NI Tuesday 2.25 Readings: p.

255-59

DELAYS
Problem 105the 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 strips
back together. When the checks were shredded, many of them were bound to
be in the process of collection, some checks made the bank either a
depository or collecting bank, and others made the bank the payer-drawee.
Collecting banks are required to take action before their midnight
deadline following receipt AND becomes absolutely liable for a check
not returned in time.
o Should the BK just close down or can it apply 4-109(b) delays? Or
other circumstances beyond the control of the bank AND the bank
exercises such diligence as the circumstances require. Here, we have
human 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 & COMMENT
1. 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 106Nina indorsed on her welfare check and wrote For deposit
only, but it got stolen. The thief wrote his name below Ninas and went to
cash it at his bank PNB. His bank stamped its indorsement and forwarded it
to the Innocent Bank, which also indorsed and presented it to the drawee
Welfare Payor Bank, which held it past its midnight deadline.
Meanwhile, Nina reported to theft to the drawer-State, but by the time State
investigated it, the check was already paid.
o By arguing that paying violated her express instruction thus
amounted to a conversion, which banks can she sue and can they use
chain of command defense to escape liability?
Depository-PSBk: liable bc it is required to look at the
indorsement
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
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 payeeblank
o PNB is a holder and has already been paid for
this checkdid it do anything wrong by
collecting payment or paying thief? Restrictive
Indorsement:
Conversion is strict liabilitydoesnt
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 a
restrictive indorsement bc its only this bank where a human being,
the teller, sees the check. The check will only be seen by computers
afterwards at the other banks.

PRIORITIES & FOUR LEGALS 4-303
notice
stop payment orders
service of legal process
bks right to setoff
o (a) these 4 are too late if the check has been certified or BK has taken
steps leading to its final payment
o (a)(5) also too late if they arrive after certain time periods:


Problem 107see 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 drawer
wrote them then he should make sure hes got the money to
cover it all-he cant micromanage the bank and pick and choose
the order.