Payments Law

by Steve Nickles, Mary Matthews

Overview

This outline is designed to help law students recognize and understand the basic principles and issues of payments law. It can be used both as a study aid when preparing for classes and as a review of the subject matter when studying for an examination.

Product Details

ISBN-13:	9780314176936
Publisher:	West Academic
Publication date:	01/28/2007
Series:	Black Letter Outline
Edition description:	Older Edition
Pages:	428
Product dimensions:	9.00(w) x 11.00(h) x 0.70(d)

Table of Contents

Capsule Summary Payments Law     1
Perspective     39
Paying with Cash
Currency     47
Meaning of Money, Currency, and Payment     48
When Must the Obligee Accept Cash as Payment?     48
When Is Payment Made?     49
Delivery     49
Effects     49
When Can an Obligor Recover Payment Already Made to the Obligee?     49
What Happens When Cash Is Lost or Stolen?     50
Destroyed     50
Damaged     50
Lost     50
Stolen     51
Thief Keeps the Cash     51
Thief Spends the Cash     51
General Rule of Derivative Title     51
Exceptional Rule     51
Good faith purchaser     51
The Miller Case     51
Review Questions (Answers in Appendix A)     52
Digital Cash     55
How Digital Cash Works     56
Closed Systems     56
Open Systems     57
Defined     57
Visa Cash     57
Multi-Task Card     57
What and How Law Applies     58
Regulation E     58
Main Provisions     58
Uncertain Applicability     59
Contract Protection (E.g., Visa Cash)     59
Rights Against Issuer Upon Loss and Use     60
Rights Against Payee Upon Loss and Use     60
Final Payment     61
Regulating Special Risk of System Integrity (or Solvency of the Issuer)     61
Digital Cash as Claim     61
Bank Issuers     61
Non-Bank Issuers     61
State Regulation     62
Review Questions (Answers In Appendix A)     62
Paying by Check
Requisites of a Check Under Article 3     67
Contextual Overview     68
Where Checks Fit under UCC Article 3     68
Importance of Liability Under Article 3     68
Requirements of Negotiability Applicable to Any Kind of Instrument     69
In General     69
"Requisites of Negotiability" Under 3-104(a)     70
Hidden Requirement of "Writing"     70
How A Check Is Distinguished from Other Article 3 Instruments     70
Writing     71
Order a Bank     72
Payable on Demand     72
Payable to Order or to Bearer (Words of Negotiability)     73
Payable to Order     73
Payable to Bearer     74
Review Questions (Answers in Appendix A)     75
Liability on a Check Under Article 3     11
Signature on a Check Creates Liability     79
Liabilities of Persons Who Normally Sign Checks     79
Drawer     79
Indorser     80
Usual Non-Liability of the Drawee     81
Mechanics of Signature     82
Means of Signature: By an Agent or Representative     82
Principal's Liability     82
Agent's Liability     83
Liability for Unauthorized Signatures     84
Terms and Conditions of Liability     84
Conditions of Liability: Presentment, Dishonor, and Notice     85
Meaning and Mechanics of Satisfying Conditions of Liability     85
Dishonor     85
Presentment     86
Notice of Dishonor     87
Discharge of Liability on Instruments     87
Meaning of Discharge     87
Effects of Discharge     87
Ways Discharge Can Occur     87
Payment of the Instrument     88
Requirements of Discharge by Payment     88
Limits on the Rule of Discharge by Payment     88
Distinguishing Payment of the Underlying Obligation     89
Article 3 Discharge As a Defense Against Holder in Due Course     90
How An Instrument Affects the Underlying Obligation     90
Typical Case-Suspension and Discharge or Revival     90
When Person Entitled to Enforce the Instrument Is Not the Original Obligee     91
When Taking an Instrument Discharges the Obligation     92
Agreement     92
Bank Instruments     92
Accord and Satisfaction     92
Review Questions     93
Suing on a Check Under Article 3     97
Persons Entitled to Enforce     99
Holder     99
By Issuance     100
By Negotiation     100
What Negotiation Requires     101
The common requirement: "Transfer of Possession"     101
When Indorsement Required for Negotiation     102
Instrument Originally Payable to an Identified Person     102
