commercial paper flashcards based on lecture outline.
3 types of commercial paper
1. Notes, 2. Drafts 3. Certificate of deposit.** (CD)
**Note on CD: it is an acknowledgement by a nank that a sum of money has been received, and a promise by the bank to repay the sum of money.
2 parties to a note:
1. Maker, 2. Payee
the person who signs or is identified in a note as the person undertaking to pay.
the person to whom the note is payable.
Parties to a draft:
1. Drawer, 2. Drawee: 3. Payee
the person who signs or is identified in a draft as the person ordering payment.
the person ordered in a draft to make payment. (often times a bank)
Payee: (in the context of a draft)
the person to whom the draft is payable.
when the drawee is a bank, and it is payable on demand, the draft is a check.
The initial "giving" of an instrument.
9 requirements of a negotiable instrument:
1. Writing, 2. Signed by Maker or Drawer, 3. unconditional, 4. Promise to Pay or Order to Pay, 5. Fixed Amount, 6. In Money, 7. No other Undertaking or Instruction, 8. On Demand or at a Definite Time, 9. To Order or to Bearer
Negotiable Instrument: Writing Requirement:
there is no such thing as an oral negotiable instrument. It must be something tangible. (e.g. nearly anything will do, paper, t-shirt, cow, a pepper...)
Negotiable Instrument: Signed by Maker or Drawer:
"signed" means "any symbol executed or adopted by a party with a present intention to authenticate a writing." may be printed, stamped, written, may be initials or thumbprint, may be a trade name or assumed name, may appear in the body of the instrument.
Negotiable Instrument: Key to signature requirement:
whether the party intended for that symbol to operate as her signature.
Negotiable Instrument: Unconditional:
Conditional Promises are O.K. under contract law, but destroy negotiability.
Negotiable Instrument: May an instrument be negotiable if it refers to another agreement:
Yes, a promise to pay "in accordance with another specific document" is permissible.
Negotiable Instrument: promise to pay "subject to" a contract: (negotiable or not)
NOT negotiable. The negotiability of an instrument must be clear on the face of the instrument itself.
A promise to pay is not deemed conditional merely because it:
1. Refers to another writing for a statement of rights regarding collateral, prepayment, or acceleration; 2. Limits payment to a particular source or fund; Requires as a condition to payment a countersignature by a person whose specimen signature appears on the promise or order. (e.g. traveler's checks)
Negotiable Instrument MUST BE A: Promise to Pay or Order to Pay:
an IOU is not negotiable - it is not a promise to pay, but just a recognition of indebtedness; "I wish you would pay" is not an order to pay - thus not negotiable.
Negotiable Instrument: A Fixed Amount:
the holder must be able to determine from the instrument itself the principal amount due.
This only applies to the principal, if the interest requires other calculations, it will still be negotiable.
Negotiable Instrument: Variable interest on an instrument, still negotiable?
Instruments referring to interest but not stating the rate of interest, still negotiable?
Yes, the judgment rate of interest will be applied.
Negotiable Instrument: In Money:
A promise to pay 100 bales of cotton is a non-negotiable promise.
An instrument promising to pay in foreign currency is negotiable.
Negotiable Instrument: No other Undertaking or Instruction:
a negotiable instrument must be a "courier without luggage"
it must not be burdened with anything other than a simple, clean unconditional promise or order.
Negotiable Instrument: Under UCC some extra undertakings or instructions ARE permitted:
1. an undertaking or power to give, maintain, or protect collateral to secure payment; 2. an authorization or power to the holder to confess judgment or realize on or dispose of collateral; 3. a waiver of the benefit of any law intended for the advantage or protection of the obligor. 4. also permitted to promise to pay costs of collection and attorneys' fees.
NOTE: common thread is that each of these strengthens the promise to pay, but has no independent value of its own.
Negotiable Instrument: On Demand or at a Definite Time:
a holder of an instrument must be able to tell when it comes due or the instrument is non-negotiable.
Instrument need not be dated, if date is lacking it is treated as payable on demand.
Negotiable Instrument: Post dated check - negotiable? Note containing an acceleration clause - negotiable? Note containing an extension clause - negotiable? Events certain to happen, but uncertain as to time - negotiable?
post dated - negotiable,
acceleration clause - negotiable,
extension clause - DEPENDS - so long as the extension is to a further definite time stated in the instrument. (e.g. may be extended by one month = definite; e.g. may be extended at option of maker = not definite & not negotiable)
events certain to happen, uncertain in time = NOT NEGOTIABLE.
