Topic: Article 3 – Uniform Commercial Code
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One of our commercial customers reported several checks as forgeries promptly after receiving its account statement. The customer’s employee had stolen the checks and forged them. Should we file a police report? If the customer receives restitution from its employee, would we be entitled to receive that restitution?
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Since a police report already has been filed regarding the forgeries, the question becomes whether the bank should file a suspicious activity report, which would be required if the total dollar amount of the forgeries exceeds $5,000. Also, under the Uniform Commercial Code (UCC), in most circumstances, you will need to reimburse the customer for…
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When we have a customer sign an indemnity bond for a lost CD, do we need to keep an original copy, or would an electronic version suffice?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. An electronic version of the indemnity bond should suffice. The general rule under Illinois law…
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A customer purchased a cashier’s check seven years ago. The named payee has not cashed the check, and we do not even know whether the customer has delivered the check to the payee. Can we contact the customer before remitting the check as unclaimed property? And can the customer place a stop payment order on the check and request that the check be reissued?
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Yes, you are required to contact your customer before reporting the cashier’s check as unclaimed property. And no, the customer cannot issue a stop payment order on the cashier’s check if it already has been presented to the payee. However, if the cashier’s check has not been presented to the payee, the customer can surrender…
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A business customer deposited a check payable to the business in his personal account. The customer is an authorized signer for the business and endorsed the checks by signing his personal name and printing the business name below. Could the bank be liable to the business or to the other business owners for permitting this deposit?
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No, the bank is not likely to be held liable. The Fiduciary Obligations Act states that when a business owner (referred to as the “fiduciary”) deposits a check payable to a business in a personal deposit account, the bank will not be liable unless the bank acted in bad faith or knew of the owner’s…
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A customer signed blank checks, which the customer’s caregiver later filled out and made payable to himself. After the customer died, but before we became aware of the death, the caregiver cashed the checks at our bank. The customer’s account is now overdrawn. Do we have any recourse against the caregiver for the amount of the checks?
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Yes, if you can prove that the blank checks arose out of wrongdoing by the caregiver against your customer. The Uniform Commercial Code authorizes a bank to stand in its customer’s shoes and assert the customer’s rights against the payee of a check (in this case the caregiver) if the following requirements are met: (1)…
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Three years ago, one of our customers deposited a check made out to “husband and wife,” but the husband deposited the check into his individual account without the wife’s endorsement. The wife recently submitted a complaint to the FDIC but has not yet alerted the payor bank. Can we place a freeze on the husband’s account, and for how long?
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We recommend consulting with legal counsel before freezing the husband’s account. Absent a contractual or common law right of set-off, the applicability of which would be highly fact-specific, your bank’s right to freeze the husband’s deposit account will depend on your deposit account agreement with the husband. Without knowing more facts, and in the absence…
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When a depositary bank sends us a check issued by one of our customers with an improper endorsement — for example, a check made out to a business that is endorsed by an individual (John Smith) rather than by the business (ABC Company by John Smith) — should we pay the check?
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If the check is payable to a business, and the improper endorsement does not change the check’s payee (i.e., it is an endorsement in blank), your bank most likely could rely on the depositary bank’s presentment warranties, as discussed above. While your customer could argue that your bank should not have paid a check with…
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What is our liability for paying or permitting the deposit of unendorsed checks? Our current policy is to return checks that are missing the payee’s endorsement on the back, which upsets some of our customers. We’re considering a new policy of calling customers to ask if we should pay these checks.
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While there is some risk in allowing customers to deposit checks that are not endorsed by the payee, there is less risk when paying unendorsed checks that are drawn on customer accounts. Payment of Unendorsed Checks Drawn on Customer Accounts When a depositary bank sends your bank a check for collection, the depositary bank has…
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Do we need to require customers to bring in a physical copy of a certificate of deposit (CD) receipt if we have switched to book entry CDs?
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Typically, “book-entry” CDs do not require physical presentment to the issuing bank. However, your bank’s book-entry CD agreements and your written policies for them should address the procedures for redeeming these CDs. As you have indicated, your bank has switched from traditional CDs to uncertificated CDs that are labeled as “non-transferable” and “non-negotiable.” These CDs…
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We have a customer who wants to deposit a large check (for over $1 million) but is unavailable to endorse the check. Further complicating matters is that the check was made out to the customer individually and to two of the customer’s businesses (which are also our customers). Is there any way that we can deposit the check without the customer’s endorsement?
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It is possible to deposit the check without the customer’s endorsement. The Uniform Commercial Code (UCC) provides that your institution, the “depositary bank” in this situation, may deposit a check that a customer delivers to your institution without the customer’s endorsement. 810 ILCS 5/4-205(1). (The Official Comments to the UCC state that this rule applies…