Thereafter-Blank or Special Indorsement     102
Exception for Depositary Bank     104
Negotiation by Multiple Payees     104
Other Qualities of Indorsements That Do Not Affect Negotiation     106
Qualified Indorsements     106
Restrictive Indorsements      106
Nonholder in Possession with Holder's Rights     107
Nonholder Without Possession in Exceptional Cases     108
Defenses to Liability     108
Real Defenses     109
Infancy     109
Duress     110
Lack of Legal Capacity (Incapacity)     110
Illegality     111
Fraud in the Factum     111
Discharge in Insolvency Proceedings (Bankruptcy)     112
Ordinary or Personal Defenses     112
Article 3 Defenses     113
Defenses of Contract Law     114
Range of Defenses, Especially Including Problems of Consideration     114
Caveat: Defense Must Be Chargeable to Plaintiff     116
Holder in Due Course     117
Requirements of Due-Course Status     117
For Value     117
Without Notice     119
Overdue, Dishonored, or Uncured Default     119
Unauthorized Signature or Alteration     120
Claim to the Instrument     121
Defense or Claim in Recoupment     121
Without Question About Authenticity of the Instrument     121
In Good Faith     122
Apart From Certain Unusual Circumstances      123
Payee as Holder in Due Course     123
Taking Through a Holder In Due Course-The Shelter Principle     125
Review Questions (Answers in Appendix A)     126
Check Collection Under Article 4     131
Collecting Checks: Payor Bank as Sole Bank     132
Presentment Over the Counter for Payment in Cash     132
"On Us" Checks: Payor Bank as Depositary Bank     133
Collecting Checks: Multiple Banks     134
Getting the Check From the Depositary Bank to the Payor Bank     134
Indorsement and Transfer to Depositary Bank     136
Crediting the Customer's Account-Provisional Settlement Under Article 4     136
Depositary Bank Becomes Collecting Bank and Agent for Collection     137
Truncation     138
Settlements Under Article 4     139
Action Required of Payor Bank upon Presentment-Dishonor by Timely Return or Final Payment by Inaction     140
Under Article 4     140
Under Regulation CC     141
Expeditious Return     141
Large-Dollar Notice     143
What Happens When Checks Are Paid-Relationship Between Final Payment and Accountability     144
What Happens When Checks Are Dishonored     145
Rights and Remedies of the Depositary Bank     145
Rights and Remedies of the Customer     150
When the Check is Dishonored     150
When the Check Is Bounced Despite Final Payment     150
Review Questions (Answers in Appendix A)     151
Checking Accounts Under Article 4     155
Basic Relationship Between Customer and Bank     156
Defined Mainly by Deposit Agreement     156
"Properly Payable" Defines Main Duties     157
Wrongful Dishonor in General     157
When Is a Dishonor Wrongful?     157
Miscalculating Balance     158
Time for Determining Funds Sufficiency     158
Order of Paying Checks Presented at the Same Time     159
Overdrafts     159
Liability for Wrongful Dishonor     160
To Whom     160
Damages     160
Wrongful Honor in the Absence of Fraud or Forgery     161
In General     161
Stop Payment Orders: 4-403     162
Who May Stop Payment     162
Form and Content of Order     162
Time and Manner of Order: Priority Under 4-303(a)     163
Duration     164
Bank and Certified Checks     164
Damages, 4-403(c)      164
Payor Bank's Subrogation Rights, 4-407     165
Order Closing Account     166
Untimely Checks     166
Post-Dated Checks     166
Stale Checks     167
Death or Incompetence of Customer     167
Review Questions (Answers in Appendix A)     168
Check Fraud Under Articles 3 and 4     173
Basis of Payor Bank's Liability to Its Checking-Account Customer     175
Ineffective Drawer's Signature     175
Ineffective Indorsement     176
What Is The Wrong to the Drawer?     176
Where Is the Loss to the Drawer?     176
Alteration     176
Payor Bank's Defenses     177
Authority     177
Ratification     179
3-406-Negligence     179
The "Substantially Contributes" Requirement     179
The Effect of Payor's Culpability     180
4-406(c-d) (Breach of Conditional Duty to Discover and Report Check Fraud)     180