Negotiable Instrument: To Order or to Bearer:
a negotiable instrument must contain certain "magic words" either ORDER language or BEARER language. without this language the instrument is not negotiable, and not governed by Art. III.
*exception = a check need not contain words of negotiability.
Negotiable Instrument: "I promise to pay xyz..." - Negotiable? "I promise to pay TO THE ORDER OF xyz" - negotiable? "I promise to pay bearer" - negotiable? "pay to the order of cash" - negotiable? Pay to the order of a bowl of soup
simple promise to pay = not negotiable,
promise to pay "to the order of" = negotiable (order paper)
promise to pay "bearer" = negotiable (bearer paper)
pay to the order of cash = negotiable (bearer paper)
An instrument is bearer paper when it otherwise indicates it is not payable to a definite person, but still containing the necessary language becomes bearer paper.
Negotiability by Declaration:
A writing cannot be made a negotiable instrument by contract or conduct of the parties.
A declaration on a negotiable instrument form can make it non-negotiable if expressly declared. However writing "not negotiable" on a check cannot destroy it's negotiability.
Assignment v. Negotiation
Assignment - a payee who has been issued a negotiable instrument can assign it to a third party. That 3rd party is an assignee, and has no greater rights than the assignor on the instrument.
Negotiation - if the payee negotiates the instrument to a third party, then that third party is not an assignee, but a HOLDER. If the holder gives value, in good faith, with no notice, then the holder is a holder in due course, and takes free of most defenses that could have been raised against the payee.
Customary method of transferring an instrument:
Negotiating Order Paper:
Transfer of Possession & indorsement by the holder.
Transfer of Possession:
may be voluntary or involuntary.
Kinds of indorsement:
Special indorsement, Blank indorsement
Specifies the person to whom the instrument is payable,
Does not specify the person to whom the instrument is payable; generally consists of a mere signature.
Negotiating Bearer Paper:
transfer of Possession alone negotiates bearer paper.
Note on forgery:
when order paper contains a forged indorsement, none of the parties from the forger on are holders--none have good title--none are entitled to the money.
They are considered to have converted the check.
The drawee cannot properly pay them, because he can only pay a holder - someone with good title to thecheck.
Order Paper - Special bank rules:
ordinarily transfer and indorsement make the transferee a holder. But a depositary bank that takes an unindorsed instrument for collection becomes a holder of the instrument if the customer was a holder at the time of delivery, even if the customer has not indorsed the instrument.
Holder in Due Course - Elements:
1. a holder, 2. who gives value, 3. in good faith, 4. without notice.
a holder is in possession of bearer paper or in possession of order paper that has been issued or properly indorsed to him.
HDC: "gives value"
look for executed consideration.
a party is a HDC to the extent taht the agreed consideration has been performed.
a promise to give value is not enough.
HDC: "gives value" partial performance
if partial performance is given, then the holder is a HDC only to the extent of the consideration performed.
e.g. holder pays Payee $9K now and promises to pay another $9K later, the holder is a HDC only to the extent of $9K or 50% of the agreed consideration.
HDC: "gives value" - Bank Deposits
a bank does not become a holder "for value" simply by crediting a depositor's account. The bank does not need HDC protection because it can take back the credit if the check is dishonored. BUT if, the depositor is permitted to draw against a deposited item, the bank immediately becomes a HDC to the extent of the withdrawal. When several transactions are involved, the bank's HDC status is determined using a first in, first out rule.
HDC: "good faith" requirement
means honesty in fact and the observance of reasonable commercial standards of fair dealing.
HDC: "good faith" Honesty in fact:
subjective - e.g. white heart, empty head.
HDC: "good faith" fair dealing component:
objective component - concerned with the fairness of conduct.
A business person engaged in a commercial transaction, to be a HDC, must show that his actions meet the generally accepted standards current in his business, trade, or profession.
HDC: No Notice:
An HDC must take the instrument without notice (meaning actual knowledge or reason to know) that:
1. the instrument is so irregular or incomplete as to call into question its authenticity; 2. the instrument is overdue or has been dishonored; 3. the instrument contains an unauthorized signature or has been altered; 4. there is a claim to the instrument; 5. any party has a defense or claim in recoupment on the instrument.
HDC: No Notice - "close-connectedness doctrine"
the more that the holder knows about the underlying transaction, and particularity when it controls or becomes involved in it, the less likely it is a good faith purchaser without notice.
