What's Hot with payment by check


Published on

What's Hot with payment by check, webinar on anscers.com

Published in: Technology, Economy & Finance
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

What's Hot with payment by check

  1. 1. WHAT’S HOT WITH PAYMENT BY CHECK: FROM “CHECK 21” TO BAD CHECKS TO ACCORD AND SATISFACTION TO CHECKS FORM YOUR INSOLVENT CUSOTMER SCOTT E. BLAKELEY, ESQ. BLAKELEY & BLAKELEY LLP Wells Fargo Tower 2030 Main Street, Suite 210 Irvine, CA 92614 VOICE: 949/260-0612 FAX: 949/260-0613 [email_address] INTERNET: www.bandblaw.com
  2. 2. <ul><li>Scott Blakeley is a principal of Blakeley & Blakeley LLP, where he practices creditor’s rights and bankruptcy law. Scott advises companies around the country regarding creditor’s right, commercial, e-commerce and bankruptcy law. He was selected as one of the 50 most influential people in commercial credit by Credit Today. Scott is on the board of the editors for the California Bankruptcy Journal and is an editorial advisor for Credit Today. Scott also is co-chair of the sub-committee of unsecured creditors’ committee of the American Bankruptcy Institute, and is a Trustee for the JD/MBA Association. </li></ul>
  3. 3. FORMS OF PAYMENT <ul><li>Notwithstanding the age of electronic credit department and the age of e-payments, a majority of businesses still rely on checks for their purchases. </li></ul><ul><li>CIA, COD, Wire Transfer and Check </li></ul><ul><li>Electronic Bill Presentment and Payment (EBPP) </li></ul><ul><li>Credit Cards and Debit Cards </li></ul><ul><li>Internet Payments </li></ul><ul><li>Checks </li></ul>
  4. 4. CHECK CLEARING FOR THE 21 ST CENTURY ACT “CHECK 21” <ul><li>BACKGROUND </li></ul><ul><li>In 2000, the Federal Reserve Board Staff began investigating a concept to promote check truncation and electronic check presentment </li></ul><ul><li>On December 21, 2001, Chairman Alan Greenspan sent the Federal Reserve Board’s legislative proposal to the Chairs of the Ranking Members of the Senate and House Banking Committees </li></ul><ul><li>Purpose: Check 21 takes direct aim at the problem of the considerable time the origin check takes to go through the banking system. It permits, but does not require, the depository bank to truncate the original check </li></ul><ul><li>The new law will eliminate some of the 40 billion checks travelling by truck, rail, and air each year. </li></ul>
  5. 5. CHECK CLEARING FOR THE 21 ST CENTURY ACT “CHECK 21” <ul><li>BACKGROUND </li></ul><ul><li>Americans increasingly do business online, $60 million e-filed tax returns were processed this year while 13 million U.S. households now pay bills online. </li></ul><ul><li>Soaring use of credit and debit cards has send the use of cash and checks plunging from 81% of consumer spending in 1990 to 61% in 2003 </li></ul><ul><li>Just as credit cards once included carbon copies of sales slips, banks are betting that consumers are willing to accept the “substitute check” instead of the original </li></ul><ul><li>The 9/11 terrorist strikes brought transportation and check clearing to a halt, leaving $47 billion worth of checks floating in financial limbo for days and convincing the Federal Reserve Board to urge the change </li></ul>
  6. 6. CHECK CLEARING FOR THE 21 ST CENTURY ACT “CHECK 21” <ul><li>KEY TERMS </li></ul><ul><li>Truncate: means the transformation of a check to an image enabled electronic or image enabled paper settlement. </li></ul><ul><li>Binary Image: black and white image of a check where each pixel can be stored in memory by one bit of information since it is binary, either black or white </li></ul><ul><li>Check images can be exchanged electronically by banks, printed for customer statement purposes, displayed on internet banking websites, and used to create substitute checks </li></ul><ul><li>Cash letter is a group of checks packaged and sent by a bank to another bank accompanied by a list containing the dollar amount of each check, the total amount of the check and the number of checks in the cash letter. </li></ul>
