UCC: Practical Application, Part VI

Problem 12

A gentleman comes in to see you to tell you he has just arrived from out of town to attend his father's funeral. He tells you that his father, your customer who has an individual, single name account, died five days ago. He cautions you not to pay any more checks against his father's account. He suspects his nephew, who was living with his father, might try to get funds out. Neither you nor any one in your bank knew that your customer had died.

When the son comes in the following week, he has papers of administration with him, appointing him executor of his father's estate. He wants to close out the account and get a check payable to the estate. When you do so, the son is shocked to see there was a $12,000 check paid on the account four days after his father died. When he examines the check, he sees his father's signature looks genuine, but the check is written in a different handwriting, payable to the nephew. Research shows the check was deposited into another bank in the area.

The son says you had no right to pay a check after his father's death. He has a copy of the local newspaper with him that shows his father's obituary which was printed the day before your bank paid the check. He says it was public knowledge by that time, and that you had a right and responsibility to know. He wants the $12,000 put back into the account.

Do you credit the account $12,000?

No, you don't. Section 4405. Death or incapacity of customer. (a) Authority of bank unaffected in absence of knowledge. - The authority of a payor or collecting bank to accept, pay or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by incapacity of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incapacity. Neither death nor incapacity of a customer revokes the authority to accept, pay, collect or account until the bank knows of the fact of death or of an adjudication of incapacity and has reasonable opportunity to act on it.

It could well be that the customer signed checks for the nephew to pay bills with, and nephew used the blank, signed check for his own purposes. But that is a family problem, not a bank problem. And the fact that the obituary appeared in the local paper is not notification to the bank of the customer's demise. Way back in the "old" days of banking, one of the responsibilities of a customer service person in the branch office would be to review the obits every day. It was also the custom, in days gone past, for some states to issue a list once a month that was available to financial institutions, that had names and social security numbers of decedents. That information came from death certificates that were issued during the past month. Both practices are seldom used today. If a financial institution took upon itself the liability of checking obituaries every day, it could well miss one in the case of a death out of town, or even by the employee responsible for reading the obits going on vacation. The bank doesn't need that additional liability.

In addition, the son came in five days after his father died, and you paid the check four days after the date of death. Unless there is a stop payment put on the account, you have a ten day window after the demise of a customer, as is noted in Section 4-405 that follows in Problem 13.

Problem 13

Same son, same father's account. Son comes in and tells you his father died three days ago, and he is concerned because the checkbook is missing, and so is his nephew. He suspects there may be attempts to withdraw money from his father's account fraudulently. He tells you to pay no more checks that come in against his father's account. He also tells you he is filing for letters of administration.Can you stop all payments and return checks?

Yes, you can. Section 4405. Death or incapacity of customer. (b) Limited authority of bank following knowledge - Even with knowledge, a bank may for ten days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account. As administrator of the estate, the son definitely has an interest in the account. Therefore he has a right to stop any further payments out of the account.

Miscellaneous
In Part V of these training pages we talked about providing a statement to the depositor. It says in the Code: The statement of account provides sufficient information if the item is described by item number, amount and date of payment. There is another part of the UCC that covers our ability to provide copies of the items. Section 4406 - (b) reads: Retention of items - If the items are not returned to the customer, the person retaining the items shall either retain the items or, if the items are destroyed, maintain the capacity to furnish legible copies of the items until the expiration of seven years after receipt of the items. A customer may request an item from the bank that paid the item, and that bank must provide in a reasonable time either the item or, if the item has been destroyed or is not otherwise obtainable, a legible copy of the item. This is also a change from the 'old' UCC. Copies of checks and deposit tickets are now admissible in a court of law. It is no longer required to produce the original items.

Editor's Note: This is the last of a series of training pages addressing some of the confusion that sometimes occurs when trying to apply the Uniform Commercial Code to claims. For complete UCC text for your state, please go to www.BankersOnLine.com, click on "Launch Pad" - once on that screen click on UCC on the list on the top of the page - then on Article 4. Once on that site, click on "state rules". Only relevant part of sections are included in these pages. If you have specific questions concerning UCC, please contact me at 800-828-7005. Banking attorney Mark Hargrave will be doing a full day of training on the UCC at the BANKERS' HOTLINE Workshop on September 16, 2003.

Some of you noticed the Problem 12 on Part V of these training pages should have been Problem 11. Sorry for the error!

Copyright © 2003 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 6, 8/03