Law of Modern Payment Systems and Notes

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

• ISBN13: 9780314260185
• ISBN10: 0314260188
• Edition: 6th
• Format: Hardcover
• Copyright: 2003-06-01
• Publisher: West Academic

Summary

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.

Table of Contents

Preface	iii
Westlaw Overview	v
The Law Governing Methods of Payment and Evidences of Debt	1	(37)
Payment Transactions and Evidence of Debt	2	(8)
Overview	2	(1)
Methods of Evidencing Debt and Making Payment	2	(2)
Prevalency and Uses of Negotiable Instruments	4	(1)
Consumer Transactions	4	(1)
Commercial Transactions	5	(1)
Definition of Negotiable Instrument	5	(1)
Order Paper: Drafts and Checks	6	(1)
Notes and Certificates of Deposit	7	(2)
Popular Name Instruments	9	(1)
Exclusions	10	(1)
Uniform Commercial Code Article 3: The Primary Law	10	(3)
Scope of Article 3	11	(1)
Instruments Not Payable to Order or to Bearer and Checks	11	(2)
Governing Law When Article 3 Is Not Applicable	13	(18)
Definitionary Exclusions From Article 3	13	(1)
Applicability of General Contract Law	13	(1)
Application of Article 3 by Analogy	14	(1)
Express Exclusions from Article 3	15	(1)
Money	15	(1)
Documents of Title	16	(1)
Investment Securities	16	(2)
Payment Orders	18	(1)
Choice of Law Exclusions	18	(1)
The Law of Another State	19	(1)
The Law of Another Country	20	(1)
International Law	21	(3)
Federal Law	24	(1)
Federal Common Law	24	(5)
Federal Statutes or Regulations	29	(2)
Negotiable Instruments in Context: Supplementary Governing Law	31	(7)
Uniform Commercial Code Article 4: Bank Deposits and Collections	31	(1)
Regulation CC: Funds Availability	32	(1)
Uniform Commercial Code Article 9: Secured Transactions	33	(1)
General Provisions of Law Under the Uniform Commercial Code: Article 1	34	(1)
General Provisions of Law Outside the Uniform Commercial Code: Section 1--103(b) of Article 1	35	(3)
Form Requirements for Negotiable Instruments	38	(48)
Introduction	39	(8)
History of and Reasons for Form Requirements for Negotiable Instruments	39	(2)
Modern Critique of the Requirements	41	(1)
Erosion of Negotiable Status	41	(1)
Problems Where the Form of the Instrument Is Inadequate	42	(1)
Solutions	43	(2)
Indirectly Obtaining the Benefits of Article 3	45	(1)
General Inability to Invoke Rules of Article 3 by Agreement	45	(1)
Other Methods of Achieving Aspects of Negotiability	45	(2)
Form Requirements for Negotiable Instruments	47	(32)
Written Instrument	48	(1)
Signing	48	(1)
Creation of Liability on an Instrument	48	(1)
Definition of ``Signed''	48	(1)
Weight Accorded to Signatures	49	(1)
Limited and Unconditional Promise or Order	50	(1)
Nature of Promise or Order	50	(1)
Informal Instruments	50	(1)
Excessive Luggage Encumbering the Promise or Order	51	(1)
Provisions Relating to Collateral	52	(4)
Other Provisions	56	(1)
The Instrument in Relation to the Transaction Out of Which It Arose	57	(1)
References Versus Incorporation	57	(1)
Permitted References	57	(4)
References Not Permitted	61	(2)
Other Agreements Affecting the Instrument	63	(2)
Oral Parol Evidence	65	(2)
Limitations on Sources for Payment	67	(1)
Other Conditions	68	(1)
Sum Certain	68	(1)
Amount Ascertainable from the Instrument	68	(3)
Provisions Not Creating Uncertainty	71	(1)
Sum Payable in Money	71	(1)
Money Not Limited to Legal Tender	71	(1)
Instruments Payable in Foreign Money	72	(1)
Payable on Demand or at a Definite Time	72	(1)
Instruments Payable on Demand	72	(1)
Instruments Payable at a Definite Time	73	(2)
Payable to Order or to Bearer	75	(1)
Instruments Payable to Bearer	75	(2)
Instruments Payable to Order	77	(2)
Seals	79	(1)
Ambiguities and Omissions in Instruments	79	(4)
Rules to Forestall Ambiguities	79	(4)
Omissions Not an Impairment of Negotiability	83	(1)
Incomplete Instruments	83	(3)
When an Instrument is Complete, Incomplete, or Not Within Article 3	83	(1)
Authorized and Unauthorized Complete Instruments	84	(2)
Rights on Negotiable Instruments	86	(69)
Issue and the Rights It Creates	87	(11)
An Instrument Is Not Effective Until Issued	87	(2)
The Concept of Holder	89	(1)
Rights of One Not a Holder of an Instrument	90	(1)
Remitters, Takers, Nonpossessors, and Creditors	90	(2)
Transferees and Shelter Rights	92	(3)
Rights of the Holder of an Instrument	95	(1)
Introduction	95	(1)
Right to Enforce the Instrument or Discharge Parties on It	96	(1)
Right to Transfer or Negotiate the Instrument	97	(1)
Transfer and Negotiation	98	(17)
Transfer	98	(1)
Negotiation of a Bearer Instrument	98	(1)
Negotiation of an Order Instrument	99	(1)
The Requirements of Indorsement and Delivery	99	(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