Payment Systems and Other Financial Transactions : Cases, Materials, and Problems

by Mann

• ISBN13: 9780735556492
• ISBN10: 0735556490
• Edition: 3rd
• Format: Nonspecific Binding
• Copyright: 2005-11-21
• Publisher: Wolters Kluwer

Summary

For a clear yet thorough explanation of the legal systems that govern payment transactions, turn to PAYMENT SYSTEMS, Third Edition. This proven casebook skillfully applies the systems approach to reveal how payment systems actually work.Adopting PAYMENT SYSTEMS gives you the benefit of:extraordinary authorship from Ronald J. Mann, one of the country's leading commercial law scholars, who currently serves as Reporter for revisions to the UCC articles related to checksunmatched scope of coverage -- of checks, credit cards, and debit cards; ACH transactions, wire transfers, and letters of credit; and notes, guaranties, andsecurities -- reflecting today's payment transactionsadept grounding of the systems approach in hands-on explanation, with analysis built around those explanations, while text and problems focus on the rules that are applied in practicean efficient problem approach; each of the 25 assignments contains realistic problems that address the major points of each topican extensive Teacher's Manual that answers all of the problems in the book, and supplies guidance for structuring the assignments around a 50-minute, 75-minute, or two-hour long classChanges for the Third Edition include:important new cases, such as Halifax Cor. v. Wachovia Bank and NBT Bank v. First National Community Bankdetailed treatment of Check Clearing for the 21st Century Act ('Check 21'), the federal law designed to enable banks to handle checks electronically, which will make check processing faster and more efficientupdated and expanded material on electronic and internet payment systems, including electronic checks, internet payments, PayPal, stored-value cards, and electronic money

Table of Contents

Acknowledgments	xxi
Preface	xxiii
Part One Payment Systems	1	(330)
Introduction to Part One	3	(4)
Figure 1.1---Basic Payment Systems	4	(1)
Figure 1.2---Payment by the Third Party	5	(2)
Checking Accounts as the Paradigm Payment System	7	(118)
Assignment 1: The Basic Checking Relationship and the Bank's Right to Pay Checks	7	(14)
The Basic Relationship	7	(1)
Figure 1.3---Payment by Check	8	(1)
The Bank's Right to Pay	9	(1)
When Is It Proper for the Bank to Pay?	9	(1)
Overdrafts	10	(1)
McGuire v. Bank One, Louisiana, N.A.	10	(4)
Stopping Payment	14	(2)
Remedies for Improper Payment	16	(1)
McIntyre v. Harris	16	(2)
Problem Set 1	18	(3)
Assignment 2: The Bank's Obligation to Pay Checks	21	(20)
When Are Funds Available for Payment?	21	(1)
Time of Evaluation	21	(1)
Availability of Funds	22	(2)
Figure 2.1---Basic Funds Availability Rules	24	(2)
Figure 2.2---Low-Risk Items Availability Rules	26	(3)
First National Bank v. Colonial Bank	29	(2)
Wrongful Dishonor: What Happens If the Bank Refuses to Pay?	31	(1)
Maryott v. First National Bank	32	(6)
Problem Set 2	38	(3)
Assignment 3: Collection of Checks	41	(36)
The Payor Bank's Obligation to the Payee	41	(1)
Outdoor Technologies, Inc. v. Allfirst Financial, Inc.	41	(5)
The Process of Collection	46	(1)
Obtaining Payment Directly	47	(1)
Figure 3.1---Direct Presentment	48	(1)
Obtaining Payment Through Intermediaries	48	(1)
Payee/Customer to Depositary Bank	48	(1)
