Ch 27 Business Law Notes - Chapter 27 Checks Banking in the Digital Age Checks are the most common type of NI governed by the UCC Although debit cards

Ch 27 Business Law Notes - Chapter 27 Checks Banking in the...

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Chapter 27 Checks & Banking in the Digital Age Checks are the most common type of NI governed by the UCC. Although debit cards now account for more retail payments than checks, commercial checks remain an integral part of the U.S. economic system. Issues relating to checks are governed by Article 3 and 4 of the UCC. Checks A check is a special type of draft that is drawn on a bank, ordering the bank to pay a fixed amount of money on demand. Article 4 defines a bank as a “person engaged in the business of banking, including a savings bank, saving and load association, credit union or trust company” - If any other nonbank institution (brokerage firm) handles a check for payment or for collection, the check is NOT covered by Article 4. Cashier’s Checks - Checks are usually three-party instruments, but on some checks, the bank serves as BOTH the drawee and drawer. - For example, when a bank draws a check on itself, the check is called a cashier’s check and is a NI on issue. - Normally, a cashier’s check indicates a specific payee. - In effect, with a cashier’s check, the bank assumes responsibility for paying the check, thus making the check more readily acceptable in commerce. - Cashier’s checks are sometimes used in the business community as nearly the equivalent of case. - Except in very limited circumstances, the issuing bank must honor its cashier’s checks when they are presented for payment. - If a bank wrongfully dishonors a cashier’s check, a holder can revocer from the bank all exprenses incurred, interest, and consequential damages. - This same rule applies if a bank wrongfully dishonors a certified check or a teller’s check which is usually drawn by a bank or another bank; when drawn on a nonbank, it is payable at or through a bank. Traverler’s Checks - A traverler’s check is an instrument that is payable on demand, drawn on or payable at a financial institution (bank), and designated as a traveler’s check. - The issuing institution is directly obligated to accept and pay its traveler’s check according to the check’s terms. - Traveler’s checks are designed as a safe substitute for cash when a person is on vacation or traveling and are issued for a fixed amount such as $20, $50, or $100. - The purchaser is required to sign the check at the time it is purchased and again at the time it is used. - Most major banks today DO NOT issue travelers checks; rather, they purchase and issue American Express traveler’s checks for their customers.
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Certified Checks - A certified check is a check that has been accepted by the bank on which it is drawn. - When a drawee bank agrees to certify a check, it immediately charges the drawer’s account with the amount of the check and transfers those funds to its own certified-check account.
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