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Banks and Customers

Stop Payment Before it is Too Late!

Stop Payment Before it is Too Late!

A stop payment order is an order from a drawer of a check
given to a bank to stop payment on that check. A stop payment order will annul
that check, preventing the holder from cashing it or otherwise presenting it
for payment. Issuing a stop payment order is not an instantaneous or easy
process, but it the best way for a drawer to prevent a check from being drawn
on his or her account.

The primary reason that a drawer might try to stop
payment on a given negotiable instrument is if some party involved with the
instrument lost it and the instrument’s current whereabouts are unknown. For
example, if the instrument in question was a check which had been given a blank
endorsement by the payee and then lost by that payee on his or her way to cash
it, then upon being informed, the drawer would likely issue a stop payment
order on the check in order to prevent an unintended party from cashing the
check.

Unfortunately, in the above circumstance, it’s likely
that the stop payment order would be ineffective. To stop payment on a check,
the drawer must provide the bank with information about the check in question
and the account from which the check was drawn. Furthermore, such information
must be provided with enough time to the bank for it to take the necessary
action.

If the bank is given a stop payment order, for example,
one hour before the check is submitted for payment, then this might not
constitute a situation in which the stop payment order was issued to the bank
with enough time for the bank to take action. As such, the bank would not be
held responsible if the check was cashed, even though the stop payment order
had been submitted.

The only people who can issue a stop payment order for a
given account are those who can draw on that account. There might be multiple
individuals attached to a single account, but in such a case only one
individual is necessary to issue a stop payment order.

When attempting to stop payment, a customer might call in
to the bank first to stop payment immediately and then send in written
confirmation at a later date. The information necessary to stop payment can be
submitted orally, but any such stop payment order would expire after 14 days if
it was not confirmed in writing during that period. A written stop payment
order, on the other hand, would last for six months after which point the check
would actually become payable again. The stop payment order can be renewed,
however, in order to ensure that the check will not be cashed.

 Additionally,
another statu
te of the Uniform Commercial Code states that banks do not have to pay
checks older than six months unless those checks are certified. This means that
after two six
month cycles, a stolen or lost check will likely be defunct, although to be
absolutely certain the drawer would have to continue issuing stop payment
orders.

An Overview of Banks and Customers

An Overview of Banks and Customers

Banks are businesses, although they are a somewhat different form of business than most. Banks hold the same kind of duty and responsibility towards their customers as do other businesses, but then banks owe additional responsibilities to customers thanks to their status as sometime agents for their customers.
Customers, however, in turn, hold responsibility to banks. Customers must pay into their accounts in order to be able to order the bank to pay out of them, which also means that customers are held responsible for the checks which they deposit. The interdependent relationship of customers and banks, then, is nuanced and important to examine.


Background
The relationship between banks and customers is complex. At first glance, the relationship would seem to be the same as exists in many other businesses in which the bank would be beholden to the customer. This is somewhat true, though banks have a different relationship to customers than do most businesses.
To a bank a customer is not simply a consumer whose rights should be protected in the act of consuming. To a bank, a customer is a principal who must be represented by the bank as the customer’s agent. But banks can change their roles. Whereas most people might think of a bank in this role as an agent acting on behalf of the customer, banks can also assume the role of a creditor, in which they act as parties interested primarily in obtaining funds from debtors to settle debts.
In this role as creditors, banks are decidedly more focused on protecting themselves and not on serving customers. It is entirely possible that a bank might fill both roles with regard to a single customer as well, as the bank will be the agent protecting the customer’s accounts and acting in the customer’s interest with regard to those accounts, while also being the customer’s creditor through a loan the customer may have taken out.
The relationship between these roles is complex, and understanding how each role comes into play is necessary for understanding how a bank fills those roles. For more information on the plurality of roles that a bank may play with regard to its customers, follow the link.


