Topic: Article 4 – Uniform Commercial Code
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Our customer paid a vendor, but the vendor claims they never received payment. Although the check cleared our customer’s account, the endorsement on the back of the check does not appear to match the name of the payee (the vendor). We have an affidavit from the vendor and a copy of the front and back of the check. Is sending a “without entry” claim to the depository bank the best course of action? Do you have an example of a “without entry” claim that we can send to the depository bank? Should we reference the depository bank’s warranty of the item’s authorization under Regulation CC and ask that they honor the warranty by remitting a cashier’s check?
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We do not recommend sending a “without entry” claim under Section 229.34(d) of Regulation CC, which concerns returned check warranties. However, we believe your bank may have a claim against the depository bank for breach of its presentment warranties under the Illinois Uniform Commercial Code (UCC). We recommend sending notice of the breach of warranty…
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We have a collection company customer that uses its own endorsement stamp to deposit checks made out to companies on whose behalf it is pursuing collections. The customer claims that getting endorsements from their clients would be too onerous due to the high volume of checks they handle. Instead, they say they have “agency agreements” with all of their clients giving them the necessary authority to deposit these checks. However, they are unwilling to share copies of these agreements with us. Could we face any liability for allowing this practice to continue?
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Yes, we believe that allowing the practice described would put your bank at risk of liability for breach of its presentment warranties and conversion under the Illinois Uniform Commercial Code (UCC). Under the Illinois UCC, your bank could be liable to the payor bank for allowing your customer to deposit checks without a proper endorsement.…
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Our bank sells personal money orders. A teller types in the amount and date, and the purchaser fills in the payee line and signs as the remitter after they leave the bank. Is a personal money order considered valid if the purchaser never signs the face of the money order and it clears the bank unsigned?
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No, we do not believe that a personal money order that has not been signed by the drawer is valid. To begin, we note that under Illinois case law, the money order you described would likely be treated as an ordinary check, not a cashier’s check, as it is not structured as a bank obligation…
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Our bank wants to offer Interest on Lawyer Trust Accounts (IOLTA). How do we register with the Illinois State Bar Association? What reporting and money transfer requirements do we need to comply with once the account is set up?
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To become eligible to hold IOLTA accounts, a financial institution must agree to report account overdrafts to the Illinois Attorney Registration and Disciplinary Commission (Illinois ARDC) and meet certain interest rate requirements. Financial institutions also must remit monthly earnings to the Lawyers Trust Fund of Illinois. Before a financial institution may hold IOLTA accounts, it…
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A check was presented to us that was drawn on our customer’s account. Approximately three weeks after paying the check, we discovered the payee had been altered. We returned the check with a claim of alteration to the depository bank, which responded with a late return claim since the midnight deadline had passed. Does the depository bank have any liability for presenting us with the altered check? If so, what is the appropriate mechanism for seeking redress, and what language should we use in our correspondence to the depository bank?
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Yes, your bank may seek relief from the depository bank for breach of a presentment warranty because the check it presented for payment had been altered. We recommend sending notice of the breach of warranty to the depository bank as soon as possible, with an affidavit of alteration signed by your customer. When the depository…
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Are we required to reimburse a customer for an altered check claim on a check that appeared on their statement six months ago? The customer sent the check by mail and says that the payee was altered. Our account agreement requires customers to report their discovery of unauthorized signatures or alterations with “reasonable promptness” — defined as within sixty days of when the statement is first made available, after which time the customer cannot assert a claim against us for the loss, “without regard to whether we used ordinary care.” Shouldn’t the depository bank that breached a warranty bear the loss for the altered check?
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We do not believe you are required to reimburse your customer — provided your bank used ordinary care in paying the altered check. Whether the provision of your account agreement disclaiming liability within the first year after an item appears on your customer’s account statement, without regard to whether you used ordinary care in paying…
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A customer requested a change of beneficiary for a payable on death (POD) account, and we mailed them a change in beneficiary form. Before we received the completed form, the customer died. A day later, we received in the mail the customer’s completed form designating a new beneficiary for the account. Who is the rightful beneficiary, the one in our system or the one on the form?
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Whether you have the authority to accept the change in beneficiary form depends on whether your bank knew of the POD account holder’s death before receiving the form. Also, if different beneficiaries are making conflicting claims to a POD account, your bank may wish to take advantage of an Illinois law that authorizes you to…
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Our bank underpaid a check issued by a customer due to an encoding error, and the collecting bank has sent us a Federal Reserve adjustment to collect the remaining amount. However, in the time between paying the check and receiving the adjustment, our customer (the payor) died. The customer’s account was payable on death (POD), so we distributed the funds to the designated beneficiary and closed the account. The POD beneficiary then used the funds to open a new deposit account at our bank. Can we use funds from the beneficiary’s deposit account to pay the remaining amount?
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No, we do not believe you may charge the beneficiary’s account to cover the underpayment, as the funds in that account belong to the beneficiary, and the beneficiary did not authorize your deceased customer’s check. Under the Illinois Trust and Payable on Death Accounts Act, a POD beneficiary becomes the sole owner of a POD…
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We learned that one of our customers had three fraudulent checks drawn on his account after we alerted him that he had overdrawn his account. We believe that the checks are counterfeits and the fraudster forged our customer’s signature on them. The checks all were deposited at different banks. We returned the checks to the Federal Reserve four days after we paid them and received a claim of late return for one of them shortly after. The Federal Reserve says we have twenty days to respond to the claim. What is our best option for responding to the claim of late return?
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We believe your bank likely is liable for the check since you returned it after the midnight deadline. Your bank would have a defense to liability for the check only if the depository bank breached a presentment warranty to your bank or your customer’s negligence substantially contributed to the making of the forged check. Under…