Topic: Uniform Commercial Code
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Can we establish a limit over which we will not cash checks for non-customers? Also, can we refuse to cash our bank’s certified checks, cashier’s checks and money orders for non-customers?
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Checks Drawn on Your Customer’s Account Yes, we believe you may set a limit over which your bank will not cash checks for noncustomers. However, we recommend reviewing your account agreements to assess the possibility of liability under the Uniform Commercial Code (UCC) when refusing to honor your customer’s checks. Your bank’s refusal to cash…
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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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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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How should we handle returned mail for demand deposit accounts (DDAs), savings deposit accounts (SDAs), certificates of deposit (CDs) and individual retirement accounts (IRAs)? How many times should we try to contact the customer? Also, for how long should we keep the returned mail, and should we keep a log?
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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. We are unaware of any laws or regulations prescribing how many times a bank must…
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We received notice from ABC Bank that we owe it $1,000 on a $1,600 check that ABC Bank sent to our bank for payment over a year ago. We paid only $600 of the $1,600 check to ABC Bank, which now is requesting a cashier’s check for the remaining $1,000. We think that an encoding error on the MICR line caused the underpayment. Can ABC Bank seek payment on a check that is over one year old? Are we required to pay the balance of this check?
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We believe that your bank is liable to ABC Bank for the remaining $1,000 to be paid on the check, provided that your bank can withdraw that amount from your customer’s account. However, if your customer’s account does not contain sufficient funds to cover the remaining $1,000, your bank may be able to offset its…
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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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When we file a mortgage or UCC financing statement to perfect a lien for an LLC that has established a series, what name should we use for the borrower? For a mortgage, we use the grantor’s name, which typically is the name of the series of the LLC (e.g., “ABC Properties, LLC; #2 Any Road” or “1234 North Street, Series of ABC Properties, LLC”). Should we enter the name of the LLC itself, or is it appropriate to use the name of the series?
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Subject to the discussion below, we believe that your bank may be able to perfect its security interests in property held by a series of an Illinois LLC by following your current practice, using the name of the series provided on the property title. Illinois law permits series LLCs to establish any number of “series,”…
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Is it legal for customers to write post-dated checks? Are we required to abide by the date on the check? A customer has called and informed us that she post-dated a check to another individual. Would we be in trouble if we cashed that check before the date written on it?
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Yes, customers may write post-dated checks, but they must provide notice of the post-dating to the bank on which a check is drawn — otherwise, the bank is not obligated to honor the date of the check. The general rule under the Uniform Commercial Code (UCC) is that a bank may pay a check and…