A. Payor-Bank Truncation
Figure 6.1 - MICR Line
B. Depositary-Bank Truncation and the Check 21 Act
Figure 6.2 - Check Processing Under Check 21
Figure 6.3 - Substitute Check
Problem Set 6
Figure 6.1
MICR Line
Figure 6.2
Check Processing Under Check 21
Figure 6.3
Substitute Check
Problem Set 6
6.1. One Friday afternoon your client Bertie Wooster comes to see you. He tells you that he has a dispute with Roderick Spode regarding an antique silver cow creamer that Bertie recently purchased for $18,000. Bertie explains that he bought the item based on an Internet ad and mailed Spode a check as soon as he received the creamer. Spode has been hounding Bertie, claiming that Bertie has never paid for the item.
Bertie is certain that he did, both because he remembers mailing the check, and, more importantly, because he received an image of the original check wth his statement this month. (Berties receives "image statements" that have a photocopy of the front of six checks on each page.) The image shows a signature on the back that appears to be the grandiose signature of Roderick Spode (with which Bertie is familiar). Bertie faxed the image to Spode, who claims that it is a forgery, that he never received the check, and that he will sue Bertie immediately if Bertie does not pay. "If you really paid, then you should be able to show me an original cancelled check," Spode says. At his wit's end, Bertie is worried that a suit against Spode would harm his reputation in the antiques industry, making it hard for him to acquire future items. But he can't believe he should have to pay twice. What do you advise?
6.2. If the facts of Problem 6.1 eventually lead to a point where Bertie needs the original check, must his bank provide it to him? What if it is willing to provide the original check but will charge $10 to do so? UCC §§ 4-406(b) and comments 1 and 3.
6.3. Same facts as in Problem 6.2, but now assume that the image was a substitute check that complied with Check 21.
(a) Does that impose any new obligations on his bank? Check 21§7.
(b) What if Bertie claims that pen-impression data (expert evidence about the way in which the pen was pressed onto the paper) could have proven that Spode in fact signed the check, and that he cannot obtain that evidence because the substitute check does not include that data and the original has been destroyed? Check 21 §6.
6.4. The next morning your old friend Carl Eben comes to see you. He has just discovered that a thief has been stealing money from him for several months. The thief has been stealing from Carl's mailbox on a regular basis and managed to steal an incoming package with some blank checks as well as severl outgoing envelopes with payments to Carl's suppliers. The thief then wrote several checks payable to himself, which he cashed. Carl discovered the problem when a number of suppliers complained about his late payments.
When you asked Carl why he did not notice this on his bank statement, he admitted that he has been very busy lately and has simply failed to reconcile his bank statement for the last six months. Carl's bank admits that ordinarily Carl would not be responsible for any of the checks cashed by the thief. (Carl says that the officer said something about the checks not being "properly payable" under UCC §4-401.) The bank has, however, told Carl that Carl is liable for all the unauthorized checks because of his failure to notify the bank about the problems when they sent him statements showing the charges for the forged checks. Carl has brough the statements with him. They are summary statements that only show the item number, amount, and date of payment. Is the bank right? UCC §4-406(a), (c), (d), and comment 1.
6.5. Thursday morning you come into the office to find your old friend from college Mike McLaughlin waiting for you. Mike operates a computer services business. He wants to talk to you about a check for $20,000 that he recently received from one of his customers in paymnent of an invoice. When he deposited the check, it bounced. His bank did not, however, return the original check to him. Instead, it returned the image. He wants to know if this will hinder him in trying to collect the funds from the customer. (You should assume for purposes of the question that Mike would have been a person entitled to enforce the check if the check had been returned to him. The issue on which you should focus is whether he will be hindered by having an image of the check instead of the original.)
- What if the image is a simple photocopy? UCC §§1-201(20), 3-104(f), 3-301, 3-309, 3-310(b)(1), and 3-414(b).
- What if the image is a substitute check that complies with Check 21? Check 21 §4(b).
- What if the image is a substitute check that complies with Check 21 except that it omits the legend? In answering that question, assume that the check was reconverted by Mike's bank and that it inadvertently omitted the legend. Check 21 Act §§4(b), 5, and 7; Proposed Regulation CC 12 C.F.R. 229.2(bbb),
6.6. Stacy Vye (a longtime client and banker at Wessex Bank) comes to you for advice. She is about to enter into a major electronic-check presentation agreement with Wells Fargo, in which she agrees to accept electronic images from Wells Fargo in lieu of original checks. Can you think of any particular provisions she might need to include in such an agreement to protect herself from liability under Check 21? Check 21 §§5, 6, and 7.
6.7. A few months later, Stacy calls you back. She has had major difficulties with recredit claims under the statute. Apparently, a small but determined number of people are submitting large numbers of fraudulent claims. When she provides the recredited funds, the people remove it from their accounts. When Stacy is unable to recover the funds from which she received the item she discovers that the customer and the funds are gone. Does Check 21 provide any help for her? Does it protect her adequately? Check 21 §7(d)(2).
Assignment Update
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