Topic: Article 4 – Uniform Commercial Code
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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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Can we pay a check that is seven months old?
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Yes, you may pay a check that is seven months old. The Uniform Commercial Code permits a bank to pay checks that are more than six months old, provided that they are paid in good faith. For resources related to our guidance, please see: UCC, 810 ILCS 5/4-404 (“A bank is under no obligation to…
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Can we put a stop payment order on a cashier’s check that our bank issued? The customer has been the victim of identity theft and did not order the cashier’s check.
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No, we do not believe you should issue a stop-payment order on the cashier’s check. The Illinois Supreme Court has held that a cashier’s check is the equivalent of cash. As a general rule, once the cashier’s check enters the stream of commerce, the issuer is liable under the UCC if it refuses to honor…
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A check-cashing company has been depositing out-of-state IRS tax refund checks in its account at our institution. One of the payees on the checks told us that he never cashed the check and that he will be filing a complaint with the IRS. What are the chargeback rights of the IRS and what is its look-back period?
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The general rule is that the IRS may reclaim the amount of a check payment from a guarantor of the check until the end of the one-year period beginning on the date that a check is processed for payment by a Federal Reserve Processing Center. If the IRS determines that a guarantor of the check…
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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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We recently paid a check that was dated in 2013. It was drawn on a business customer’s account, and the customer has requested a refund. Can we return the check?
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No. Your bank does not have a right to return a check after the midnight deadline passes for returning the check to the depository bank (midnight of the banking day following the banking day on which you received the check), unless one of the defenses to the midnight deadline rule applies (for example, in the…
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Is there a law requiring us to continue mailing deposit account statements after several have been returned to us as undeliverable? The phone number we have on file has been disconnected, but we are seeing continued debit card transactions on the account.
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We are not aware of any law or regulation that would require you to continue mailing periodic statements in this situation. Our recommendation is to place a freeze on the customer’s account, which should cause the customer to contact the bank, at which point you will be able to collect the customer’s updated contact information.…
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A deposit customer recently notified us of a large amount of forged checks paid over the past several months. Our account agreement requires the customer to notify the bank of any forgeries within 30 days. Are we liable for the forged checks?
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We do not believe that your institution will be liable for any forged checks that were not reported within the 30 days specified in your account agreement. Under the Uniform Commercial Code (UCC), a customer will be liable for any forged checks that are not reported with “reasonable promptness” (provided that the bank acted in…
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A Uniform Transfers to Minors Act (UTMA) account beneficiary has reached the age of 21 and wants to cash a check that is payable to the custodian (“to Sue Doe, custodian for John Doe”). Do we need the custodian to endorse the check before cashing it?
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We believe you should require the custodian of the UTMA account to endorse the check before cashing it. In addition, you should contact and remind the custodian that the custodian now has an affirmative duty under the UTMA to transfer the account to its beneficiary, since he or she has reached the requisite age or…
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We currently require our commercial deposit account customers to report unauthorized checks within 30 days. Can we shorten that timeframe, or is 30 days the minimum?
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We are not aware of any UCC provisions or court cases that would prevent you from shortening the notification window for unauthorized checks, particularly for your commercial customers. Under Section 4-406 of the Uniform Commercial Code (UCC), if a customer does not notify a bank about forged checks with “reasonable promptness,” the bank will not…