Topic: Uniform Commercial Code
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We have a loan officer who filled out a loan note for a commercial loan and entered “security agreement” as the collateral for the loan on the note. The underlying security agreement listed trucks and trailers as collateral. Is this sufficient to secure our loan?
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Whether the bank has a security interest in the vehicles depends on whether the bank has an enforceable security agreement under the UCC. As stated above, a security agreement is considered enforceable if the bank gave value to the borrower, the debtor has rights in the collateral, and the security agreement adequately describes the collateral.…
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If we made a loan secured by a vehicle title, and we release the lien on the vehicle’s title after it is paid off, do we need to again amend the vehicle’s title after making a new loan to the customer to reflect our lien on the vehicle?
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If the bank has an enforceable security agreement with the borrower, it has a security interest in the vehicle regardless of what the vehicle’s certificate of title states. However, the bank will not have a perfected security interest until the bank files for an amended certificate of title on the vehicle with the Secretary of…
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Is there a cap on returned check fees under Illinois law?
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Section 5e of the Banking Act states that “[n]otwithstanding the provisions of any other law in connection with extensions of credit” banks may charge any fees, provided that the bank sets the fees based on its “prudent business judgment and safe and sound operating standards.” 205 ILCS 5/5e. There are some laws unrelated to extensions…
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We are installing new, deposit-capturing ATMs. Do deposited checks need to be endorsed? We are concerned because the machine does not check for or require endorsements before depositing checks.
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Deposited checks do not need to be endorsed under the UCC, though it may be a good policy to require endorsements. Under Section 4-205 of the UCC, a bank is entitled to enforce a check or item that the customer delivers to the bank, “whether or not the customer indorses the item.” 810 ILCS 5/4-205.
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May a bank adopt a policy of not checking for multiple signatures on checks?
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The risk in adopting a policy of not checking for multiple signatures is that customers may have rights to reimbursement under the UCC if you pay fraudulent checks that have only one signature (and customers might also sue for breach of contract unless your deposit agreements state that you will not check for multiple signatures).…
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Under Illinois law, what is the order in which banks should pay checks?
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Section 4-303(b) of the Uniform Commercial Code (UCC) permits banks to pay checks in any order: “items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.” 810 ILCS 5/4-303(b). The Illinois Appellate Court for the First District has held this to be true even if the order…
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Are banks responsible for verifying signatures on checks to prevent the payment of forged checks?
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Customer vs. Bank Liability Under the UCC, banks are not responsible for verifying signatures on checks, but a payor bank will be liable to a customer for paying a forged check if the customer informs the bank of the forgery with “reasonable promptness.” The general rule as to forged checks is that the customer is…
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A convenience store is opening a line of credit secured by their inventory, fixtures, receivables, etc. We found a recorded purchase money UCC from one of their vendors. Do we need to provide some sort of notice to the vendor before or after filing our UCC? I also assume they have priority on their merchandise?
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A bank with a security interest as described above is not required to send notice of its security interest to a party with a prior recorded purchase-money security interest. You may be thinking of the requirement that a party with a purchase-money security interest must send notice to a prior inventory-secured party in order to…
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What information is required to be included on checks? Some of our businesses are submitting checks that do not include the name of the bank on which the check is drawn (though they do include the bank’s routing number).
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Please note that this answer discusses the requirements of the Check Printer and Check Number Act before it was amended in 2014. For a current version of the law, please see 205 ILCS 690/10. Under the Uniform Commercial Code, a check is defined as an unconditional order to pay a fixed amount of money payable on…
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A customer placed a stop payment order on a check that later was cashed by a currency exchange. Our bank dishonored the check, and now the currency exchange is claiming through its lawyer that the bank is liable for payment under the “holder in due course” rule. Does a stop payment order on a check trump the “holder in due course” rule? And, is the answer the same for a cashier’s check?
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Yes. If your customer (the “drawer”) has properly stopped payment of a check drawn on his or her account, you should not pay the check even if a holder in due course presents the check for payment. Notwithstanding the general rule that a holder in due course takes a negotiable instrument free from all contrary…