Depositary Bank to Payor Bank	49	(1)
Multilateral Arrangements (Clearinghouses)	50	(2)
Kimberly A. Allen Trust v. FirstBank of Lakewood, N.A.	52	(3)
Figure 3.2---Clearinghouse Collection	55	(1)
Bilateral Arrangements (Direct-Send and Correspondent Clearing	56	(1)
Collection Through the Federal Reserve System	57	(1)
Figure 3.3---Direct-Send Collection	58	(1)
Figure 3.4---Federal Reserve Collection	59	(3)
Figure 3.5---Sample EARNS Notice	62	(1)
Figure 3.6---Return Obligations	63	(1)
NBT Bank v. First National Community Bank	63	(11)
Problem Set 3	74	(3)
Assignment 4: Risk of Loss in the Checking System --- The Basic Framework	77	(16)
Nonpayment	77	(2)
Figure 4.1---Indorser Liability	79	(1)
Forged Signatures	79	(1)
Forged Drawers' Signatures and the Rule of Price v. Neal	80	(1)
What If the Payor Bank Pays the Forged Check?	80	(1)
Decibel Credit Union v. Pueblo Bank & Trust Company	81	(1)
Figure 4.2---Presentment and Transfer Warranties	82	(3)
What If the Payor Bank Dishonors the Forged Check?	85	(1)
The Special Case of Telephone Checks	86	(1)
Forged Indorsements	87	(1)
What If the Payor Bank Dishonors the Check Because of the Forged Indorsement?	87	(1)
What If the Payor Bank Pays the Check Despite the Forged Indorsement?	87	(2)
Conversion	89	(1)
Alteration	90	(1)
Problem Set 4	90	(3)
Assignment 5: Risk of Loss in the Checking System---Special Rules	93	(22)
Negligence	93	(1)
HSBC Bank USA v. F & M Bank Northern Virginia	93	(4)
Bank Statements	97	(1)
Stowell v. Cloquet Co-op Credit Union	98	(5)
Theft by Employees	103	(1)
Cable Cast Magazine v. Premier Bank	104	(3)
Halifax Corp. v. Wachovia Bank	107	(2)
Impostors	109	(1)
Meng v. Maywood Proviso State Bank	110	(2)
Problem Set 5	112	(3)
Assignment 6: Truncation and Check 21	115	(10)
Payor-Bank Truncation	115	(1)
Figure 6.1---MICR Line	116	(2)
Depositary-Bank Truncation and the Check 21 Act	118	(2)
Figure 6.2---Check Processing Under Check 21	120	(1)
Figure 6.3---Substitute Check	121	(1)
Problem Set 6	122	(3)
Electronic Payments	125	(126)
Assignment 7: The Credit-Card System	125	(14)
The Issuer-Cardholder Relationship	125	(3)
Using the Credit-Card Account	128	(1)
Collection by the Payee	129	(1)
The Mechanics of Collection	129	(2)
Figure 7.1---Payment by Credit Card	131	(1)
Figure 7.2---Dividing the Credit-Card Dollar	132	(1)
Finality of Payment	132	(2)
Hyland v. First USA Bank	134	(2)
Problem Set 7	136	(3)
Assignment 8: Error and Fraud in Credit-Card Transactions	139	(19)
Erroneous Charges	139	(1)
Belmont v. Associates National Bank (Delaware)	140	(9)
Unauthorized Charges	149	(1)
Minskoff v. American Express Travel Related Services Co.	150	(6)
Problem Set 8	156	(2)
Assignment 9: Debit Cards	158	(19)
Payment with a Debit Card	158	(1)
Establishing the Debit-Card Relationship	159	(1)
Transferring Funds with a Debit Card	160	(1)
Collection by the Payee	160	(1)
PIN-Based Debit Cards	161	(1)
PIN-Less Debit Cards	161	(1)
Error and Fraud in Debit-Card Transactions	162	(1)
Erroneous Transactions	163	(1)
Fraudulent Transactions	163	(5)
Hospicomm, Inc. v. Fleet Bank, N.A.	168	(3)
Heritage Bank v. Lovett	171	(3)
Problem Set 9	174	(3)
Assignment 10: Electronic Checks and Automated Clearing House Payments	177	(21)
True Electronic Checks	177	(2)
ACH Transfers	179	(1)
The Basics of ACH Transfers	179	(1)
The Basic Terminology	180	(1)
The Mechanics	181	(1)
