Topic: Uniform Commercial Code
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To deter money orders and certified checks from being abandoned, may we print “VOID AFTER 120 DAYS” on them? We want to encourage payees to cash them as soon as possible.
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We do not recommend placing expiration dates on money orders and certified checks. As to certified checks, the Illinois Uniform Commercial Code (UCC) requires banks to honor certified checks they have issued and subjects them to potential liability for wrongful dishonor. While a bank generally is not obligated to pay a check presented six months…
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We have an elderly customer who seems to be the victim of a home improvement scam. The scammers want her to wire money to a fake healthcare company. We refused to send the wire, but our customer withdrew a cashier’s check for the same amount from one of our tellers, who was unaware of the situation. I know that we cannot normally stop payment on a cashier’s check, but this is blatant fraud. Our customer is adamant that the transaction is legitimate. Is there any way that we can prevent this fraud from occurring?
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You are correct that your bank cannot stop payment on the cashier’s check without risking liability for the check. We believe that you should instead file a suspicious activity report (SAR) and report the scam as potential elder financial exploitation to the Illinois Department of Aging. As a general rule, once a cashier’s check enters…
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We are considering moving from paper loan files to scanned loan files on our core system. Besides the original promissory note and security agreement, what other loan documents should we keep in paper form?
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Generally, you do not need to retain hard copies of documents that have been scanned electronically, but there are important exceptions to this general rule. We do not recommend shredding originals of certain negotiable instruments, including documents that qualify as notes under Article 3 of the Uniform Commercial Code (UCC) — such as negotiable mortgage…
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We are beginning to image our in-house loan files (including notes and mortgages) and our deposit-related records, such as signature cards. Once a document has been scanned, can we destroy the original, or should we retain it for a certain period of time? Should we stamp the documents with a “scanned” stamp or “true and certified copy” stamp?
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Generally, you do not need to retain hard copies of documents that have been scanned electronically, but we do not recommend scanning and shredding certain negotiable instruments, including documents that qualify as notes under Article 3 of the Uniform Commercial Code (UCC) — such as negotiable mortgage notes. The general rule under Illinois law is…
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We are looking into using Docusign for loan documents. Are electronic signatures made with Docusign legally binding in Illinois, and do you have any tips on using electronic signatures?
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We believe that electronic signatures are generally valid on most loan documents in Illinois, with the exception of promissory notes — special requirements apply to electronic promissory notes that are negotiable instruments. The general rule under Illinois law is that electronic signatures have “the same force and effect under the laws of this State” as…
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A customer who is the trustee of a trust received a grain elevator check made out to the trust, after they had already closed the trust’s account at our bank. Since we have the trust papers on file, can we issue cashier’s checks to the individual beneficiaries specified in the trust who should receive the funds? Also, should the check first be deposited into the trustee’s personal account, or can we deposit the check into our bank’s general ledger account? The parties involved have been customers for many years, and we are familiar with how the funds should be distributed.
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We recommend depositing the check into the trustee’s personal account — after confirming that they are empowered to endorse checks made payable to the trust — then issuing cashier’s checks as the trustee directs and pays for with their personal funds. The Fiduciary Obligations Act (FOA) generally shields banks from potential liability that may result…
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If a husband pledges all of his untitled farm equipment as loan collateral under a blanket financing statement, and he is the sole borrower and sole grantor, should we require his wife to grant the equipment to us as collateral as well? We already know that we cannot make her liable, but how do we prove ownership of the machinery and who should be granting it since it is untitled? We are worried about a situation in which the wife claims an interest in the equipment if the couple ever gets divorced.
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Yes, we believe that you should have both spouses sign the security agreement for the collateral, given the possibility that the wife may have some type of ownership in the untitled farm equipment — whether before or after a potential divorce. Under the Illinois Uniform Commercial Code (UCC), a security interest generally attaches to collateral…
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Our customer reported that a check they issued was stolen and washed, changing the payee and amount of the check. The customer reported the fraud to us two weeks after the check had cleared. Are we liable to our customer for paying the altered check, and do we have a claim against the bank of first deposit?
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We believe you must reimburse your customer for the amount paid on the altered check and that you have a claim against the bank of first deposit for breach of its presentment warranties. Under the Illinois Uniform Commercial Code (UCC), banks may charge their customers only for items that are properly payable — meaning authorized…
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One of our customers is a college that has offered their students the ability to have checks issued to them from the college (for Covid relief, fee refunds, etc.) to be applied to their outstanding tuition balance, instead of the students depositing the checks. Students are required to complete a form that they return to the college if they elect to do this. If we receive a copy of this completed form signed by the student, can we accept and redeposit these checks into the college’s account so that the college can credit the student’s tuition?
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We believe that allowing the practice described would put your bank at risk of liability for conversion under the Illinois Uniform Commercial Code (UCC). Whether that is an acceptable risk to your institution is a business decision. Under the Illinois UCC, a bank can be held liable for conversion if it makes or obtains payment…
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Are you aware of any guidance or standards on how banks should handle frequent wire transfers from personal accounts? We have several clients that have included their personal accounts on our business wire transfer agreement and are wiring funds regularly even though our agreement is for business purposes only. We would like to know if there any alternatives other than having these customers come in and sign for each wire in person. Or does Regulation E trump any agreements on file because these wires are coming out of consumer accounts? We use a wire transfer system known as Wire Exchange (soon to be known as Payments Exchange), not Fedwire.
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We believe that Article 4A of the Illinois Uniform Commercial Code (UCC) would protect you from liability for sending unauthorized wires on behalf of non-business customers if you have previously agreed to verify their identities through a commercially reasonable security procedure (other than signing for each one in-person). While requiring in-person signatures would help ensure…