When Duty on Customer Is Triggered     181
Effect of Customer's Breach of the Duty     181
No Coverage of Forged Indorsements     181
Missing Drawer's Signature     182
Bank's Comparative Negligence Dilutes the 4-406(d) Defense     182
Bank's Lack of Good Faith Denies the Defense     182
4-406(f) (One-Year Outside Limit on Customer's Complaints About Customer's Unauthorized Signature or Alteration)     182
Special Rules for Unauthorized Indorsements in Certain Circumstances     183
When Payees are Impersonated or Imagined: Impostor Rule-3-04(a)     183
Rule of the Nominal or Fictitious Payee-3-404(b)     185
Where Stealing Instrument Is Afterthought     186
Where Actual Drawer Is Not Involved     186
When Employees Steal Checks for Which They Are Responsible-3-405     187
How 3-405 Works     188
Key Terms under 3-405     189
"Employee"     189
"Entrusted"     189
"Responsibility With Respect to Instruments"     189
"Fraudulent Indorsement"     190
Shifting Check Fraud Losses     191
Payor Bank Versus People Upstream in the Collection Chain-Primarily, Presentment Warranties     191
Who Makes Presentment Warranties to the Payor Bank Under 4-208     192
Scope of Presentment Warranty Protection Under 4-208     192
Alteration     193
Unauthorized or Missing Indorsement     193
Unauthorized Drawer's Signature      193
Damages     194
Major Defenses in Warranty Action     194
Payor Bank's Lack of Good Faith     194
Laches     194
Failure to Assert Defenses Against Customer     195
Forged Signature Not Unauthorized     196
Recovery Over (Passing the Buck) Through 4-207 Transfer Warranties     196
Handling the Typical Check Fraud Case of Ineffective Indorsement Through Warranty Actions     198
Direct Actions in Cases of Ineffective Indorsements     199
Payee Against Depositary Bank     199
Damages for Conversion     200
No Defense of Good Faith to the Direct Action     200
Payee Versus Payor Bank     201
Drawer Versus Depositary-Collecting Bank     201
Review Questions (Answers in Appendix A)     201
Bank Checks Under Articles 3 and 4     209
Types of Bank Checks     210
Certified Checks     211
Cashier's Checks     212
Teller's Checks     213
Stopping Payment     214
Cashier's Checks     214
Issuer's Liability     214
Asserting Defenses by Stopping Payment or Otherwise     214
Denying Liability on Other Bank Checks      216
Enhanced Liabilities of Banks on Bank Checks, 3-411     216
When Bank Checks Are Lost or Stolen     217
Review Questions (Answers in Appendix A)     218
Paying with Drafts
Paying Against Ordinary Drafts     223
Ordinary Drafts Under Articles 3 and 4     224
Simple Demand or Sight Draft     225
Time or Acceptance Draft     226
Collecting Drafts Through Banks     226
Review Questions (Answers in Appendix A)     227
Paying Documentary Drafts Under Articles 3, 4, and 7     229
Role of Documents of Title     229
Definition of Document     230
Bill of lading     230
Warehouse Receipt     230
Distinguishing Between Negotiable and Non-Negotiable Documents     230
The Test for Negotiability     231
Article 7's Coverage of Non-negotiable Documents     231
How Documents Control Access to the Goods     231
When the Document Is Negotiable     231
Upon Issuance     232
Subsequent Holders     232
When the Document Is Non-negotiable     233
Paying Against Negotiable Documents     234
Step One: Creating the Documentary Draft      234
Step Two: Sending the Documentary Draft for Collection     235
Step Three: Presenting the Documentary Draft for Payment     236
Variations in the Scheme     236
Discounting Documentary Drafts     236
Shipping Under a Non-negotiable Document     237
Trade Acceptances     237
Review Questions (Answers in Appendix A)     239
Paying with Credit
Letters of Credit Under Article 5     245
Defining Basic Terms and Relationships     247
Commercial Credits     247
The Main Players     247
The Relationship between Issuer and Beneficiary: Duty to Honor     249
The Relationship between Issuer and Customer: The Right of Subrogation     250
Standby Credits     251
Determining Compliance With the Credit     251
What Determines Compliance     251
Degree of Compliance     252
Timing of Compliance     252
