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8/12/2019 NI Tuesday
1/2
NI Tuesday 2.25 Readings: p. 255-59
DELAYS Problem 105 the bks janitor accidentally placed a box full of 8,000
unprocessed checks on a table reserved for trash, and they got shredded. The
checks amounted in $840,000, and the bank hired people to piece the stripsback together. When the checks were shredded, many of them were bound tobe in the process of collection, some checks made the bank either adepository or collecting bank, and others made the bank the payer-drawee.
Collecting banks are required to take action before their midnightdeadline following receipt AND becomes absolutely liable for a checknot returned in time.
o Should the BK just close down or can it apply 4-109(b) delays? Orother circumstances beyond the control of the bank AND the bankexercises such diligence as the circumstances require. Here, we havehuman error which could be argued to be beyond the banks control and
it acted diligently by hiring the temporary employees the next morning.
RESTRICTIVE INDORSEMENTS CHAIN OF COMMAN THEORY 4-203 & COMMENT1. First classification system of indorsement was blank or special
2. Second with or without recourse
a. Qualified
b. Unqualified
3. Third restrictive and non restrictive indorsements
a.
Problem 106 Nina indorsed on her welfare check and wrote For depositonly, but it got stolen. The thief wrote his name below Ninas and went tocash it at his bank PNB. His bank stamped its indorsement and forwarded itto the Innocent Bank, which also indorsed and presented it to the draweeWelfare Payor Bank, which held it past its midnight deadline.Meanwhile, Nina reported to theft to the drawer-State, but by the time Stateinvestigated it, the check was already paid.
o By arguing that paying violated her express instruction thusamounted to a conversion, which banks can she sue and can they usechain of command defense to escape liability?
Depository-PSBk: liable bc it is required to look at theindorsement
Collecting-Innocent Bk: no liability bc defense is applicable Drawee-Welfare Bk: no liability bc final payment discharges
obligation Drawer-State: no liability
Nina can also go after Thief
8/12/2019 NI Tuesday
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o NINA is a H, THIEF is a holder bc he has
possession of the instrument: and
o The instrument was blank indorsed by NINA
making it a bearer instrument. She didnt write
something saying whos the next payee blank
o PNB is a holder and has already been paid for
this check did it do anything wrong by
collecting payment or paying thief? Restrictive
Indorsement:
Conversion is strict liability doe snt
require culplability. Unless PNB paid
NINA the funds, it converted the check
and if it converted the check, it is liable
to NINA Restrictive indorsements governed by 3-206
o (c) depository bank is faced with liability for not complying with arestrictive indorsement bc its only this bank where a human being,the teller, sees the check. The check will only be seen by computersafterwards at the other banks.
PRIORITIES & FOUR LEGALS 4-303 notice stop payment orders service of legal process bks right t o setoff
o (a) these 4 are too late if the check has been certified or BK has takensteps leading to its final payment
o (a)(5) also too late if they arrive after certain time periods:
Problem 107 see book & OD ol Problem 108
o 4-303(b): bk can pay the checks in any order it wants Comm 7 not possible to try and establish priorities bc there is
an infinite number of scenarios that could happen. If drawerwrote them then he should make sure hes got the money tocover it all-he cant micromanage the bank and pick and choosethe order.