Creditor and Debtor
A debtor is a party that owes something, be it property or money, to a creditor due to a loan from that creditor. The relationship between creditor and debtor is a relationship between two inherently self-interested parties. The creditor is interested in ensuring that its loan is returned to it with whatever interest is due, while the debtor is interested in ensuring that its property is not taken unduly, that it can pay off the debt as it so chooses, or at least as it so chooses within the terms of the contract agreed upon for the original debt.
Any kind of law dealing with creditors and debtors, then, must balance the interests of the creditor against the interests of the debtor. Without law protecting debtors, creditors would be able to seize almost anything from debtors in order to pay off debts. Without law protecting creditors, debtors might be able to postpone their payments or otherwise avoid fulfilling their side of the contract.
The rules surrounding creditors and debtors, then, are designed to allow for the fair judgment on the repayment of debts, especially with regard to exactly what a creditor can claim from a debtor. A trial might give a creditor a lien against a property or asset of the debtor, thus allowing the creditor to seize that property in order to pay off the debt.
This creditor/debtor relationship matters significantly to the interactions between banks and their customers, as banks can give out loans to customers or can buy up the loans that consumers made with other companies. As such, banks often act in the creditor role. For more information on the relationship between creditors and debtors and exactly how each is protected under law, follow the link.

Agency and Contractual Relationship

Agency refers to a specific relationship between two parties, in which one party is the principal and one party is the agent. The agent is given authority by the principal to act on behalf of the principal with regard to a third party, whether that means making contracts or performing transactions.
The exact nature of any given instance of agency is defined by the contract that established this agency. An agent can have a different amount of power afforded to him, depending on exactly how the agent-principal relationship is established, and as such, might only be able to take certain actions on the behalf of his or her principal. The principal will be held liable and responsible for any actions the agent takes within the agent’s allowed purview, while any actions that the agent takes outside of his or her allowed power will be left liable to the principal only.
One of the key elements in the relationship between any agent and principal is that the agent must be acting on the behalf of the principal in the principal’s best interests. A bank, for example, acts as a payment agent on the behalf of its customers as it pays off the checks which they draw from accounts held by the bank.
As such, however, the bank must act in its customers’ best interests. It cannot pay from the customers’ accounts without their permission, nor can it give unauthorized parties access to the information available about a customer’s account. To find out more about the relationship between an agent and a principal and how it is enforced under law, click the link. 

Incompetence or Death of Customer
The relationship between a bank and a customer may be complicated by unpredictable circumstances of life. The primary fashion in which this sort of complication might arise would be if the customer of a bank gets into an accident of some kind, and is either killed or rendered incompetent in some fashion. For example, a customer might get into a car accident and, as a result, be put into a coma or even a persistent vegetative state. In such an instance, the question arises as to exactly what duties the bank has towards the customer and the customer’s account.
As each account is likely tied to a single customer, then if that customer meets such a fate, the bank would no longer be serving anyone as an agent with regard to that account. For the bank to then make payments from that account for drafts issued by the customer prior to the accident might seem wrong, as the bank might be acting without authority granted from the agent in such an instance.
The Uniform Commercial Code provides for such circumstances, however, by affording to the bank a certain amount of protection while it continues to pay off drafts made by the customer prior to the accident. The bank is protected greatly if it does not have knowledge of the customer’s death or incompetency, as the bank cannot be held for wrongdoing if it is acting without such information, simply because the accident has happened recently.
Even if the bank is given such information, it is protected for a certain amount of time in order to fulfill payment on checks drawn from the account prior to the customer’s death. For more information on how the incompetency or death of the customer would affect the bank in its duties, follow the link.

Stop Payment
A stop payment order is issued by a customer to a bank in order to prevent the bank from issuing payment from the customer’s account for a given check. The stop payment order will sometimes cost some amount of money to issue, but is generally worth it, as a stop payment order is most often issued in situations in which failing to issue the order might result in the check being cashed illegitimately by an unintended party. If, for instance, a check is stolen or lost, then issuing a stop payment order on that check is necessary in order to prevent the check from being misused by the thief or by the finder of the check. 
A stop payment order is not automatically effective, however, as there are some requirements which the issuer of the order must fulfill. For example, the order must be filed with the bank with enough time for the bank to take action.
As unfortunate as it may be, if the check in question is lost outside of the bank and someone managed to pick it up and cash it at the same time that the drawer is issuing a stop payment order, then the bank cannot be held accountable for the check, as the order will not have been issued with enough time for the bank to take appropriate action. If, on the other hand, the order is issued properly with enough time and the bank still makes payment on the check in question, then the bank would be liable to repay the customer.
A stop payment order is not permanently effective, as it will expire in six months of the date of issuance, but it can be renewed, and other provisions of the Uniform Commercial Code would likely help to protect the drawer. To find out more about stop payment orders and how they are issued, click the link.

