For UCC purposes, “knowledge” is actual knowledge of the customer’s death. The UCC and accompanying official comments do not define “actual knowledge.” We believe that obituaries, church bulletins and funerals all would constitute reliable knowledge of a customer’s death and should be treated as conferring actual knowledge.
The provision in UCC Section 4-405(b) — permitting the payment or certification of a check even with knowledge of a customer’s death — does not apply to the collection of a check. Consequently, we believe that this provision applies only when paying or certifying checks drawn by a deceased customer, not when collecting on a check made payable to your customer. However, the protections in UCC Section 4-405(a) apply both to checks drawn by a deceased customer and to checks made payable to a deceased customer, provided that these actions take place before your bank has actual knowledge of the customer’s death.
We should note that other relevant statutory and regulatory regimes define “knowledge” differently. For example, your bank must institute reclamation procedures for federal benefit payments made after gaining “constructive or actual” knowledge of a customer’s death. The U.S. Treasury’s Green Book indicates that “knowledge” includes “any personal awareness of the death” by bank staff, which clearly would encompass situations where a bank employee discovers that a customer has died in an obituary or church bulletin, or at a funeral.
For resources related to our guidance, please see:
- Uniform Commercial Code, 810 ILCS 5/4-405(a) (“A payor or collecting bank's authority to accept, pay, or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes the authority to accept, pay, collect, or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.”)
- Uniform Commercial Code, 810 ILCS 5/4-405(b) (“Even with knowledge, a bank may for 10 days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.”)
- Uniform Commercial Code Comments, Comment 1 (“Further, the requirement of actual knowledge makes inapplicable the rule of some cases that an adjudication of incompetency is constructive notice to all the world because obviously it is as impossible for banks to keep posted on such adjudications (in the absence of actual knowledge) as it is to keep posted as to death of immediate or remote customers.”)
- Uniform Commercial Code Comments, Comment 1 (“[A] drawee (payor) bank is not liable for the payment of a check before it has notice of the death or incompetence of the drawer. . . . [This rule] applies to all kinds of ‘items’; to ‘customers’ who own items as well as ‘customers’ who draw or make them; to the function of collecting items as well as the function of accepting or paying themto depositary and intermediary banks as well as payor banks
- U.S. Treasury Regulations, 31 CFR 210.11(a) (“If an RDFI does not have actual or constructive knowledge of the death or legal incapacity of a recipient or the death of a beneficiary at the time it receives one or more benefit payments on behalf of the recipient, the RDFI's liability to the agency for those payments shall be limited . . . .”)
- U.S. Treasury Regulations, 31 CFR 210.2(b) (“Actual or constructive knowledge, when used in reference to an RDFI’s knowledge of the death or legal incapacity of a recipient or death of a beneficiary, means that the RDFI received information, by whatever means, of the death or incapacity and has had a reasonable opportunity to act on such information or that the RDFI would have learned of the death or incapacity if it had followed commercially reasonable business practices.”)
- U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 5, printed page 5-9 (“The phrase ‘commercially reasonable business practices’ is a flexible concept since, for example, what is a commercially reasonable practice for a large bank may not be commercially reasonable for a small rural bank, and vice versa.”)
- U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 5, printed page 5-8 (“The following are some examples of ways that the RDFI may learn of the death of their account holders:
- Receipt of a Death Notification Entry (DNE) – A DNE is a notification of a benefit recipients death sent from an originating government agency [e.g., SSA, RRB, or OPM] to the RDFI.
- Receipt of a federal government Notice of Reclamation, (FMS-133).
- Any contact or request to withdraw funds from an Estate, Executor, Administrator, Public Administrator, Personal Representative, Conservator or other representative of such Estate. Note: Any release to an executor or other party clearly acting on behalf of the deceased person or his/her estate will be deemed by the government to have demonstrated the RDFI’s knowledge of the death.
- A pertinent reference to or from a Probate Court, a funeral home, or Letters Testamentary. Any oral or written report of death.
- Any death information obtained by the RDFI’s inquiry into a dormant account, or through other RDFI internal screening processes.
- Any personal awareness of the death by the RDFI’s staff.
- Any notice received in the mail from any source.”)