Bài giảng Business Law - Chapter 34: Checks and Electronic Transfers

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin7Negotiable InstrumentsNegotiation and Holder in Due CourseLiability of PartiesChecks and Electronic TransfersCommercial PaperPARTChecks and Electronic TransfersPAETRHC34Whether we like it or not mankind now has a completely integrated international financial and informational marketplace capable of moving money and ideas to any place on this planet in minutes. Walter Wriston in a speech to the International Monetary Conference, London (June 11, 1979)Learning ObjectivesRecall that bank must pay any properly drawn & payable checkExplain bank’s obligation to customer when presented with stop-payment order, certified check, cashier’s check, or a forged or altered checkDiscuss major features of Electronic Funds Transfer ActTwo sources of law govern the relationship between the depositor and the drawee bank: the deposit agreement and Articles 3 and 4 of the UCCOverviewThe deposit agreement establishes depositor and drawee/payor bank relationship as creditor and debtor so that when a person deposits money into a bank account:Depositor is a creditor of the bank to extent of deposits and the bank becomes the debtorDeposit AgreementAs agent, bank owes duty of ordinary care to follow depositor’s reasonable direction about payment of checks and collect checks and other deposits to the accountBank as Agent of DepositorBank is a depositor’s agent for check collectionBank has a duty to pay a properly drawn and payable check and is liable for actual damages caused by a wrongful dishonor plus consequential damages [4–402]No duty to pay stale checks (> 6 mo. old)Duty to pay may be terminated by depositor’s stop payment order or bankruptcy Bank’s Duty to PayBank has the right to charge any properly payable check to depositor’s account even if an overdraft resultsAn altered check or one with a forged signature is not properly payable since bank should be familiar with drawer’s signatureBut if drawer negligently contributes to forgery or alteration or fails to report forgery, drawer’s account may be rightfully be chargedBank’s Right to ChargeStop-payment order is a customer’s request to drawee bank to not pay or certify a checkBank must receive timely notice and a reasonable description of the checkWhile stop-payment order is in effect, bank is liable to drawer of a check it pays for any loss drawer suffers by reason of bank’s errorBurden of proof for loss placed on drawerStop-Payment OrderA drawee bank isn’t bound to certify a check, but if it certifies, it substitutes its promise to pay the check for the drawer’s promise and becomes obligated to pay the checkBank debits customer’s account and transfers the funds to a special bank accountAdding the bank’s signature to the check shows it accepted primary liability and is essential for certification [3–409]The Certified CheckA cashier’s check is a check on which a bank is both the drawer and drawee, thus the bank is primarily liable on the cashier’s checkA teller’s check is similar, but one bank is the drawer and another bank is the drawee The Cashier’s CheckForged check not properly payable from the customer’s account and bank must exercise ordinary care in processing instruments, but customer must avoid being negligent, tooForged and Altered ChecksCustomer has duty to report forgeries and alterationsIn 2004, Congress enacted a federal law short-titled Check 21 that allows banks to handle more checks electronically and provides a federal overlay state-based lawCheck 21 allows check trunctation, which means drawee bank keeps original checks and provides a monthly bank statement bearing images of cancelled checksCheck CollectionWhen a bank takes a check for deposit to a customer’s account, it places a hold on the funds represented by the check until it collects from the drawee bankThe 1987 Expedited Funds Availability Act set mandatory schedules limiting check holds and stating when depositary banks must make funds available to customersSee Federal Reserve Board Regulation CCFunds AvailabilityElectronic funds transfer systems (EFTs) for consumers include:Automated teller machines Point-of-sale terminals: consumers use EFT cards like checks to transfer money from their checking account to the merchantTelephone transfers between accounts or authorization to pay specific bills. Electronic Funds TransfersPreauthorized payments, such as automatic deposit of paychecks or bill payment Example: online bankingElectronic Funds TransfersThe EFT Act established rights, liabilities, and duties of participants in electronic funds transfer systems and consumer rights and liabilities for unauthorized electronic funds transfersKruser v. Bank of America NT & SA illustrates EFTA provisions that require a customer to timely notify the bank of any unauthorized use of his card to limit liabilityElectronic Funds Transfer ActFor business and financial institutions, wire transfers of funds are commonly used to move large sums of money very quickly across the country or around the worldThe Federal Reserve operates Fedwire, a domestic wire transfer system and international wire transfers may be made through the New York Clearinghouse Interbank Payments System (CHIPS)Wire TransfersThought QuestionsThe increased use of online banking and electronic transfers has raised concerns about privacy. Are you concerned? How should the banking industry and businesses respond to a customers’ concern about privacy?