Transactions Precluding HDC Status:
A holder does not become a HDC of an instrument taken by: 1. legal process or by purchase in an execution, bankruptcy or creditor's sale or similar proceeding, 2. purchase as part of a bulk transaction not in the ordinary course of business of the transferor, or 3. as the successor in interest to an estate or other organization.
A party who fails to qualify as a HDC, but takes from someone who is a HDC is considered to take shelter under the HDC.
NOTE: courts will apply the shelter rule even if a sheltered holder is aware of fraud, but NOT if they participated in the fraud.
HDC & FTC RULE:
provides that every CONSUMER CREDIT CONTRACT cannot be subject to the HDC doctrine.
When consumer goods or services are involved - a party cannot become a HDC.
a HDC takes free of personal defenses and claims, but takes subject to real defenses which are:
1. infancy - tho the extent that it is a defense to a simple contract 2. such other incapacity, or duress, or illegality of the transaction, as renders the obligation of the party a nullity 3. such misrepresentation as has induced the party to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms. 4. discharge in insolvency proceedings, 5. any other discharge of which the holder has notice when he takes the instrument.
Fraud in the inducement: Fraud in the factum:
Fraud in the inducement = a personal defense the person is aware of the character and essential terms, but induced to sign by deception as to some other manner.
Fraud in the factum = a real defense the person doesn't understand the terms or character of the document and must be able to show excusable ignorance.
Payee as HDC:
the payee of an instrument can be a HDC so long as she meets the usual requirements. However, where the issuer and the payee are the only parties, the HDC doctrine is irrelevant.
Nature of Liability: Underlying Obligation:
once an instrument is offered and accepted in satisfaction of an underlying obligation, the obligation merges with the instrument, and the underlying obligation is suspended.
NOTE: this means there can be only one recovery.
Maker's Contract Liability: Generally:
the maker is obligated to pay the instrument according to its terms at the time it was issued.
Maker's Contract Liability: More than one Maker:
If there is more than one maker = they are jointly and severally liable.
Indorser's Contract Liability:
indorsers are obligated to pay according to the terms of the instrument at the time of indorsement.
NOTE: Those signing later in time can get complete reimbursement from those signing prior in time.
EVEN a HDC can incur this sort of liability.
When one indorsement is made by a non-holder, both indorsers are jointly and severally liable.
Instruments payable to joint payees:
if an instrument is payable to joint payees and both indorse, they are jointly and severally liable.
Indorsers' Secondary Liability:
Indorsers are only liable after the instrument has been presented to and dishonored by the maker or drawee.
Indorsers' liability (when due)
Presentment is due within a reasonable time after such party becomes liable thereon. A reasonable time is determined by the nature of the instrument, any usage of banking or trade and the facts of the particular case.
Indorser Liability - when due on checks
an indorser is discharged unless the check is presented for payment or given to a depositary bank for collection within 30 days after the day of the indorsement was made.
Notice of Dishonor by Bank on check:
Must be given by a bank before the midnight deadline.
Midnight of the next banking day following the banking day on which the bank received notice.
Notice of Dishonor by non-bank on check:
within 30 days following the day on which she received notice.
Notice of Dishonor by non-bank on other instrument:
notice of dishonor must be given within 30 days following the day on which dishonor occurs.
Indorser excused from contractual Liability if:
notice of dishonor or presentment are: not made or delayed beyond the time when due.
payee indorses check "without recourse" and negotiates it; If the check is dishonored and appropriate notice is given, the Payee is not liable as an indorser.
Drawer's contract liability:
the drawer is obligated to pay the draft according to its terms when the drawer signed the instrument.
Drawer is also 'secondarily' liable.
check must be presented to the drawee for payment, or given to a depositary bank for collection within 30 days after the date of the instrument.
Drawer excused from contractual liability:
Only if the drawee bank has become insolvent during the delay and there is no insurance to cover the loss.
one who signs the instrument in any capacity for the purpose of lending his name to another party to it.
The accommodation party is liable in the capacity in which he signed.
Accommodation Parties: When primary-signor cannot pay:
accommodation party is liable as a maker.
Accommodation Parties: Reimbursement from primary-signor:
Accommodation parties can get complete reimbursement from the signors.
Accommodation Parties: Reimbursement by primary-signor:
If the signing party is sued and pays, he cannot seek contribution from the accommodation party.