Forged Signature on Checks
One of the problems of the use of checks is fraud. Since most of the elements of a check used to validate that check are forms of signature, then forging those signatures would allow the forger to submit checks for payment when he or she would actually have no legal right to do so. This is an especially dangerous practice in cases where an individual has lost his or her checkbook. In such a case, a forger could begin writing checks and signing them with a forged signature, thereby making payments out of the victim’s account.
The responsibilities of a bank towards customers with regard to such forgery cases are quite important. In general, the victim of a fraudulently drawn check will never be held liable for that check. It is the bank’s responsibility to examine the check and notice whether or not it appears to bear a forgery. If the bank accepts the check, then the bank accepts liability for the check’s forged nature. This means that if the bank does pay out of the account of the supposed drawer, then it would have to restore that amount to the drawer at a loss to itself.
The bank would, however, be able to sue the forger and seek restitution that way. Should the customer have knowledge that would alert the bank to the possibility of forged checks, then the customer has a responsibility to alert the bank as soon as possible.
The customer cannot be held accountable for not informing the bank in time to stop it from making a payment, but should the customer simply refuse to alert the bank until after the bank has issued payment on a forged check, then the customer might be held somewhat accountable, though not for the check itself. To find out more information about the liability of forged checks and where it lies, follow the link.
Forged Endorsements on Checks
Forged endorsements are slightly different than forged signatures in that a check with a forged signature would never have been legitimate. A check with a forged endorsement, on the other hand, is invalidated thanks to the forged endorsement, but it might otherwise appear to have been a legitimate check. The forged endorsement might not even be the endorsement of the initially intended payee. It could be the endorsement of a payee further along who forged an endorsement.
Regardless, however, the check would still be invalidated, and if it was paid, liability would fall on one of the involved parties. Like cases of forged drawers’ signatures, however, liability does not generally fall on the drawer and it absolutely would not fall on the payee whose endorsement was forged.
If the drawee bank paid the check with a forged endorsement, then that bank would be liable to the account from which funds were drawn, but that bank might then in turn be able to pursue a case against the bank into which the forged check was deposited. This is because a bank accepting a check with a forged endorsement for deposit and then seeking payment from the drawer’s bank would be making a warranty that it had a right to do so.
With such a forged check, however, the depository bank would have no such right and would, therefore, stand in violation of its warranty. The result is that the depository bank would likely be the liable party. Of course, the depository bank could still seek remuneration from the forger him or herself, as ultimately the forger is always the liable party. For more on forged endorsements on checks and how to determine liability or responsibility in such cases, click the link.

Understand Agency and Contractual Relationships

Understand Agency and Contractual Relationships

Agency refers to a type of relationship under law in
which one party, the agent, is a representative of another party, the
principal,
and
is
allowed to perform some kind of transaction or make some
kind of contract with a third party. The agent is authorized by the principal
to perform actions in the principal’s name. For the most part, unless there are
exceptional circumstances involved, when an agent acts in a given way or
performs a certain function, the principal will be held accountable and liable
for the agent’s action. For example, if an agent were to withdraw some amount
of money from a banking institution on behalf of the principal, then that
principal would be held accountable for the withdrawal of the agent.

The exact contract giving an agent power to act on behalf
of the principal will determine exactly how much power that agent has at any
given time, and in turn, will determine where the liability of a given
transaction may fall. Keeping the banking example, if the agent were to obtain
a loan from a banking institution on the behalf of the principal, then
depending on the authority of the agent, the agent himself might be held
accountable to the banking institution.

The three types of agent are universal agents, general
agents, and special agents. A universal agent would be able to act in almost
any fashion on behalf of his or her principal. They may be slightly restricted,
but in general, their actions will hold the principal, and not themselves,
liable. Thus, if the universal agent were to perform some banking on the behalf
of the principal, it would likely of necessity have to be accepted.

The next type of agent is a general agent. This type of
agent would hold a significantly more restricted amount of authority in terms
of the principal than the universal agent. The general agent is authorized with
the ability to make decisions and take actions on behalf of the principal
likely in certain areas or domains, but not in all.
The general agent might have been authorized for all dealings with a
specific banking institution, and thus
, would have no
liability for any actions he took with that banking institution on behalf of
his or her client.

