lecture notes ch. 27

lecture notes ch. 27 - Chapter 27 Title:BusLawSeal.eps...

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Chapter 27 Checks and Banking in the Digital Age C HAPTER O UTLINE I. Checks check  is a draft drawn on a bank [UCC 3–104(f)].  If any institution other than a bank, as defined in  UCC 4–105(l), handles a check for payment or collection, the check is not covered by Article 4. A. C ASHIER S C HECK A cashier’s check is a check drawn by a bank on itself; negotiable on issue [UCC 3–104(g)]. B. T ELLER S C HECK A teller’s check is a draft drawn by a bank on another bank, or if drawn on a  nonbank, payable at or through a bank [UCC 3–104(h)]. C. T RAVELER S C HECK A traveler’s check is a check on which a financial institution is both drawer and drawee. The buyer  must sign it twice (buying it and using it) [UCC 3–104(i)]. D. C ERTIFIED C HECK A certified check is a check accepted by the bank on which it is drawn [UCC 3–409(d)]. When a bank  certifies a check, it immediately charges the drawer’s account and transfers those funds to its own  account. This discharges the drawer and prior indorsers [UCC 3–414(c), 3–415(d)]. 127
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128           INSTRUCTOR’S MANUAL TO ACCOMPANY  BUSINESS LAW , ELEVENTH EDITION II. The Bank-Customer Relationship A. C REDITOR -D EBTOR R ELATIONSHIP A creditor-debtor relationship is created between a customer and a bank when, for instance, the  customer deposits cash in a checking account or when final payment is received for checks drawn on  other banks. B. A GENCY R ELATIONSHIP A principal-agent relationship underlies the check collection process. C. C ONTRACTUAL R ELATIONSHIP The rights and duties of a bank and its customer are contractual and depend on the nature of the  transaction. III. Honoring Checks When a drawee bank wrongfully fails to honor a check, it is liable to its customer for damages resulting  from the refusal [UCC 4–402].  But the bank’s duty is not absolute: if the bank properly dishonors a  check for insufficient funds, it has no liability to the customer. A. Overdrafts A bank may dishonor a check that, if it were cashed, would create an overdraft in the customer’s  account, or the bank may charge the customer’s account for the amount of the check (providing that  the customer has agreed in advance) [UCC 4–401(a)].   When a check bounces, the holder can  resubmit it (he or she should, however, notify prior indorsers of the dishonor, or they will be dis- charged). A bank may alternatively agree to honor overdrafts.
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This note was uploaded on 09/05/2011 for the course LAW 3000 taught by Professor Ms.zarac.sette during the Spring '11 term at Hawaii Pacific.

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lecture notes ch. 27 - Chapter 27 Title:BusLawSeal.eps...

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