Topic: Uniform Commercial Code
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We are extending a matured line of credit secured by equipment and farmland. The borrower has agreed to provide additional collateral for the loan by assigning grain contracts the borrower has executed with a buyer. We plan to prepare and execute a pledge agreement specifying each grain contract in which we are taking a security interest. The existing security agreement and financing statement describe the collateral as “All Equipment,” and a separate mortgage perfects our lien on the farmland. Do we need the borrower to sign a new security agreement or financing statement reflecting the additional collateral? What documents do we need from the buyer of the grain so that the grain sale proceeds will be payable to our bank?
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We recommend amending the security agreement and financing statement to reflect the additional collateral. Currently, your security agreement and financing statement describe the collateral as “equipment,” and this term does not encompass crops or grain. The security agreement should be amended to expand its collateral description to include the borrower’s grain and any proceeds from…
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Many years ago, a customer purchased a cashier’s check naming his sister as the remitter and the Social Security Administration (SSA) as the payee. The remitter does not have an account with us. We are still gathering facts, but we believe that the remitter never delivered the check to the SSA. It has remained in her desk drawer since 2003. Now she has sent us a demand letter from her attorney insisting that she is entitled to receive a refund on the cashier’s check. We found a note indicating that we reissued the check in 2004, but we have not found a declaration of loss or any other records regarding the possible reissuance. Is the remitter entitled to a refund on the original check?
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We recommend consulting with an attorney, but in our view, the remitter likely is entitled to a refund for the amount of the cashier’s check. The Uniform Commercial Code (UCC) does not directly address whether a remitter is entitled to a refund when she decides not to deliver the check to the payee. However, the…
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How can we perfect a lien on an airplane hangar? Our borrower owns the hangar and has taken out a sublease of the underlying land. We are taking an assignment of the sublease and wanted to perfect our security interest in the hangar.
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We recommend perfecting your bank’s lien on the hangar by filing a financing statement with the Secretary of State, as well as recording a fixture filing with the county in which the hangar is located. The Uniform Commercial Code (UCC) requires perfection by filing a financing statement for most collateral types, unless an exception applies.…
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We charge an insufficient funds (NSF) fee for deposited items that are returned by the payee bank. Section 3-806 of the Illinois version of the Uniform Commercial Code states that “a fee or charge not to exceed $4.50 may be assessed to any person or owner of a commercial checking account or other similar commercial account where a check or other draft that is deposited into the account is dishonored upon presentment . . . .” Does this $4.50 limit on returned check fees in Illinois apply to both commercial and consumer accounts?
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The Illinois Uniform Commercial Code (UCC) limits insufficient funds or returned check fees to $4.50 for commercial accounts, but it does not limit these fees for consumer accounts. For commercial accounts, the fees can be no higher than $4.50, but this limit expressly does not apply to “non-commercial checking or other non-commercial accounts,” which would…
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Currently, our new account disclosures state that business customers have sixty days from the statement date to report fraudulent transactions. We have seen a major increase in check fraud on our commercial accounts. Can we shorten that time frame? We are aware of a Wisconsin bank that shortened its reporting period to fourteen days.
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Yes, a bank may shorten the notification period for unauthorized check transactions. The UCC requires customers to notify a bank regarding an unauthorized check with “reasonable promptness” and permits banks to narrow the definition of “reasonable promptness” in their deposit account agreements. There are several court cases in Illinois and in other states in which…
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A former customer presented an “on-us” check (drawn on our bank) payable to him for cashing. This customer had a charged off account with us, which now is closed. Our deposit account agreement did provide for a right of setoff. Can we withhold some of the check proceeds to offset the charged-off account?
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No, we do not believe that your bank may exercise a right of setoff in this situation. While your deposit account agreement likely provides for a right of setoff relative to the deposit account, your former customer no longer has a deposit account or other funds held at your bank and is not attempting to…
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Are there any Illinois or federal laws affecting how we can collect debts from a co-signer of a loan, versus a guarantor? Does one provide better risk coverage than the other?
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Yes, in most cases a lender’s collection rights will differ based on whether it is collecting from a cosigner or a guarantor, and in the case of a guarantor, whether the guarantor is a “guarantor of collection” or a “guarantor of payment.” In many cases, it is preferable for a lender to require a cosigner…
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Two months ago, we learned that several forged checks had been drawn on a customer’s account (the depository bank alerted us that the checks were suspicious). We received the police report regarding the theft of the customer’s checkbook a few days later. Once we learned of the forgeries, we returned four checks to the depository bank. That bank has since sent those checks back to us stating that our return was untimely; we had returned the checks about three weeks after receiving them. How long do we have to return items once we are notified of a forgery?
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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). Regulation CC layers on additional requirements and exceptions to the UCC midnight deadline, which are designed to encourage banks to use expeditious means to return checks.…
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We have a customer with a deposit account titled “XYZ Farms,” which is for his sole proprietorship. He also owns an incorporated trucking company. Can he deposit checks made out to the trucking corporation into his sole proprietorship account? He has not opened a bank account with us for the incorporated trucking company.
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Whether you could face liability for allowing your customer to deposit a check made payable to the trucking company into his sole proprietorship account if he had no authority to do so would depend on additional facts. Generally, under the Illinois Fiduciary Obligations Act (FOA), a bank will not incur liability when a customer it…