Problem Set 10
10.1. A few weeks ago (in a hypothetical state in which Article 4 applies to wholly electronic checks), your old friend Cliff Janeway calls you, quite flustered. Because his rare-book business requires him to buy so many books from remote suppliers, he recently started using his bank's eCheck product. The first month he got his statement, he saw literally hundreds of checks on his account that he had not written, depleting his entire business account and using several thousand dollars of the overdraft facility that he has with his bank. What should he do? EFTA §§903(5), 903(6), 908, and 909; UCC§4-401.
10.2. One Monday morning you have a meeting with your client Stacey Vye from Wessex Bank. She tells you that her bank (operating in the same hypothetical state as ou considered in the previous problem) recently has become involved in eChecks and that she generally is in charge of all issues arising out of deposited eChecks. The program seems to be quite successful; hundreds of eChecks are being deposited each week. Still, by this point several dozen of those checks have bounced. She explains that her first response is to try to recover the funds from her depositors' accounts. If that does not work, she normally hands bounced cehcks over to collection attorneys. She instructs them to sue either (a) her depositors; (b) the issuers of the checks; or (c) if some other party has indorsed the check, the indorsing party. She is not sure what to do here, where there is nothing to "hand over" to her collection attorneys. What, she asks, do you advise? UCC §§1-201(b)(21), 3-204, 3-301, 3-412, 3-414, 3-415, 4-214(a), (c) and (d), and 9-105.
10.3. Suppose that your bill for Internet service at your home each month is paid by an automatic deduction from your bank account. You agreed to this when you signed up for Internet service with your Internet service provider (ISP), and at that time, you provided to your ISP information about your bank so that the ISP could arrange for the payments.
a. Determine what type of ACH entry (credit entry or debit entry) is most likely to be involved. NACHA Rules §13.1.20.
b. Assuming that you reside in Chicago and that the ISP is located in Washington State (near the Seattle Federal Reserve Bank), identify the most likely parties to the transaction and the roles they would play under applicable NACHA Rules. NACHA Rules §§13.1.30, 13.1.31, 13.1.33, 13.1.43, 13.1.44,13.1.45.
c. Assuming that the next payment is due on Monday April 1, what would you need to do to cancel that payment, and what is the latest date on which you could act to do so in a timely manner? NACHA Rules §§7.4, 13.1.11.
10.4. Suppose that you pay your credit-card bill through an Internet bill-payment service offered by your bank, through which you can direct your financial institution to pay bills using ACH transfers. Using that service, you direct a transfer to pay a $7,000 credit-card bill in its entirety. Suppose that you change your mind the next day. Is there anything you can do to prevent the payment from being made? NACHA Rules §§2.5, 7.1, 7.3.
10.5. Your bank mistakenly honors a check that is not properly payable from your bank account, which has the effect of depleting the funds in your account. As a result, the regularly scheduled debit entry to pay your car payment is returned unpaid by your bank. The car lender at that point repossesses your car, which causes you to incur a variety of expenses. Is your bank liable for those losses? UCC §§4.402, 4-104(a)(9), 3-103; NACHA Rules §§5.1, 13.1.20.
10.6. Your old friend Cliff Janeway mentions a small problem to you over lunch one day. He explains tht he customarily pays for his groceries with checks. Starting last month, his grocery store has a new system under which it marks his checks void and hands them back to him at the register. Although he has worried at first that the grocery store was making a mistake and would not be paid (because the check was marked void), the clerks assured him that the charges would show up on his monthly statement. To his surprise, the charges did show up. Indeed, he was charged twice for one of them - his statement showed two transactions at Kroger's on February 14, each at the same time and each for $92.36. Cliff understandably thinks he should pay only once.
a. What should he do? EFTA §§908(a) abd 909; Regulation E, §205.11.
b. What if the transaction resulted from a telephone conversation between Cliff and a telemarketer, in which he ultimately declined to make a purchase, but the telemarketer still created a paper check to draw funds from Cliff's account? EFTA §909, UCC §4-207, 4-208, and 4-401.
c. Same facts as (b), but assume that the telemarketer used a TEL entry. EFTA §909, NACHA Rule §2.2.1.1
d. Who will bear the loss in each of those transactions? NACHA Rule §2.2.1.1; EFTA §909; UCC §§4-207, 4-208, and 4-401.
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