Accommodation Parties: Extensions granted to primary-signor:
if an extension to pay is granted to the primary-signor without the knowledge or consent of the accommodation party; it DISCHARGES the accommodation party to the extent it can prove the extension caused him some loss.
Accommodation Parties: lender permits primary-signor to sell off collateral:
Similar to extensions, if the collateral is sold off without the knowledge or consent of the accommodation party, they will be discharged to the extent they can prove the extension caused them some loss.
Accommodation Parties: Defenses:
co-signors may raise any defenses that are available to the primary-signors EXCEPT: insolvency, infancy, lack of legal capacity (because the co-signor signed to cure one or more of these defects initially)
Accommodation Parties: "Collection guaranteed"
means that the co-signer agrees she will be liable on the instrument only if: 1. execution of judgment against the other party has been returned unsatisfied, 2. the other party is insolvent or in insolvency proceedings, 3. the other party cannot be served with process, 4. it is otherwise apparent that payment cannot be obtained from the other party (essentially these delay the right to go against a co-signer) e
Signature by Agent: Generally:
If an agent signs a note indicating she is doing so as an agent, and has the authority to do so, the corporation is liable, and the agent is not personally liable.
Signature by Agent: Ambiguities & Parol evidence:
if there are ambiguities as to whether the agent is signing in a representative capacity or personally, the agent may bring in PAROL evidence.
EXCEPT: as against a HDC, who takes without notice.
"Properly Payable" rule:
the bank may pay out the customer's money only if it follows the customer's orders exactly. If it does not do so, it must re-credit the account.
Forged Drawer's Signature:
a forged drawer's signature on a draft is not properly because the customer never ordered his bank to pay anyone.
RECALL: "an unauthorized signature operates as a signature of the unauthorized signer"
Stolen checks indorsed in blank:
bank may pay the holder, even if stolen, because it is bearer paper.
Checks issued to parties jointly: "to H and W"
must be indorsed by both parties, or they are not properly payable.
Checks issued to parties alternatively: "to H or W"
may be indorsed by either party to be properly payable. even if one party signs and forges the other's indorsement, it is payable, unnecessary fraud will not destroy "properly payable status"
Material Alterations: check amounts changed:
If a check is altered so that the amount is different from the intended amount, the bank must re-credit the amount it overpaid.
Material Alterations: "blank check"
blank checks given to and filled in by the holder/payee are payable in whatever amount they fill in. Bank may properly pay whatever amount is filled in.
Stale Checks: obligation to pay: overdraft:
a check is stale after 6 months. Banks are not obligated to pay stale checks, but may do so as long as it is in good faith. Banks are not obligated to pay checks if doing so would create an overdraft, but may pay them if they choose to do so.
A bank is liable to its customer for damages caused by the wrongful dishonor of an item.
Liability is limited to actual damages proved and may include damages for arrest or prosecution or other consequential damages.
Customer death or incompetence:
Banks continue to have the authority to pay checks until they become aware of the customer's death or adjudication of incompetence and have a reasonable opportunity to act on it.
Banks may continue to pay checks for 10 days after the date of death unless a person claiming an interest on the account orders payment be stopped.
Customer's right to stop payment:
The stop payment order must describe the item "with reasonable certainty" (such that a reasonably prudent banker with that information should be able to find the check.
Stop payment order must be received at a TIME and in a MANNER that affords the bank a reasonable opportunity to act on it.
Stop Payment Order: effective times:
stop payment order is effective for 6 months.
But stop payment orders lapse after 14 calendar days if the original order was oral and was not confirmed in writing within the 14 days.
Stop Payment Order: Bank liability:
banks may not contract out of liability for negligently failing to honor valid stop payment orders.
Stop Payment Order: Burden of Proof:
The burden of proof in establishing the fact and amount of loss resulting from the payment over a valid stop payment order is on the customer.
Forgery Limits to recovery: General Rule:
payment to a HDC or to one who in good faith changed her position in reliance on the payment is final.
Forgery Limits to recovery: Exceptions:
the payor can recover from the party paid if: 1. that party neither took value nor in good faith, nor detrimentally relied on the payment, OR 2. the party breached a transfer or presentment warranty.
the party obtaining payment and previous transferors warrant that: 1. they are entitled to enforce the instrument, and 2. the instrument is not altered, and 3. they have no knowledge that the drawer's signature is unauthorized. NOTE: a drawee can recover for breach of presentment warranties, even from a HDC or one who detrimentally relied on payment.
