Article 4A---Funds Transfers

468

(40)

Introduction and Scope---UCC Article 4A

469

(1)

Article 4A Definitions and Scope

470

(4)

Fundamental Concepts

470

(2)

Scope---Payment Order Must Be Unconditional

472

(2)

Liability for Errors and Unauthorized Orders

474

(3)

Authority to Originate

474

(1)

Security Procedure

475

(1)

Commercially Reasonable Procedure Required

476

(1)

Obligations of a Bank Accepting a Payment Order

477

(5)

In General

477

(1)

Misdescription of Beneficiary

478

(1)

Preemption of Other State Law Claims

479

(3)

Transmitting the Payment Order

482

(1)

Fees and Settlement

482

(1)

Payment

483

(4)

Payment in General

483

(1)

Payment and Discharge Between Banks

484

(1)

Obligation of Beneficiary's Bank to Pay Beneficiary

485

(1)

Payment to the Beneficiary

486

(1)

Payment and Discharge

486

(1)

Miscellaneous Article 4A Issues

487

(6)

Variation by Agreement or Funds---Transfer Rule

487

(1)

Effect of Creditor Process or Injunction

488

(1)

The Bank--Customer Relation

489

(1)

Rate of Interest

489

(1)

Choice of Law

490

(1)

U.S. Transactions

490

(1)

Choice of Law and International Transactions

490

(2)

Statute of Limitations

492

(1)

Unauthorized and Erroneous Orders

493

(3)

Authorized and Unauthorized Orders

493

(1)

Erroneous Orders

494

(1)

Beneficiary Misdescription

494

(1)

Cancellation

495

(1)

Other

495

(1)

Summary and Conclusions---Implementing UCC Article 4A

496

(2)

Summary

496

(1)

Implementing Article 4A

496

(2)

Regulation J Subpart A: Collection of Checks Through Federal Reserve Banks

498

(2)

Regulation J Subpart B: Fedwire

500

(3)

Scope of Subpart B

500

(1)

Impact of Subpart B

501

(2)

Federal Choice of Law Provisions

503

(1)

Wire Transfer Monitoring Rules

504

(2)

The U.S. Treasury ``Travel Rule''

506

(1)

Conclusion

507

(1)

Non--UCC Payment Systems

508

(27)

Introduction

508

(7)

The Law of Credit and Debit Cards

515

(10)

Required Federal Disclosures and Documentation

516

(2)

Error Resolution and Wrongful Dishonor

518

(1)

Error Resolution Under Federal Law

518

(2)

Wrongful Dishonor Under Federal and State Law

520

(1)

Consumer Liability for Unauthorized Transfers Under Federal Law

521

(3)

Federal Rules on Distribution of Access Devices

524

(1)

State Law

524

(1)

Arbitration Clauses

525

(1)

Applicable Law for Selected Other Non--UCC Payment Systems

525

(10)

Smart Cards and Similar Products

525

(6)

E-checks and Similar Products

531

(4)

Appendix: Westlaw Appendix

535

(16)

Table of Cases

551

(48)

Table of Statutes

599

(58)

Index

657

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Law of Modern Payment Systems and Notes

Summary

Table of Contents

Supplemental Materials