Topic: Uniform Commercial Code
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A customer deposited a check for over one million dollars and requested the check back after it clears so he can frame it. Can we give him the check? Should we stamp it “paid”?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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. Yes, you may return the paper check to the customer, provided that you retain a…
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Our bank holds perfected liens in a farm loan customer’s assets, including its crops. The customer sold its crops to a grain elevator, which paid the sale proceeds to our bank, as the secured creditor. We have learned that the customer missed its rent payment for the farmland, which was due at the beginning of this month. Can the landlord assert a lien for the rent, after our bank has taken the crop sale proceeds and applied them to the customer’s loan?
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We believe that the landlord’s lien should have taken priority over your bank’s perfected liens in the crops and sale proceeds. In Illinois, landlords have a lien in crops grown on their land, and the lien has priority over any Uniform Commercial Code (UCC) liens. Consequently, the landlord’s lien has priority over your banks’ lien…
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Our commercial customer issued a paycheck to an employee. The employee deposited the item via remote deposit and then took the item to a check cashing business. We returned that deposit attempt as a duplicate item. The check casher is sending collection letters to our customer asserting that our customer is responsible for paying the item, citing 810 ILCS 5/3-302 and 720 ILCS 5/17-1A. Isn’t the employee responsible for the check casher’s loss?
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Based on the facts as described, we believe the check casher is the holder in due course of the original check and is correct in demanding payment from your customer. In addition, the check casher also has the right to demand payment from your customer’s employee. Under the rules of the UCC, both would be…
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We have a customer who is claiming several checks paid from her account were forged. They are from two to six months old. I do not understand our account agreement, which provides 30, 60, or 120 days to report unauthorized checks. Some of the checks are less than 60 days old. In addition to the reporting deadline ambiguity, we are suspicious about her forgery claims for a number of reasons. What protections does the bank have against paying these claims?
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We recommend consulting with bank counsel to clarify the time period for reporting unauthorized transactions defined by your account statement and disclosures. Under the Uniform Commercial Code (UCC), in most circumstances, you will need to reimburse the customer for the amount of a forged check if the customer alerts you to the forgery with “reasonable…
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We image our checks and retain them for at least seven years. Are we required to retain paper versions of those checks, and for how long? We use an image replacement document (IRD) printer for our check returns.
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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 not aware of any required retention period for paper copies of checks, given…
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Are there any Illinois laws that require us to provide check images to our customers? We currently provide images of all checks paid in our periodic account statements, but we would like to eliminate the cost of printing check images.
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No, we are not aware of any Illinois laws that require banks to provide check images in deposit account statements. The Uniform Commercial Code (UCC) requires bank statements to include “information sufficient to allow the customer to identify the items paid.” However, that UCC requirement is met if a bank’s statements describe each check “by…
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One of our customers signed an affidavit of forgery relating to four checks that were drawn on her account (we believe this is related to elder abuse by her son). We paid two of the checks and returned two NSF. We are going to refund the two checks that were paid. Can we return these checks? The midnight deadline already has passed. Does Rule 9 apply?
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No, we do not believe that you may return the checks after the midnight deadline. Generally, your bank must return a check, including a forged check, by midnight on the next banking day after receiving the check, as required by the Uniform Commercial Code (UCC) (with certain limited extensions permitted under Regulation CC). In this…
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We would like to enter into “floorplan” financing arrangement with a customer where we provide a line of credit for them to purchase lawn mowers to resell. We want to avoid filing a purchase money security interest for each individual mower the customer purchases. However, we want to ensure that we have a priority security interest over other lenders’ blanket financing statements that cover “all assets.” Can we file a “blanket” purchase money financing statement to cover all the equipment that the customer will purchase for resale?
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Yes, we believe that you may file a single purchase money financing statement to create a priority security interest in all of the mowers that your borrower will purchase for resale, subject to a five-year limit discussed below. However, we believe that you are creating a purchase money security interest in inventory (not equipment), which…
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We have a commercial line of credit secured by equipment, farm products, government payments, and livestock. We filed a UCC financing statement regarding our security interest in the collateral. If we execute a change in terms to increase the loan amount, will the entire new loan amount be covered by the original security agreement, or will the amount of the increase be unsecured? The language in our original security agreement and change in terms agreement is not clear.
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We recommend consulting with an attorney to determine whether either your original security agreement or your change in terms agreement extend your original security interest to the new loan amount. The Uniform Commercial Code (UCC) expressly permits security agreements to secure future advances, and Illinois courts generally have upheld “cross-collateralization” clauses in security agreements to…
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We have a customer that is a pension trust fund for a labor union. This customer issued a number of checks throughout this year to an individual who died more than two years ago. We have already paid the checks, which were cashed at a Walmart and a credit union by someone who must have forged the deceased payee’s endorsement. What can we do? We can’t have the payee fill out a fraudulent endorsement. Can we return the checks? The customer is not disputing the payments, but has asked for our assistance.
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No, we do not believe that you may return the checks. Generally, your bank must return a check, including a forged check, by midnight on the next banking day after receiving the check, as required by the Uniform Commercial Code (UCC) (with certain limited extensions permitted under Regulation CC). In this case, where several weeks…