Topic: Uniform Commercial Code
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How long should we retain commercial and real estate loan documents that have been scanned electronically? What about those that have not been scanned electronically? If we scan loan documents at the time the loan is originated, how long must we retain the paper copies?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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 recommend retaining loan agreements for a period of ten years after the loan is…
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We have a deposit relationship with a farm LLC that defaulted on its loan with another bank (Creditor Bank). Before the default, Creditor Bank sent a notice of its security interest in the farm’s grain to various crop insurers and grain production facilities, and these companies issued checks for grain payments to the farm LLC and Creditor Bank as joint payees. A co-owner of the farm LLC deposited five of these checks into the LLC’s business checking account at our bank. The co-owner endorsed the checks with a stamp reading “credit to the account of the within named payee.” Creditor Bank did not receive any of the proceeds of these checks and is claiming that we are responsible for a portion of the farm LLC’s debt under Indiana law, since the deposits were made at our Indiana branch. Is this accurate? Isn’t the payor bank responsible for ensuring that both named payees agreed to the deposit?
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We believe that your bank may be liable to Creditor Bank for conversion of the checks that were payable to both Creditor Bank and your customer, and your bank also may be liable to the payor banks and the drawers of the checks, since the checks lacked Creditor Bank’s endorsement. The checks had a missing…
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Is there a restriction on the maximum lien amount that may be listed in a mortgage — for example, “twice the loan amount?” Have there been any cases where listing more than twice the loan amount has been challenged?
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We are not aware of any restrictions on the maximum lien amount that may be listed in a mortgage, nor of any restrictions that would limit the maximum lien amount to twice the loan amount. Illinois courts generally have upheld “cross-collateralization” clauses in security agreements to secure future debts, provided the clauses are “clear and…
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When we take a security interest in the grain of one of our customers, we send a notice of security interest to the grain elevator where the grain is stored. Are there any Illinois laws that indicate how frequently we need to send these notices?
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We recommend sending notices of your security interest to the grain elevator at least annually. Under both federal and Illinois law, notice of a security interest in farm products must be provided within one year of a sale in order to protect your bank’s security interest, and we are aware of at least one Illinois…
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Our customer wrote a check from her checking account to her insurance company; however, the insurance company said it did not receive the check. Our customer’s signature is on the front of the check, and we have a copy of the check with an endorsement on the back. The insurance company says it is not their endorsement. Is the bank of first deposit responsible for resolving this matter? The insurance company has requested that we provide an affidavit of forgery, but our bank didn’t cash the check.
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Yes, we believe the depository bank that accepted the check with the forged endorsement is responsible for resolving this matter and is in the best position to provide the insurance company with any requested affidavits. The Uniform Commercial Code (UCC) places the ultimate risk of loss for the payment of a check with a missing…
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We offer remote deposit capture (RDC) for our business customers. When our customers scan the checks, a message is printed on the back of the checks stating that they are “For Remote Deposit at [Bank Name] Only.” Do we need to move that message up to the “Endorse Here” area on the back of the check? Should we require a business customer to stamp the remote deposit endorsement line as well as the “Endorse Here” line on the check? We have one business customer who sometimes deposits over 100,000 checks within a few months, and we are working with that customer to relieve them from having to stamp each individual check.
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Relocating Customer Indorsements Yes, we recommend moving the message stating “For Remote Deposit at [Bank Name] Only” in the middle of the back of the check to the “Endorse Here” section at the top. Relocating this indorsement line could help to prevent it from overlapping with subsequent indorsements applied to the middle of the back…
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Illinois appears to have a non-uniform UCC provision, providing that Article 9 is not applicable to a transfer by a government or governmental subdivision or agency. It is being argued that a UCC filing against a municipality would be ineffective under this provision. Can you explain the history of this provision and how it should be interpreted?
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We believe that Article 9 of Illinois’ Uniform Commercial Code does exclude from its scope any transfers in which a governmental unit (including a municipality) is the borrower. Section 9-109 excludes from coverage “a transfer by a government or governmental subdivision or agency.” While the term “governmental subdivision or agency” is not defined, the definition…
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Can we limit the amount of cash we will provide to a non-customer when they present an on-us check in person? We would pay the remainder with a cashier’s check. Our deposit account terms describe the check cashing fees and identification requirements for non-customers, but they do not indicate that we may refuse to cash a customer’s check for a non-customer.
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We recommend consulting with your bank counsel to amend your account agreements before setting a limit on cashing checks for noncustomers. By setting a limit on cashing checks, your bank would be refusing to cash (or fully cash) some checks issued by your customers to noncustomers. While it is unlikely that a noncustomer would have…