Topic: Uniform Commercial Code
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One of our customers lost her checkbook, and checks drawn on our bank were forged. The depositary bank already has cashed the checks. Are we liable for the forgeries?
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In general, your bank (the bank on which the forged checks were drawn) is liable for any forged checks that it did not return before its midnight deadline, but your bank may have a few narrow defenses against liability. In the context of a forgery, you will need to reimburse the customer for the amount…
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What are the consequences for our bank if one of our employees signs a cashier’s check for an amount higher than they are authorized to sign (for example, where an employee has authority to sign up to $10,000 but signs a cashier’s check for $50,000)? What if the employee steals and writes a cashier’s check? In either of these cases, can the check be returned? We tell our customers that they must wait ninety days and sign an affidavit of loss before we can put a stop payment on a cashier’s check.
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We do not believe your bank would be able to return or stop payment on an unauthorized cashier’s check if presented by a holder in due course, unless it sent notice of dishonor before your midnight deadline, on the next banking day after the check was received. As a general rule, a bank may not…
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One of our elderly customers deposited a cashier’s check, which she believes was sent by someone who promised to marry her. We called the issuing bank before making the funds available from the deposit, and they confirmed that the cashier’s check was legitimate. About a month after the deposit, the customer requested a wire to send the funds, which we have not yet executed. We have frozen the customer’s account, which still contains the majority of the funds from the deposited cashier’s check, and reported the potential elder financial exploitation of our customer. Is there any chance that the deposited cashier’s check could be returned?
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First, we do not believe that the issuing bank could return the cashier’s check. The Illinois Supreme Court has held that a cashier’s check is the equivalent of cash. In Illinois, 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…
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We have a business client who had a fraudulent check go through on their account. We are having a difficult time meeting the next day midnight deadline for returned checks. Can you confirm that we must comply with the midnight deadline? May we require business customers to notify us immediately of any fraud on their account once they receive their statement?
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Yes, banks generally must return checks by midnight on the next banking day after receiving the check, as required by the Illinois Uniform Commercial Code (UCC). However, federal Regulation CC permits an extension of the UCC midnight deadline under certain circumstances. A paying bank may send the returned check directly to the depository bank by…
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We would like to perfect a lien on a contract between a grain grower and a broker that will be marketing the grower’s grain for purchase by grain elevators. We want to protect our interest in the grain, but we won’t know which grain elevator ultimately will purchase the grain until the broker has completed its work. We are considering an arrangement in which we require each separate contract between the grain grower and the broker to indicate that sale proceeds would be deposited into an account at our bank, to ensure that we receive the proceeds. Do we need to obtain a lien on each contract, or can we have a blanket lien covered by a UCC-1 filing?
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We recommend consulting with local counsel to ensure that your security agreement, financing statement and requirements for the broker contracts fully protect your bank and comport with applicable local rules and practices. Your bank may perfect its lien on the grain by filing a UCC-1 form, but you may have to take additional steps to…
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Are there any issues with charging an inactivity fee on checking and savings accounts under the new Illinois unclaimed property law? Can we charge inactivity fees on money orders and cashier’s checks by month?
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We are not aware of any prohibition against charging inactivity fees for checking and savings accounts, provided that the fees comply with the requirements in the new Illinois Revised Uniform Unclaimed Property Act (Illinois RUUPA). Under the Illinois RUUPA, inactivity fees must be authorized by a valid contract that specifies the time in which your…
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We have a customer that wants to use liquid assets to secure a loan (stocks held in a brokerage account). How do we secure this? Would a UCC financing statement be sufficient?
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Your bank likely will want to perfect its security interest in the stock by obtaining control over the stock, as defined in the Uniform Commercial Code (UCC). Your bank also may perfect its security interest in the stock by filing a financing statement, but perfecting by control likely is preferable, as it would result in…
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Can a check be stamped “account closed” and given back to the holder of the check without being processed?
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Yes, we believe that your bank may reject the deposit of a check if you are aware that the drawer’s account has been closed (presumably because it is an “on-us” check). The Uniform Commercial Code (UCC) requires banks to accept customer deposits that are “properly payable,” but a check drawn on a closed account does…
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We have a business customer that acts as a payment processor for other companies. They create remotely created checks and deposit them with our bank via remote deposit capture at their place of business. Recently, the number of returned items has increased massively, and we wish to terminate the relationship. We would like to determine the best time to terminate the relationship. What are the timeframes in which we would be liable as the depositing bank for returns through cash letters, adjustments with entry, and incoming collection claims without entry?
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In our view, your bank could be liable for unauthorized remotely-created checks (RCCs) for at least one year from the date of the account closing (or freezing). If your bank terminated or froze the customer’s account today, paying banks would have one year from today to bring claims for violations of the RCC warranties in…
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A customer brought a check to our bank for deposit that was payable to “Jane, as custodian for her minor son, John, until age 21.” Jane requested that the check be deposited into her personal account, and she endorsed the check with her name. Jane does not have a custodial account at our bank, and John does not have a deposit account. Also, John is 22 years old. Should we have deposited the check, or should we have requested that the customer obtain a replacement check from the drawer?
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We believe that your bank should have asked the customer to obtain a replacement check from the drawer in this scenario. Under the Uniform Commercial Code, your bank warranted that there were no missing indorsements when it forwarded the check to the payor bank for payment. The same presentment warranty also applied when your customer…