Payment Systems
L6386, Spring 2006
Prof. Avery Katz

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Course syllabus

(Last updated: 06 March 2006 )

Instructor: Prof. Avery Katz, 638 Jerome Greene Hall (854-0066, My regular conference hours for Spring 2006 are MTW from 3-4 pm, but students enrolled in my classes are generally welcome on a walk-in basis.  To make an appointment at other times, just call or e-mail me.  If you need to contact my faculty assistant, he is Joseph McGrath, 500/10 Jerome Greene Hall (854-3268,

Class meets: Mondays and Wednesdays, 1:20– 2:35 pm, 417 William & June Warren Hall.  Please check the official CLS curriculum guide for the most up-to-date information regarding any scheduling changes.

Course description:   This course studies legal problems arising out of commercial and consumer payments systems. It begins by examining the transactional role of money, and then considers in sequence a variety of money substitutes including checks, credit cards, and debit cards. It then turns its attention to payment systems that are used primarily in commercial transactions, including letters of credit and wire transfers. Throughout our discussions, we will consider how modern technological developments have altered the risks associated with payment systems and have created new legal problems to be solved. Specific topics will include negotiability, fraudulent and unauthorized payments, finality of payment, funds availability and float, transactional privacy, relations between banks and their customers, relations among banks in the payments process, and the ongoing transition from paper-based to electronic payment systems.

The course builds upon basic contract and property principles to introduce students to important commercial concepts such as negotiability and good-faith purchase and to how those concepts operate in a wide variety of settings. Additionally, since the transactions examined in this course are largely governed by statute (namely, the Uniform Commercial Code and various federal laws together with associated administrative regulations), the course should also be of interest to students who want to develop their skills in statutory analysis.

Requirements and format: The class format will combine lecture and discussion. Students are expected to prepare for and to participate in class discussion on a regular basis. Grades will be based primarily on a proctored final examination, and secondarily on two in-class quizzes, scheduled for Wednesday, February 22 and Wednesday, April 12.  Both the quizzes and the final will be open-book, though they will differ in format. The quizzes will consist solely of true-false questions and are designed to test students on basic statutory mechanics; they will together receive one-third weight in calculating overall course grades. The final exam will be in essay format and will focus on broader concepts and skills, and will receive two-thirds weight in calculating course grades. In addition, students who make significant positive contributions to class discussion over the semester may have their grades raised by one point (e.g., from B+ to A-); and those whose participation has been delinquent may have their grades lowered.

The course presumes that students have successfully completed the foundation courses in contracts and property. Graduate students who have not taken contracts or property or their equivalent are permitted to register, but are encouraged to consult with me in advance.

Option for writing credit: Students interested in applying for writing credit should consult my guidelines for supervised research at the outset of the course, and should submit a brief application describing their proposed project. Projects may be completed concurrently with the course, or in subsequent semesters.

Readings: Warren and Walt, Payments and Credits, 6th ed. (Foundation Press: 2004), and Baird, Eisenberg and Jackson's Commercial And Debtor-Creditor Law: Selected Statutes, 2005 ed. (West: 2005). There is also a short supplementary coursepack, available in hard copy from University Printing Services, Room 401 International Affairs, and also available onlineIn addition, students who desire additional background reading are encouraged to consult James J. White and Robert Summers, Uniform Commercial Code (West: 5th stud. ed. 1999), John Dolan, Commercial Law: Essential Terms and Transactions (Aspen: 2d ed. 1997), or Fred H. Miller and Alvin Harrell, The Law of Modern Payment Systems (West, 2003), all of which will be placed on course reserve at the law library.

A tentative schedule of reading assignments for the first part of the course is attached. These assignments may be modified as the semester goes along.

First assignment:  For the first class meeting on Monday, January 9, please read pages 1-13 of the supplementary coursepack and be prepared to discuss the first case, O’Connor v. Clark. The excerpted material from Gillette, Scott and Schwartz is important, but much of it can be read as general background at this stage.

For Wednesday, January 11, please read pages 13-38 of the supplementary coursepack. For class discussion, you should focus on Miller v. Race (p. 13) and Nemser v. New York City Transit Authority (p. 34).  The factual setting of Miller may seem somewhat obscure to you; the factual setting of Nemser should not.  In considering Miller, accordingly, you may find it helpful to compare its business context to the fact pattern in O'Connor v. Clark.

Reading assignments

Here is a tentative schedule of reading assignments for the term. Please note that the assignments may be modified. Weekly updates will be posted on the announcement page of the website; specific assignments for each class will be announced in the preceding class.

Page numbers refer to the casebook, Warren and Walt's Payments and Credits, 6th edition; numbers preceded by "S" refer to the supplementary coursepack.  Relevant sections of the UCC and other statutes and regulations can be found in the statutory supplement; whenever a statutory section or regulation is referenced in the casebook or coursepack, you will need to look up the relevant text in the supplement and read it with care. 

Monday, 1/09 Class #1 Introduction to payments. S 1-13.
Wednesday, 1/11 Class #2 The law governing currency. S 13-38.
Monday, 1/16
Martin Luther King, Jr. Day –– No class meeting
Wednesday, 1/20 Class #3 The law governing currency, II. S 38-74.
Monday, 1/23 Class #4 Introduction to negotiable instruments. 1–14.
Wednesday, 1/27 Class #5 Basic concepts of negotiability. 14-23.
Monday, 1/30 Class #6 The holder in due course. 23–45.
Wednesday, 2/01 Class #7 The holder in due course, II. 45–73.
Monday, 2/06 Class #8 Liability of parties to negotiable instruments. 81–88.
Wednesday, 2/08 Class #9 Cashier's checks; rights on lost instruments. 88–104.
Monday, 2/13 Class #10 Liability of guarantors and agents. 104–122, S 75-81.
Wednesday, 2/15 Class #11 Check collection, I: the traditional system. 123–150.
Monday, 2/20 Class #12 Check collection, II: federal regulation. 150-163
Wednesday, 2/22
Midterm quiz #1
Monday, 2/27 Class #13 The transition from a paper-based to an electronic checking system. 163-172, S 82-93.
Wednesday, 3/01 Class #14 Credit and debit cards. 172-193.
Monday, 3/06 Class #15 Credit and debit cards, II. S 94-114.
Wednesday, 3/08 Class #16 Automated clearinghouse transactions. S 115-140.
Monday, 3/13
Spring break: no class meeting
Wednesday, 3/15
Monday, 3/20 Class #17 Wholesale electronic funds transfers. 194-214.
Wednesday, 3/22 Class #18 Wholesale electronic funds transfers, II. 214-226.
Monday, 3/27 Class #19 Fraud and forgery. 234–260.
Wednesday, 3/29 Class #20 Fraud and forgery, II. 260–287.
Monday, 4/03 Class #21 Altered and restricted instruments. 287–299.
Wednesday, 4/05 Class #22 The bank-customer relationship. 300-319.
Monday, 4/10 Class #23 The bank-customer-relationship, continued. 319–344.
Wednesday, 4/12
Midterm quiz #2
Monday, 4/17 Class #24 New payment devices: stored value cards. S 141-171.
Wednesday, 4/19 Class #25 New payment devices: electronic bill presentment and person-to-person systems. S 172- 202.
Monday, 4/24 Class #26 New payment devices: the future of payments. S 203-210.