Chpater 27 Bank Deposits, COllections, and Fund Transfers

depositary bank

the bank in which the payee or holder deposits the check for credit

provisional

tentative credit for the deposit of an instrument until final credit is given

final credit

payment of the instrument by the payor bank; if the payor bank (drawee) does not pay the check, the depositary bank reverses the provisional credit

intermediary banks

a bank, other than the depositary or payor bank, involved in the collection process

clearinghouse

an association of banks for the purpose of settling accounts on a daily basis

collecting bank

any bank (other than the payor bank) handling the item for payment

agent

is an agent or subagent of the owner of the check until the settlement becomes final

Duty of Care

a collecting bank must exercise ordinary care in handling an item

Duty to Act Timely

a collecting bank acts timely if it takes proper action before its midnight deadline (midnight of the next banking day)

midnight deadline

midnight of the next banking day after receiving an item

Indorsements

if an item is restrictively indorsed “for deposit only,” only a bank may be a holder

warranties

customers and collecting banks give warranties on transfer, presentment, and encoding

final payment

occurs when the payor bank does any of the following, whichever happens first: (1) pays an item in cash, (2) settles and does not have the right to revoke the settlement, or (3) makes a provisional settlement and does not properly revoke it

payor (or drawee) bank

under its contract with the drawer, the payor or drawee bank agrees to pay to the payee or order checks that are issued by the drawer, provided the order is not countermanded by a stop payment order and provided there are sufficient funds in the drawer’s account

relationship

the relationship between a payor bank and its checking account customer is primarily the product of their contractual arrangement

Payment of an Item

when a payor receives an item for which the funds in the account are insufficient, the bank may either dishonor the item and return it or pay the item and charge the customer’s account even though an overdraft is created

substitute check

a paper reproduction of the original check that for all purposes is the legal equivalent of an original check

stop payment order

an oral stop payment order (a command for a drawer to a drawee not to pay an instrument) is binding for fourteen calendar days; a written order is effective for six months and may be renewed in writing

Bank’s Right to Subrogation on Improper Payment

if a payor bank pays an item over a stop payment order or otherwise in violation of its contract, the payor bank is subrogated to (obtains) the rights of (1) any holder in due course on the item against the drawer or maker, (2) the payee or any other holder against the drawer or maker, and (3) the drawer or maker against the payee or any other holder

Customer’s Duties

the customer must examine bank statements and items carefully and promptly to discover any unauthorized signatures or alterations

electronic funds transfer

any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account

Electronic Funds Transfer Act

Act provides a basic framework establishing the rights, liabilities, and responsibilities of participants in consumer electronic funds transfers

financial institution

responsibility liable to a consumer for all damage proximately caused by its failure to properly handle an electronic funds transfer transaction

Wholesale Funds Transfers

the movement of funds through the banking system; excludes all transactions governed by the Electronic Funds Transfer Act

payment order

an instruction of a sender to a receiving bank to pay, or to cause another bank to pay, a fixed amount of money to a beneficiary

originator

sender of the first payment order

sender

party who gives an instruction to the receiving bank

receiving bank

bank that receives the sender’s instructions

originator’s bank

either the bank that receives the original payment order or the originator if the originator is a bank

beneficiary’s bank

bank identified in a payment order to credit the beneficiary’s account

beneficiary

person to be paid by the beneficiary bank

intermediary bank

any receiving bank other than an originator’s or beneficiary’s bank