Chapter 34: Checks and Funds Transfers

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• Chapter 34 Checks and Funds Transfers

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Checks

• A check is a draft drawn on a bank and payable on
  demand.
• A delivery of a check is not an assignment of
  money on deposit with the bank on which it is
  drawn.
• A check does not automatically transfer the
  rights of the depositor against the bank to the
  holder of the check.

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Types of Checks

• A check may be an ordinary check, a cashiers
  check, or a tellers check.
• A check may be certified by the bank.
• Unless otherwise agreed, the delivery of a
  certified check, a cashiers check, or a tellers
  check discharges the debt for which it is given,
  up to the amount of the check.

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Check vs. Draft
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Certification

• Certification of a check by the bank is the
  acceptance of the checkthe bank becomes the
  primary party.
• Certification may be at the request of the drawee
  or the holder.
• Certification by the holder releases all prior
  indorsers and the drawer from liability.

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Presentment and Dishonor

• Presentment to the drawee bank is the first step
  in payment of a check.
• Notice of nonpayment of a check must be given to
  the drawer of a check.
• If no notice is given, the drawer is discharged
  from liability to the same extent as the drawer
  of an ordinary draft.
• Liability of a secondary party cannot be enforced
  unless that party was given proper notice of the
  dishonor.

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Stopping Payment

• A depositor may stop payment on a check.
• The depositor is still liable to a holder in due
  course unless the stop payment was for a reason
  that may be raised against a holder in due
  course.
• The stop payment order may be oral (binding for
  14 calendar days) or written (effective for six
  months).

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Bank as Agent

• The depository bank is the agent of the depositor
  for the purpose of collecting a deposited item.
• The bank does not become the owner of the item
  being deposited.
• The bank does become a holder of the item if it
  gave cash (value) to the depositor.
• As agent, a bank is required to exercise ordinary
  care in the handling of items.

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Liability of a Bank

• A bank may be liable when it
• Pays a postdated check too soon IF the drawer
  gave notice of the postdating.
• Pays a check subject to a valid stop payment
  order.
• Pays an item with a forged signature (in most
  cases) or missing indorsement.
• Pays a check which has been altered.
• Collects on an unauthorized check.

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Electronic Funds Transfers

• An electronic funds transfer is a transfer of
  funds that is initiated through an electronic
  terminal, telephone, computer, or magnetic tape.
• The Electronic Fund Transfers Act requires that a
  financial institution furnish consumers with
  specific information containing all the terms and
  conditions of all EFT services.

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Comparison of Drafts