Figure 10.1---ACH Entries	182	(1)
Types of ACH Entries	183	(1)
Finality, Error, and Fraud, in ACH Transfers	184	(2)
Security First Network Bank v. C.A.P.S., Inc.	186	(6)
POS Conversion	192	(1)
Figure 10.2---POS Conversion	193	(1)
Telephone-Initiated Payments	194	(2)
Problem Set 10	196	(2)
Assignment 11: The Wire-Transfer System	198	(24)
Introduction	198	(1)
How Does It Work?	199	(1)
Initiating the Wire Transfer: From the Originator to the Originator's Bank	199	(1)
Figure 11.1---Payment by Wire Transfer	200	(1)
Trustmark Ins. Co. v. Bank One	200	(5)
Banco de la Provincia v. BayBank Boston N.A.	205	(4)
Executing the Transfer: From the Originator's Bank to the Beneficiary's Bank	209	(1)
Bilateral Systems (Including SWIFT)	209	(1)
CHIPS	210	(1)
Fedwire	211	(1)
Figure 11.2---Multilateral Netting on CHIPS	211	(1)
Figure 11.3---Sample Fedwire Message	212	(3)
Completing the Funds Transfer: From the Beneficiary's Bank to the Beneficiary	215	(1)
Discharge of the Originator's Underlying Obligation	216	(1)
Finality of Payment	217	(1)
Aleo International, Ltd. v. Citibank, N.A.	217	(2)
Problem Set 11	219	(3)
Assignment 12: Error in Wire-Transfer Transactions	222	(14)
Recovering from Parties in the System	222	(1)
Errors by the Originator	223	(1)
Corfan Banco Asuncion Paraguay v. Ocean Bank	223	(6)
Errors in the System	229	(1)
Sending Excessive Funds	229	(1)
Sending Inadequate Funds	230	(1)
Bank-Statement Rule	231	(1)
Recovering from the Mistaken Recipient	232	(1)
Problem Set 12	233	(3)
Assignment 13: Fraud, System Failure, and International Issues in Wire-Transfer Transactions	236	(15)
Fraud	236	(3)
System Failure	239	(1)
International Transfers	240	(1)
Choice-of-Law Rules	240	(2)
Grain Traders, Inc. v. Citibank, N.A.	242	(5)
Error and Fraud in SWIFT Transactions	247	(1)
Problem Set 13	248	(3)
Developing Payment Systems	251	(50)
Mark A. Lemley & David McGowan, Legal Implications of Network Economic Effects	251	(5)
Ronald J. Mann, Making Sense of Payments Policy in the Information Age	256	(4)
Assignment 14: Internet Payments	260	(13)
Credit Cards on the Internet	260	(1)
Processing the Transactions	260	(1)
Problems	261	(1)
Fraud	261	(3)
Privacy	264	(1)
Micropayments	265	(1)
Debit Cards on the Internet	266	(1)
ACH Transfers (WEB Entries)	267	(1)
Foreign and Cross-Border Payments	268	(1)
Figure 14.1---ACH ``Checks''	269	(1)
A Note on Mobile Payments	270	(1)
Problem Set 14	271	(2)
Assignment 15: P2P EBPP	273	(14)
The Basics	273	(1)
Ronald J. Mann, Regulating Internet Payment Intermediaries	273	(9)
State Regulation	282	(1)
Foreign and Cross-Border Transfers	283	(1)
Problem Set 15	284	(3)
Assignment 16: E-Money	287	(14)
Portability: Stored-Value Cards	288	(1)
The Basics	288	(2)
Legal Issues	290	(1)
The EFTA	290	(1)
Other Issues	291	(1)
Remote Transactions: Internet-Capable Electronic Money	292	(1)
Obtaining E-Money	293	(1)
Spending E-Money	293	(1)
Clearing and Settling E-Money Transactions	294	(1)
Figure 16.1---Using Electronic Money	295	(1)
Problems with E-Money Systems	295	(1)
Privacy	296	(1)
Duplicate Spending	296	(1)
Forged E-Coins	297	(1)
Legal Issues with E-Money	298	(1)
Problem Set 16	299	(2)
Letters of Credit	301	(30)
Assignment 17. Letters of Credit --- The Basics	301	(19)
The Underlying Transaction	302	(1)
Figure 17.1---Irrevocable Commercial Letter of Credit	303	(2)
Advising and Confirming Banks	305	(1)
