priscilla bueno steven magnone. on january 5, brian drafts a check for $3,000 drawn on the southern...

STALE CHECKSPriscilla Bueno

Steven Magnone

ScenarioOn January 5, Brian drafts a check for $3,000 drawn on the Southern Marine Bank and payable to his assistant, Shanta. Brian puts last year's date on the check by mistake.

On January 7, before Shanta has had a chance to go to the Bank, Brian is killed in an automobile accident. The Southern Marine Bank is aware of Brian's death. On January 10, Shanta presents the check to the bank, and the bank honors the check by payment to Shanta.

Later, Brian's widow, Joyce, claims that the bank wrongfully paid Shanta, because it knew of Brian's death, and also because the check was, by date, over one year old. Joyce, as executor of Brian's estate and sole heir by his will, demands that the Southern Marine Bank recredit Brian's estate for the check paid to Shanta.

Question 1 Is the Bank liable because it paid the

check "after knowledge of Brian's death" - yes, or no?

State the UCC code section that governs the Bank's actions.

State the page in your book which answers the question.

Answer 1 Is the Bank liable because it paid the check "after knowledge

of Brian's death?”• Short answer: It depends.• UCC § 4-405(b), a bank may pay on a check up to 10 days after the

date of death (not date of check) of the issuer without incurring liability, even if the bank knows about the death.

• UCC § 4-403 states that a bank will stop paying at any time on checks issued against a decedents account when they receive a stop-payment order from a person authorized to draw on the account.

Which UCC code section?• UCC § 4-403 & CCC 4403 – Stop-payment orders• UCC § 4-405 & CCC 4405– Death or incompetency of a customer

Where in the Business Law textbook?• Page 523

Question 2 Is the Bank liable for paying a "stale

check”, yes or no?

Define what is a stale check.

State the UCC code section that governs the Bank's actions.

State the page in your book which answers the question.

Answer 2 Is the Bank liable for paying a "stale check?”

• Short answer: No.• UCC code § 4-404 states that, other than for a certified check:

A bank is under no obligation to honor a customer’s check that is more than six months old.

The bank “may charge its customer’s account for a payment made thereafter in good faith.”

• This means that yes, a bank may choose to, in good faith, cash a “stale check” at any time.

What is the UCC code section?• UCC code § 4-404• CCC § 4404

Where is it in the Business Law textbook?• Page 523