Rightful Dishonor Despite Facial Compliance     252
Reasons Justifying Dishonor Despite Compliance     252
Reasons Not Justifying Dishonor     254
Review Questions (Answers in Appendix A)     255
Credit Cards     259
How Visa and MasterCard Work      262
Bank Joins Bankcard Association     262
Bank Issues Cards to Cardholders     263
Merchants Open Accounts at Bank     263
Cardholders Use Cards to Pay for Stuff Merchants Sell     265
Merchants Collect through Settlements or Interchange Network     266
Interlocking Agreements Provide Credibility     267
What Law Applies     268
State Law     268
Federal Truth in Lending Act (TILA)     269
Arbitration     270
Cardholder Right to Payment-Wrongful Dishonor     271
Cardholder Stopping Payment-Withholding Payment on Basis of Defenses Against Merchant     271
No Common Law Right     272
Limited TILA right     272
When Limitations Do Not Apply     273
Limits on Claims and Defenses Cardholder Can Assert     274
Cardholder Limited Liability for Unauthorized Use     274
Applies to Any Person     275
Protects Only Against Unauthorized Use     275
No Protection In Some Cases Despite Lack of Authority     275
Authority Exceeded     275
Cardholder Benefitted     276
Joint Account     276
Liability of Unauthorized User     276
Cardholder Rights Against Issuer for Errors Under Fair Credit Billing Act (FCBA)     276
"Billing Error" That Triggers FCBA     277
Rights and Process     277
Relationship to Unauthorized Use and Claims Against Merchant     279
Relationship to Issuer Chargeback Against Merchant     280
Review Questions (Answers in Appendix A)     280
Paying with Electronic Transfers of Funds
Commercial Funds Transfers Under Article 4A     289
Scope of Article 4A     291
Key Terms     291
Funds Transfers     291
Payment Order     291
Effectively Limited to Commercial Transactions     292
Not Limited to Electronic Transfers     292
Stages and Players Involved in an Article 4A Funds Transfer     292
Rights, Duties, and Payment     293
Acceptance Is Key     293
When Acceptance Is Required     294
Effects of Acceptance     295
Beneficiary Bank     295
Another Bank     295
Stopping Payment     296
Unauthorized Payment Orders     296
No Security Procedure Exists or Is Not Followed     297
Security Procedure Followed     297
General Rule      297
Exceptions     297
Damages     298
Recovery Over Against Thief     299
Mistakes in Payment Orders     299
Erroneous Payment Orders     299
Order Not Transmitted Pursuant to Security Procedure     299
Order Transmitted Pursuant to Security Procedure     299
Basic Rules     299
Effect of Sender's Negligence     300
Misdescription of Beneficiary     300
Review Questions (Answers in Appendix A)     301
Consumer Funds Transfers Under the Electronic Fund Transfer Act     305
Principal Sources of Law for Consumer Funds Transfers: Electronic Fund Transfer Act (EFTA) and Regulation E     308
Scope of Application     309
Major Protections     310
Disclosures     310
Unauthorized Transfers     311
Basic Regulatory Statement of Liability     312
Explanation of Three-Tiered Liability Analysis     313
Tier 1: Basic Liability Limit     313
Tier 2: Failing to Give Timely Notice of Loss     313
Tier 3: Failing to Report Theft Revealed in Bank Statement     314
Error Resolution     314
Preauthorized Debits     315
Liability      315
Defenses     316
Stopping Payment     317
Civil Liability for EFTA Violations     317
Wrongs Involving Stop Orders and Preauthorized Transfers-Section 1693h     317
Other Wrongs and General Liability     317
Section 1693m     317
Exceptions and Defenses     318
EFTA and Checks     319
Article 3 Truncated Checks     319
Re-Presented Checks     320
Electronically Converted or E-Checks     320
Conversion of Checks Mailed to Creditors     321
WEB and TEL Checks     322
Remotely-Created Checks     322
Funds Transfers Beyond EFTA     323
Multi-Purpose Cards Used for Credit     323
Telephone Requests for Transfers     324
Digital Cash     325
Review Questions (Answers in Appendix A)     325
Appendices
Answers to Review Questions     331
Practice Examination Questions     383
Answers to Practice Examination Questions     389
Glossary     397
Index     403