The third type of agent is a special agent, who is not
authorized to exert even as much power as the general agent. The special agent
is authorized only to use his power for one purpose, as designated in the
initial formation of agent-principal contract. His actions regarding the
banking institution, if outside of his specific duties as a special agent,
would hold him liable, if not to external users, then to the principal, who could
seek to obtain damages from the agent.

The relationship between agent and principal is often
best codified in a contract so as to avoid any problems in which, for instance,
the agent opens an account in the principal’s name at a banking institution
, purportedly under the principal’s orders. Many discrepancies involving agency and
contractual obligations involve a misunderstanding, as the agent sets up the
new banking account for his or her principal only find out that the principal
did not intend for the agent to do so. In such a case, the only real way to
determine who is in the right and who is in the wrong would be to examine
exactly how much authority the agent had at the time of his acting.

So long as the agent was acting within the authority granted to him by the
principal and was not acting against his principal’s best interests, then the
principal will be held liable to the agent’s actions. This would also include
an instance in which, for instance, the agent withdrew money from his or her
own banking account in order to make a payment on behalf of the principal. In
such a case, the principal would actually be held liable to the agent and would
have to repay the agent for legitimately acting on the principal’s behalf.

How Banks and Customers Interact

How Banks and Customers Interact

The responsibilities that a bank holds to its customers are numerous, as one might expect upon an even cursory examination of the function of a bank. Banks exist for the purposes of: taking money from customers and depositing it, thereby preserving it within an account; monitoring those accounts and paying any interest that might be due on them; and paying on negotiable instruments drawn on the accounts held by the bank. In essence, bankers act as agents for their customers, maintaining customers’ accounts and paying off customers’ checks as the customers write them.
A banker might also assist in another function of banks, which is that of a lender. Banks are a very common source of monetary loans, and bankers will often help customers who need such loans by setting them up. Many of these loans simply involve the bankers giving those customers an advance of a certain amount of money into their accounts.
Bankers will also purchase promissory notes from other sources, thereby coming to hold a recipient position in a loan instituted by another organization. This was actually a major source of difficulty for the recent sub-prime mortgage crisis, in which many individuals would take out a loan which would eventually come to be owned by a bank. When those individuals would be unable to pay back the loan and the interest they owed, the bankers would fill the role of creditors and would seize the property of those debtors.
Banks fill a critical role in the overall economic system of the world today, as without banks any number of financial transactions would be nigh-impossible to conduct. The function of bankers, however, is theoretically very strongly disposed towards their customers. A banker, for instance, is expected to promptly transfer any funds deposited by a customer into that customer’s account so that those funds are available in a reasonable period of time. Bankers are not allowed to make any kind of payment from a customer’s account without the customer’s permission.
There are many more elements of the relationship between banker and customer which clearly establish the banker as the customer’s agent. The fortunate aspect of this relationship for the customer is that this, in theory, means the banker should be acting on the customer’s behalf, as any agent must.
But there are some nuances in this relationship, in that sometimes bankers will not be acting on customers’ behalves because they must instead be acting on the behalf of the bank which they serve. This is an instance in which a bank’s role with regard to a customer may shift, depending on exactly what aspect of the bank is being dealt with.
A banker dealing with a customer in regard to the customer’s account may act as an agent, but when that banker is dealing with a customer in regard to a loan given from the bank to the customer, then the banker is no longer the customer’s agent and is instead the customer’s creditor with an expressly different set of goals, desires, and powers.

A Creditor and Debtor’s Relationship

A Creditor and Debtor's Relationship

The relationship between a creditor and a debtor is one
of the most important to understand in terms of business practices of any kind.
This is because most business transactions result in some form of debt for a
given party, and even individuals outside of business practices are often debtors,
whether to a credit card company or to a bank.

Creditors are those to whom something is owed by the
debtors, and therefore
, the relationship between creditors and debtors is substantially
complicated by the conflicting interests of the two parties. A creditor might
be willing to seize anything and everything that he or she has to in order to
obtain adequate compensation for the debt owed to him or her by the debtor.

A debtor, on the other hand, wants to protect his or her
property from being seized by a creditor unnecessarily. A debtor cannot simply
shirk the debt owed to the creditor, but the debtor does not want that debt to
result in undue action on the part of the creditor. Thus, the law attempts to
serve the interests of both parties, allowing the creditor to collect on the
debts, while protecting the debtor from undue action.

