Problem Set 2
2.1. One day a friend named Caleb Garth
calls you with question about his checking account. Upon examining one
his checks that the payor bank recently
honored, Caleb noticed that the check was dated last summer (about seven
months ago). Caleb thinks it ridiculous that the bank honored a check so
stale. Can you do anything for Caleb? UCC §§ 4-404 & comment, 1-201(19),
3-103(a)(4), 3-103 comment 4, 4-103 comment 4, 4-104(c).2.2.
Your friend Jodi Kay (from Problem 1.6) has been asked to audit the
bank’s funds availability policies to ensure that they comply with
Regulation CC. She wants to know when that regulation required the bank
to release the funds from the following deposits made into accounts at a
Houston branch of CountryBank. For purposes of this problem, you should
assume that each deposit was made on Monday March 1 and that CountryBank
is open for substantially all of its operations six days a week (every
day except Sundays). Finally, except as noted in the first question, all
of the withdrawals are to be made by check. {Although you need to
understand how the statute justifies your answers, you may wish to refer
to Figure 2.1 and Figure 2.2 to help you get started.}
(a) Carl Eben wishes to withdraw cash against funds deposited
with one of the bank’s tellers in the form of a $10,000 check written by
Archie Moon on Archie’s Seattle bank account. UCC § 4-215(e); Regulation CC, §§
229.2(f), (g), (r), (s), (v) & (w), 229.10(c)(1)(vii), 229.12(c)(1) &
(d), 229.13(b).
(b) Carl Eben deposits a $1,000 cashier’s check with one of
the bank’s tellers. The check was drawn on Rocky Mountain Bank in
Seattle. The check originally was payable to Riverfront Tools, Inc. (to
purchase some machine tools for Archie Moon’s book shop), but was
properly indorsed from that corporation to Carl. Regulation CC, §§
229.10(c)(1)(v) & (c)(1)(vii), 229.12(b)(4) & (c)(1)(ii).
(c) Carl Eben deposits a $1,000 check, payable to himself from
the United States Treasury, at one of CountryBank’s ATMs in Houston. Regulation CC, §§ 229.10(c)(1)(i) & (c)(2), 229.12(b)(2).
(d) Carl Eben deposits a $1,000 check drawn on the State of
Michigan with one of the bank’s tellers. Regulation CC, §§ 229.10(c)(iv) &
(vii), 229.12(b)(4) & (c)(1)(ii).
2.3. Recall the facts of Problem 1.2, in which the bank at which Ben Darrow works (FSB) honored a rent check that Jasmine Ball had written
for $900 even though Ball had provided the bank a valid postdating
notice. The day after those events (Tuesday January 23), another check
drawn on Ball’s account was presented, this one dated January 22, in the
amount of $400, payable to Generic Motors Acceptance Corporation (a
finance company affiliated with Generic Motors). Because the account at
that time contained only $100 (as a result of the bank’s decision to
cash the $900 rent check the day before), FSB’s system automatically
dishonored the check and charged Ball a $25 fee for issuing a check
against insufficient funds. Darrow started to worry about bouncing
Ball’s car payment when he read a notice in the paper this morning
(January 29) that GMAC had repossessed Ball’s brand new GM pickup and
when he arrived at the bank to find a $2,000 cash deposit to Ball’s
account. The funds from that deposit would have been available in time
to cover the postdated rent check that raised the situation discussed in
Problem 1.2. Does FSB have any significant liability? UCC § 4-402(b) &
comment 3.
2.4. Darrow also wants to ask you about another problem he
recently had with the bank’s check-processing system. That software is
designed to decide whether to honor a check by checking the balance in
the account at the close of the banking day on the date that the check
was presented. When Darrow saw a check written by Carol Long one morning
included on a list of checks that were to be bounced because of
insufficient funds in the account at the close of the previous banking
day, he decided to recheck her account. Although he noticed a large cash
deposit the previous day that had become available by the time he made
the determination, he concluded that the software was working properly,
because the funds in the account at the close of business the previous
day were insufficient to cover the check. He wants to confirm with you
that his current practices are satisfactory. Does he have a problem? UCC
§ 4-402(c) & comment 4; Regulation CC, §§ 229.10(a)(1).
2.5. Early this week Jodi Kay called again, asking advice about
her most recent job assignment. Several of the branches discussed in
Problem 1.6 have received checks (often quite large) drawn on nonlocal
banks, which the payor banks eventually have refused to honor. Those
branches have lost a substantial sum of money on those checks in cases
in which the customers withdrew the funds and closed their accounts
before CountryBank learned that the checks would not be honored. Jodi
mentions that a large share of the problems occurred in cases that
involved recently opened accounts or accounts on which overdrafts had
been frequent past occurrences. Jodi wants to know if there is anything
that she can do about that problem. In particular, she wants to extend
to six business days the hold that the bank puts on all nonlocal checks
deposited at the problem banks. What do you recommend? Regulation CC §§
229.13(a), (b), (d) & (e).
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