Figure 17.2---Issuing the Letter of Credit	305	(1)
The Terms of the Credit	306	(2)
Drawing on the Credit	308	(1)
Samuel Rappaport Family Partnership v. Meridian Bank	309	(3)
Carter Petroleum Products, Inc. v. Brotherhood Bank & Trust Co.	312	(5)
Reimbursement	317	(1)
Figure 17.3---Payment with a Letter of Credit	317	(1)
Problem Set 17	317	(3)
Assignment 18: Letters of Credit---Advanced Topics	320	(11)
Error and Fraud in Letter-of-Credit Transactions	320	(1)
Wrongful Honor	320	(2)
Wrongful Dishonor	322	(2)
Fraud	324	(1)
Forged Drafts	324	(1)
Fraudulent Submissions by the Beneficiary	324	(2)
Assigning Letters of Credit	326	(2)
Choice-of-Law Rules	328	(1)
Problem Set 18	328	(3)
Part Two Credit Systems	331	(86)
Introduction to Part Two	333	(2)
The Borrower's Obligation	335	(36)
Assignment 19: Promissory Notes and Interest Rates	335	(13)
Promissory Notes	335	(1)
Schillace v. Channell Shopping Partnership	335	(2)
Promissory Note	337	(4)
Determining the Amount of Compensation	341	(1)
Fixed and Variable Interest Rates	341	(2)
Interest-Rate Swaps	343	(1)
Figure 19.1---Interest-Rate Swap	344	(1)
The Enforceability of Interest-Rate Agreements	344	(1)
Problem Set 19	345	(3)
Assignment 20: Usury	348	(11)
The Basic Concept	348	(1)
Schnee v. Plemmons	348	(3)
Typical Usury Problems	351	(2)
Exemptions from Usury Statutes	353	(1)
Trapp v. Hancuh	354	(3)
Problem Set 20	357	(2)
Assignment 21: Late Payment and Prepayment	359	(12)
Late Payment	359	(1)
Mattvidi Associates Limited Partnership v. NationsBank	360	(3)
Prepayment	363	(1)
Carlyle Apartments Joint Venture v. AIG Life Insurance Co.	364	(4)
Problem Set 21	368	(3)
Credit Enhancement	371	(46)
Assignment 22: Credit Enhancement by Guaranty	371	(13)
The Role of Guaranties	371	(2)
Thomas S. Hemmendinger, Hillman on Commercial Loan Documentation	373	(4)
Rights of the Creditor Against the Guarantor	377	(1)
F.T.L., Inc. v. Crestar Bank (In re F.T.L., Inc.)	378	(3)
Problem Set 22	381	(3)
Assignment 23: Protections for Guarantors	384	(16)
Rights of the Guarantor Against the Principal	384	(1)
Performance	384	(1)
Reimbursement	384	(1)
Figure 23.1---Rights of the Guarantor	385	(1)
Subrogation	385	(1)
Corporate Buying Service v. Lenox Hill Radiology Associates	386	(3)
Figure 23.2---Guarantor Preferences	389	(1)
Rights of the Guarantor Against the Creditor	390	(1)
Suretyship Defenses	390	(2)
Waiver of Suretyship Defenses	392	(1)
Modern Photo Offset Supply v. The Woodfield Group	392	(4)
Bankruptcy of the Guarantor	396	(1)
Trimec, Inc. v. Zale Corporation	396	(2)
Problem Set 23	398	(2)
Assignment 24: Third-Party Credit Enhancement---Standby Letters of Credit	400	(17)
The Standby Letter-of-Credit Transaction	400	(2)
Figure 24.1---Standby Letters of Credit	402	(1)
Nobel Insurance Co. v. First Nat. Bank	403	(2)
Figure 24.2---Form Standby Letter of Credit	405	(2)
Wood v. State Bank	407	(2)
Problems in Standby Letter-of-Credit Transactions	409	(1)
Bankruptcy of the Applicant	409	(1)
In re Ocana	410	(2)
The Issuer's Right of Subrogation	412	(1)
CCF, Inc. v. First National Bank (In re Slamans)	412	(2)
Problem Set 24	414	(3)
Part Three Systems for Enhancing Liquidity	417	(84)
Negotiability	419	(64)
Assignment 25: Negotiable Instruments	419	(18)
Negotiability and Liquidity	419	(2)
A Typical Transaction	421	(1)
Figure 25.1---Sample Negotiable Draft	421	(1)
The Negotiability Requirements	422	(1)