The law provides for a creditor to fall into one of two
categories. Either the creditor is secured or he or she is unsecured. An
unsecured creditor is owed by the debtor, but no particular property o
r asset is involved in the debt. In other words, the debtor does
theoretically have to pay off the creditor, but there is no agreed upon asset
owned by the debtor which he or she must use to pay off his or her creditor.

A secured creditor, on the other hand, has a claim on a
certain asset built into the debt. This means that the secured creditor can
take that particular asset in order to ensure that the debt is paid by the
debtor. An unsecured creditor can become a secured creditor by gaining a lien
against the debtor’s property
. Such liens can sometimes be obtained through a court proceeding, determining
that the creditor is owed by the debtor
, and therefore, deserves a lien. 

Although
it may seem like the law
solely
lands in favor of the creditor, the law actually protects
the debtor as well. Some liens which a creditor can obtain at the time of the
loan will allow the debtor to negotiate exactly what property is at stake in
the loan, thereby protecting any other property he or she might have. The
government also creates exemptions for loans, such that certain types of
property will not be seized by the creditor for any debt.

An important example of an exemption is the homestead
exemption, which ensures that a creditor cannot seize a debtor’s home unless
that creditor holds the mortgage to the home. In other words, homes are
generally off-limits, except for those loans which specifically make the
debtor’s home payable to the creditor.

In any particular instance, if the debtor does not pay
the debt in a fashion agreed upon in the original formation of the debt, the
primary way for the creditor to obtain payment is to take the debtor to court.
If the creditor has ample evidence, then he or she should be able to
successfully prove that he or she is owed money by the debtor and should either
obtain a lien against some property of the debtor or have a lien enforced. If,
on the other hand, a debtor is trying to protect him or herself from a
creditor, the court is the primary means to do so, although in general the
burden of proof will be on the debtor. If the creditor already has a
lien against certain property, then the creditor may seize that
property without needing to go to court.

Beware of Forged Endorsements on Checks

Beware of Forged Endorsements on Checks

Forged endorsements on checks involve different
procedures than more blatant cases of forgery, such as cases in which the
drawer’s signature has been forged. The checks might originally have been drawn
with perfect legitimacy only to then be given a forged endorsement by someone
who steals or finds
the check. Such a case would still be considered one of forgery, however, and
the forging party would still be held primarily accountable for the check.

In such a case of forgery, there might be four parties
involved, and the responsibilities of each to the others are slightly
different. The drawer is the individual who initially drew the check, upon
whose bank account the check was drawn. The drawee is the bank holding that
account, issuing payment for checks issued by the drawer. The payee is the
original intended party and could refer to the very first person to whom the
check was payable or to the current holder. In a case of forgery, however, the
payee would likely be the forger. Finally, there is the bank into which the
forged check was deposited, called the deposit
ory bank.

The drawee bank, in cases involving checks with forged
endorsements, would be able to sue the deposit
ory bank, as the depository bank would be in violation
of transaction warranty or presentment warranty, or both. The drawee bank has
no responsibility to check for forgery on the checks upon which it makes
payment, as the deposit
ory bank seeking payment from the drawee bank would be making a warranty
that the checks in question were legitimate and that the deposit
ory bank had a right to seek payment on those checks. As such, the drawee
bank might be able to recover some lost funds.

The drawer, however, can sue the drawee bank in turn, as
the drawee bank holds liab
ility for any checks it may have paid based on forgery or other improper
circumstances. Thus, the drawee bank would have to make reparations to the
drawer. The illegitimate payee would, of course, be unable to sue anyone, as
this party would have committed the forgery and would hold general liability
for all charges.

The intended payee might be able to sue the drawee bank
under certain conditions. If, for instance, the intended payee had already
discharged the services or obligation for which the checks had been drawn, then
the intended payee would be able to sue the drawee bank or the drawer for
restitution. This could lead to a situation in which the intended payee sues
the drawer for payment, while the drawer sues the drawee bank, while the drawee
bank sues the deposit
ory bank. The depository bank, in turn, might be able to sue the perpetrator of the forgery.

In the end, the banks making payment or accepting payment
on forged checks hold more responsibility than do the customers injured by the
forgery. Those banks thus will likely have to make some form of compensatory
payment to the customers, as the customers
engaged in
no wrongdoing. The banks, therefore, have some obligation to protect the customers from the injurious effects
of the forgery, especially because the banks hold liability for having breached
their warranty in accepting or paying on those checks.