Each party that transfers an instrument and receives consideration warrants that: 1. they are entitled to enforce the instrument, 2. that all signatures on the instrument are authentic and authorized, and 3. the instrument has not been altered, and 4. that no defense or claim of any party is good against the warrantor, and 5. that the warrantor has no knowledge of any insolvency proceeding that has been instituted against the maker, acceptor, or drawer.
Presentment Warranties, Transfer Warranties, and Drawee Banks:
the Drawee bank does not receive transfer warranties because the instrument is presented to it for payment, not transferred to it. THUS: Drawee Banks may only recover for breach of presentment warranties.
"for deposit only"
Any party not a bank who disregards that restriction may be sued by the payee.
RULE OF PRICE v. NEIL:
When a forger forges the drawer's name and the Drawee bank pays, the Drawee bank must re-credit the account because the check was not properly payable.
The bank in turn likely cannot go after anyone because it has an instrument with good title, but only against the forger/thief, who likely cannot be tracked down.
ratification occurs when a party, with full knowledge of the forgery accepts the benefits thereof or actively assents to the wrongful activity.
where a maker or drawer has been duped by an imposter to issue an instrument, the maker/drawer should suffer the loss because they had the best chance to discover the imposter.
Ficticious Payee Rule:
If the drawer, maker, or other person whose intent determines to whom an instrument is payable does not intend for the person identified to have any interest in the instrument, or if the person identified in the instrument as the payee is fictitious, then an indorsement in the name of the payee is effective.
e.g. the corporation pays because it bears the loss because it was in the best position to avoid hiring a crook.
Fraudulent Indorsements by Employees:
If an employer entrusts an employee with respect to an instrument and the employee makes a fraudulent indorsement on the instrument, the instrument is effective.
Fraudulent Indorsements by Employees: "Responsibility with respect to an instrument" means:
Authority: 1. to sign or indorse instruments on behalf of the employer; 2. to process instruments received by the employer for bookkeeping purposes, for deposit to an account, or for other disposition; 3. to prepare or process instruments ofr issue in the name of hte employer; 4. to supply information determining the names or addresses of payees of instruments to be issued by the employer; and 5. to control the dispositions of instruments issued in the name of the employer.
Forgery - Instruments made payable to employer: Fraudulent indorsement of employer's name by employee:
Such an indorsement is effective if made by A PERSON WITH RESPONSIBILITY.
The employer bears the loss as it hired the employee.
NOTE: if stolen by a party without responsibility in such matters, the indorsement will not be effective.
Forgery - Instruments issued by employer: Fraudulent indorsement of payee's name made by employer:
If an employee with responsibility for dealing w/ commercial paper steals and forges instruments intended for other payees, those indorsements are effective.
Forgery: Negligence Rule:
if a person, by his negligence, substantially contributes to a material alteration or to the making of an unauthorized signature, he is precluded from asserting the alteration or lack of authority against a HDC or the drawee or other payor who pays in good faith and in accordance with the reasonable commercial standards of the drawee's or payor's business.
Forgery: Comparative Negligence:
If the drawee bank fails to exercise ordinary care, the person bearing the loss may recover from the drawee bank or other person failing to exercise ordinary care to the extent the failure to exercise ordinary care contributed to the loss.
Forgery: Bank Statement Rule:
A customer must exercise reasonable promptness in examining the statement or the items to discover unauthorized payments due to alterations or unauthorized signatures.
The customer must promptly notify the bank of such unauthorized payment.
If the customer fails to make such notice, and the bank can show that it suffered a loss by reason of this failure, the bank need not re-credit the customer's account. If the statement has been available to the customer for a reasonable period and she does not complain about an unauthorized signature or alteration, she is estopped from demanding re-credit on any forged or altered items by the same wrongdoer which were paid by the bank. !!!SEE POTTS ABOUT 30 DAY QUESTION)
Forgery: Bank Statement Rule: Shared liability:
if the bank itself fails to exercise ordinary care in paying a check, the loss is allocated between the bank and the customer according to the extent that each contributed to the loss.
Forgery 1 year & 3 year rules:
Despite who was negligent, a customer is precluded from asserting unauthorized signature or alteration on the face of the instrument if he does not notify the bank within 1 year after the statement or items are made available to the customer.
The customer is precluded from asserting a forged indorsement more than 3 years after the cause of action accrues.
Material Alteration: Altered Note:
A holder who fraudulently alters an instrument discharges the parties as against the holder.