Figure 25.2---The Players in a Negotiable Draft Transaction	423	(1)
The Promise or Order Requirement	423	(1)
Figure 25.3---The Negotiability Requirements	424	(1)
The Unconditional Requirement	425	(1)
DBA Enterprises, Inc. v. Findlay	425	(3)
The Money Requirement	428	(1)
The Fixed-Amount Requirement	428	(1)
Nagel v. Cronebaugh	429	(2)
The Payable-to-Bearer-or-Order Requirement	431	(1)
The Demand or Definite-Time Requirement	432	(1)
The No-Extraneous-Undertakings Requirement	433	(1)
Problem Set 25	434	(3)
Assignment 26: Transfer and Enforcement of Negotiable Instruments	437	(16)
Transferring a Negotiable Instrument	437	(1)
Negotiation and Status as a Holder	437	(1)
Special and Blank Indorsements	438	(2)
Restrictive and Anomalous Indorsements	440	(1)
Enforcement and Collection of Instruments	440	(1)
The Right to Enforce an Instrument	440	(1)
Presentment and Dishonor	441	(1)
Defenses to Enforcement	442	(1)
Turman v. Ward's Home Improvement, Inc.	442	(1)
Liability on an Instrument	443	(2)
Figure 26.1---Liability on an Instrument	445	(1)
The Effect of the Instrument on the Underlying Obligation	445	(2)
McMahon Food Corp. v. Burger Dairy Co.	447	(3)
Problem Set 26	450	(1)
Figure 26.2---Reverse of Sample TKO Check	450	(3)
Assignment 27: Holders in Due Course	453	(15)
Holder-in-Due-Course Status	453	(1)
The Requirements for Holder-in-Due-Course Status	453	(2)
Rights of Holders in Due Course	455	(2)
State Street Bank & Trust Co. v. Strawser	457	(2)
Payment and Discharge	459	(2)
Transferees Without Holder-in-Due-Course Status	461	(1)
The Fading Role of Negotiability	462	(1)
The Declining Use of Negotiable Instruments	462	(1)
The Decreasing Relevance of Negotiability to Negotiable Instruments	463	(2)
Problem Set 27	465	(3)
Assignment 28: Documents of Title	468	(15)
The Mechanics of Documents of Title	468	(1)
Delivering Goods to a Carrier	468	(2)
Recovering Goods from a Carrier	470	(1)
Nonnegotiable Documents	470	(1)
Figure 28.1---Negotiable Bill of Lading	471	(1)
Negotiable Documents	472	(1)
Transactions with Documentary Drafts	473	(1)
The Role of Documentary Draft Transactions	473	(1)
Figure 28.2---Documentary Collection: Parties/Document Flow	474	(1)
Steps in the Transaction	475	(1)
Preliminaries---Sale Contract, Shipment, and Issuance of the Draft	475	(1)
Processing by the Remitting Bank	475	(1)
Figure 28.3---Sight Draft for Documentary Collection	475	(1)
Processing by the Presenting Bank	476	(1)
Figure 28.4---Form Collection Document	477	(1)
Credit Transactions and Banker's Acceptances	478	(1)
Figure 28.5---Banker's Acceptance Transaction	479	(1)
Problem Set 28	480	(3)
Securitization	483	(18)
Assignment 29: Securitization	483	(18)
Securitization and Liquidity	483	(1)
The Rise of Securitization	484	(1)
Investment Securities and Article 8	485	(1)
The Subject Matter: What Is a Security?	486	(1)
The Obligation of the Issuer	487	(2)
The Two Holding Systems	489	(1)
The Direct Holding System	489	(1)
Making the Transfer Effective as Between Seller and Purchaser	489	(1)
Making the Transfer Effective Against the Issuer	490	(1)
The Effect of a Transfer on Third Parties	490	(1)
The Indirect Holding System	491	(1)
The Basic Framework	491	(2)
Rights Against the Intermediary	493	(2)
Rights Against Third Parties	495	(2)
Problem Set 29	497	(4)
Table of Cases	501	(2)
Table of Statutes and Regulations	503	(4)
Table of Uniform Commercial Code	507	(6)
Index	513