Topic: Article 3 – Uniform Commercial Code
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How long are we required to retain land trust files after the trust has been closed?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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. The length of time you are required to retain documents contained in a land trust…
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Shortly after receiving his account statement, our customer notified us that some counterfeit checks had cleared his account. We sent the checks back through the Fed as fraudulent. We have received one of the checks back as a “late return” from the depository bank. Who is liable for these checks under the UCC, and does our bank have any recourse for these checks?
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We believe your bank likely is liable for these checks since they were returned after the midnight deadline. Whether your bank has any recourse for the checks depends on whether the depository bank breached a presentment warranty to your bank, or your customer’s negligence substantially contributed to the making of the fraudulent checks. Under…
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A business recently opened a deposit account and deposited what we later learned was a stolen check for over $150,000. Within two weeks, the customer withdrew most of the deposited money. We now have learned that the individual who opened the account used a forged ID, and the deposited check had been stolen from a lockbox owned by a legitimate business in Missouri. The check was a legitimate check made payable to the legitimate business; the fraudster forged the endorsement when depositing it at our bank. Are we liable to the payor bank for the entire loss?
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Yes, as the depository bank, your bank likely is liable to the payor bank for its entire loss. The Uniform Commercial Code (UCC) places the ultimate risk of loss for the payment of a check with a missing or unauthorized endorsement on the depository bank. Under the UCC, a depository bank warrants to the payor…
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We had a customer bring in a check payable to her deceased mother’s estate. She wanted to deposit the check into her parents’ family trust account. We advised the customer that she first must open an estate account to deposit the check before it can be transferred to another account. Are we correct that a check made out to an estate must be deposited into an estate account?
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Yes, you are correct that generally, a check made out to an estate only should be deposited into an estate account. Depositing a check made out to an estate into a family trust account could result in a breach of the Uniform Commercial Code (UCC) warranties. When delivering the check to the payor bank for…
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We have a deposit account customer, XYZ Co., that ordered checks through a third-party vendor with the name “ABC Co.” printed on the checks. Our understanding is that both of these corporations share the same ownership. What is our bank’s liability for paying these checks? Should we refuse to pay checks printed with the incorrect drawer name? Does the drawer name on a check convey ownership?
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We do not recommend paying checks drawn on the account of a customer when the drawer identified on the check is not the account holder. Generally, a bank is required to pay an item that is properly payable, unless the payment would result in an overdraft. A check is properly payable if it is authorized…
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When a customer with a personal deposit account at our bank seeks to cash a check made out to a trust account, our general policy is not to cash the check. Typically, the trust account is held at another bank, the customer is the trustee, and the check is made out to the “John Doe Trust,” or to “John Doe as Trustee for the John Doe Trust.” We also would not deposit a check made out to a trust or a trustee into the customer’s personal checking account. Customers frequently do not understand why we will not cash or deposit these checks since it is “their money and their trust.” Can you please advise what laws or rules support our policy?
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There are two answers to your question. Your policy of not cashing and depositing these checks is supportable under the Uniform Commercial Code (UCC), but you also could be protected by the Fiduciary Obligations Act (FOA) when cashing or depositing them under certain conditions. The UCC places a bank on notice of a potential breach…
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Are we authorized to put a stop payment on a cashier’s check payable by our bank that has not yet been submitted for payment? We discovered that one of our customers had purchased the cashier’s check as the result of a scam.
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No, we do not believe that your bank may stop payment on the cashier’s check without risking liability for the check. The Illinois Supreme Court has held that a cashier’s check is the equivalent of cash. As a general rule, once a cashier’s check enters the stream of commerce, the issuer (your bank) is liable…
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We can charge up to three fees when a check is dishonored: (1) a returned deposit fee, (2) a redeposit fee, charged when the customer deposits the same check a second time, and (3) a second returned deposit fee if the redeposited check is dishonored a second time. Does Illinois law limit these fees for business or consumer customers? We charge the redeposit fee for business customers whether or not the check ends up being dishonored a second time.
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With respect to your returned deposit fees, Section 3-806 of the Illinois Uniform Commercial Code (Illinois UCC) limits them to $4.50 for commercial accounts, but not for consumer accounts. Section 3-806 expressly excludes “non-commercial checking or other non-commercial accounts,” which includes consumer accounts, from this limitation. Similarly, in our view, you may charge a second…
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When a business customer informs our bank that it requires two signatures for check endorsement, we explain at the time the account is opened that we do not monitor for dual endorsements and advise the customer that it is their responsibility to review their checks for two signatures. However, the corporate authorization resolution form that we provide to our business customers when opening an account includes a field to list the number of signatures required to endorse a check. Even though we advise the customer that we do not monitor checks for multiple signatures, the customer can select a two-signature requirement in this field. Should we discontinue this practice of marking the customer’s request for dual endorsements when our policy is to not monitor for multiple endorsements?
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Yes, we recommend discontinuing the practice of accepting a customer’s request for a two-signature authorization on their corporate authorization resolution when your bank’s policy is to not monitor for multiple endorsements. The Uniform Commercial Code (UCC) provides that when an organization requires multiple signatures to endorse checks, and a check of the organization is endorsed…