Topic: Uniform Commercial Code
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A customer has applied for a car loan, and he wants his grandson, who is a minor, to cosign the loan. Both are named on the car title. Our loan agreement provides that both debtors are jointly and severally liable for the loan amount. Will the minor’s signature be binding? Is the loan agreement void because one of the debtors is a minor? What if all payments are made by the grandfather only?
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No, the minor’s signature will not be binding on the loan agreement or the security agreement until the minor reaches the age of eighteen and ratifies the agreements. However, the loan agreement will not be void, as the grandfather’s signature is binding, and you have told us that he is liable for the entire loan…
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Why does our forms vendor suggest using “limitations on cross-collateralization” clauses in our commercial and consumer promissory notes and security agreements?
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Your vendor’s limitations on the cross-collateralization clauses in its loan forms appear to be meant to prevent you from inadvertently triggering and violating statutes and regulations that apply to residential real estate loans. For example, if your bank places a broad cross-collateralization clause in the mortgage document for a loan secured by residential real estate,…
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Are cross-collateralization clauses enforceable?
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Yes, courts in Illinois generally have upheld cross-collateralization clauses, which are provisions in security agreements that secure both the current loan and future loans (whether made by the same or another lender). The U.S. Court of Appeals for the Seventh Circuit recently held that a cross-collateralization clause in a mortgage document was enforceable because it…
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A customer purchased a cashier’s check seven years ago. The named payee has not cashed the check, and we do not even know whether the customer has delivered the check to the payee. Can we contact the customer before remitting the check as unclaimed property? And can the customer place a stop payment order on the check and request that the check be reissued?
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Yes, you are required to contact your customer before reporting the cashier’s check as unclaimed property. And no, the customer cannot issue a stop payment order on the cashier’s check if it already has been presented to the payee. However, if the cashier’s check has not been presented to the payee, the customer can surrender…
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We have pre-2013 financing statements that failed to use an individual’s debtor’s name as shown on the debtor’s driver’s license. The financing statements have not yet lapsed. When filing a UCC-3 amendment, should we amend the debtor’s name or add the correct name as an additional debtor?
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Assuming that the pre-2013 financing statements have not lapsed, we recommend amending the name of the debtor on the UCC-3 form to match the name on the debtor’s driver’s license, instead of adding an additional debtor. Article 9’s 2013 amendments allow you to amend the financing statement to correct the debtor’s name before the financing…
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For how long should we retain deposit account statements and copies of checks?
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You should retain deposit account statements for at least five years and copies of checks for at least seven years. The FinCEN’s Bank Secrecy Act regulations require you to retain deposit account statements for five years after they are created. The Uniform Commercial Code requires financial institutions to retain checks, or legible copies of checks,…
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Five years ago, we repossessed a car and sold it without contacting the borrower’s father, who had cosigned the loan. The sale resulted in a deficiency balance. Do we have to provide a default notice to the father before attempting to collect the deficiency balance from him?
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Yes, you must provide notice to the cosigner before attempting to collect the deficiency balance from him. The Illinois Consumer Fraud and Deceptive Business Practices Act requires you to notify a cosigner before taking any action to collect from the cosigner, and it describes the information that must be included in this notice. Since you…
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A business customer deposited a check payable to the business in his personal account. The customer is an authorized signer for the business and endorsed the checks by signing his personal name and printing the business name below. Could the bank be liable to the business or to the other business owners for permitting this deposit?
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No, the bank is not likely to be held liable. The Fiduciary Obligations Act states that when a business owner (referred to as the “fiduciary”) deposits a check payable to a business in a personal deposit account, the bank will not be liable unless the bank acted in bad faith or knew of the owner’s…