Material Alteration: Altered Note which has been transferred:
the Maker will be liable to an innocent holder for the original amount; the holder may pursue the forger for the remaining forged amount. (transfer warranty theory)
Material Alteration: Altered Check:
If a payee (or later holder) alters a check and cashes it, the drawee bank must recredit the Drawer's account for the difference between the original and forged amounts.
Material Alteration: Altered Check, Recovery by Drawee's bank:
Drawee bank may recover under warranty theory from the payee's bank.
SOL 3 Years for:
Actions on ordinary checks or unaccepted drafts an action must be brought within 3 years after the date of dishonor or within 10 years after the date of the draft, whichever expires first.
Actions against the: Acceptor of certified checks, or Issuer of tellers, cashier's or traveler's checks after demand for payment is made to the acceptor or the issuer. Action for conversion of an instrument, breach of warranty or to enforce other obligations or rights must be be brought withing 3 years.
SOL 6 years:
for note payable at a definite time, an action must be brought within 6 years of the date stated in the note. if due date is accelerated, within 6 years of accelerated date. Action on demand note = w/in 6 years of demand.
If no demand for payment is made to the maker, and action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of 10 years.
FUNDS AVAILABILITY: Government checks, cashier's checks, certified checks, teller's checks:
bank must make the entire amount of funds available on the first business day after the banking day on which the funds are deposited.
FUNDS AVAILABILITY: Local Checks:
Checks drawn on banks located in the same geographic area served by the Federal Reserve check processing center.
FUNDS AVAILABILITY: Local Checks,Cash withdrawals:
1. $100 on the first business day after the date of deposit, 2. Additional $400 on the second business day after the date of deposit, 3. Remaining funds on the third business day after the date of deposit.
FUNDS AVAILABILITY: Local Checks, Noncash withdrawals:
1. $100 on the first business day after the date of deposit 2. Remaining funds on the second business day after the date of deposit.
1. 100 on the first business day after the date of deposit, 2. Additional 400 on the fifth business day after the date of deposit, 3. Remaining funds on the sixth business day after the date of deposit.
1. 100 on the first business day after the date of deposit, 2. Remaining funds on the fifth business day after the date of deposit.
Art. 4A Terms: Payment Order:
An instruction to a bank to pay, or to cause another bank to pay, a fixed or determinable amount of money.
Art. 4A Terms: Sender:
the person giving the instruction to the receiving bank.
Art. 4A Terms: Originator:
the sender of the first payment order in a funds transfer
Art. 4A Terms: Receiving Bank:
the bank to which the sender's instruction is addressed.
Art. 4A Terms: Beneficiary's Bank:
The bank identified in a payment order in which the account of the beneficiary is to be credited or which otherwise is to make payment to the beneficiary.
Art. 4A Terms: Beneficiary:
the person to be paid by the beneficiary's bank.
Art. 4A Terms: Intermediary bank:
A receiving bank other than the originator's bank or the beneficiary bank.
Art. 4A Acceptance:
a receiving bank is not required to accept a payment order.
Art. 4A Rejection:
A receiving bank can reject a payment order by giving notice to the sender that the receiving bank will not accept. No particular words are necessary.
Art. 4A Acceptance by bank other than beneficiary's Bank:
a payment order is accepted when the receiving bank "executes" the order.
(when the receiving bank passes on the order that it received to the next receiving bank)
Art. 4A Acceptance by beneficiary's bank:
a beneficiary bank accepts by: 1. paying the beneficiary in cash, OR 2. notifying the beneficiary that the money is available, OR 3. Receiving full payment of the funds from the sender of the payment order, OR 4. Failing to reject the payment order within an hour of its funds-transfer business day that follows the payment order date.
Art. 4A Payment to wrong beneficiary: Erroneous payment orders:
if an error is made during the transmission of a payment order, the entity that made the mistake bears the loss.
Art. 4A Payment to wrong beneficiary: Improper description of beneficiary:
A fund transfer can describe the beneficiary by both name and account number.
Banks may ignore the name and rely solely on the account number.
If the beneficiary's account number is wrong, the beneficiary's bank is not liable if it puts the money into the identified account, and generally the person who made the mistake bears the loss.
Art. 4A Fraud: Security procedure not followed:
If a loss results from a party's failure to follow a security procedure, that party must bear the loss.
Art. 4A Fraud: Fraud in spite of Security Procedure:
if despite adherence to established procedures, fraud occurs, the customer is liable if the criminal gained access through the customer's system, and the bank is liable if the criminal gained access through the bank.