  7. 7. <ul><li>KEY TERMS </li></ul><ul><li>Substitute Checks </li></ul><ul><ul><li>Contain images of the front and back of the check </li></ul></ul><ul><ul><li>Conform to industry standards </li></ul></ul><ul><ul><li>Accurately represent all information on the original check </li></ul></ul><ul><ul><li>Are suitable for automated processing </li></ul></ul><ul><ul><li>Include all endorsements </li></ul></ul><ul><ul><li>Include the identification of the party creating it </li></ul></ul><ul><li>Substitute Checks will be found in: </li></ul><ul><ul><li>Periodic statements </li></ul></ul><ul><ul><li>When viewing check images via online banking </li></ul></ul><ul><ul><li>If a customer requests a copy of the paid check from the bank </li></ul></ul><ul><ul><li>As a deposited check that returned unpaid </li></ul></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  8. 8. CHECK CLEARING FOR THE 21 ST CENTURY ACT “CHECK 21” <ul><li>HOW IT WORKS </li></ul><ul><li>If the bank chooses to truncate the check, it then converts the item to an electronic image that becomes the legal equivalent of the original check as long as it meets the criteria set out in the legislation </li></ul><ul><li>Check 21 is still a check system, which sets it apart form the electronic payment system know as the Automated Clearing House, which include ATM withdrawals and debit card purchases </li></ul><ul><li>Automated Clearing House transactions occur instantly, with money taken out of the account electronically as if you just pulled cash out of the account. In Check 21, the truncated check will still have to be batched and then presented for payment </li></ul><ul><li>Business and consumers will be able to enjoy expedited deposit processing not matter where they transact their business, even at ATM’s and remote Bank branches </li></ul>
  9. 9. <ul><li>HOW IT WORKS </li></ul><ul><li>Banks will not have to convert their paper check to substitute checks, but they will be required to accept for payment the substitute checks that can be transmitted electronically. </li></ul><ul><li>Not only does the act take aim at check forgers, bit it also helps reduce processing costs. Even smaller banks can save thousands of dollars in transportation costs </li></ul><ul><li>Many midsized and smaller banks that don’t have the resources or choose not to invest in the technology are required to implement Check 21 and are electing to outsource their check processing operations. </li></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  10. 10. <ul><li>WHAT DOES THIS MEAN? </li></ul><ul><li>The act authorizes a new negotiable instrument called a substitute check to replace the paper item </li></ul><ul><li>The existing presentment and endorsement warranties have not been replaced. The only change to the check issuer is that the original will not be returned. </li></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  11. 11. <ul><ul><li>SUBSTITUTE CHECK WARRANTIES AND INDEMNITIES </li></ul></ul><ul><ul><li>When a paper check is converted and a substituted check is provided, the banks involved make certain warranties </li></ul></ul><ul><ul><li>Check 21 provides certain rights for consumers to receive and expedited re credit to their account. One of two grounds for an expedited re credit is a breach of Check 21 warranty, the other ground is that the check was not properly charged to a consumer’s account </li></ul></ul><ul><ul><li>The practical significance of a breach of a Check 21 warranty is that this can lead to a larger damages recovery. Damages under the Act are limited to the amount of the substitute check, possibly consequential damages and any other loss related to the substitute check </li></ul></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  12. 12. <ul><ul><li>SUBSTITUTE WARRANTIES AND INDEMNITIES </li></ul></ul><ul><li>Check 21 provides that any bank that transfers, presents, or returns a substitute check and receives consideration for the check warrants, as a matter of law that the substitute check meets all the requirements for legal equivalence. This warranty is made only to the following entities: </li></ul><ul><ul><ul><li>All other banks to whom the substitute check is transferred </li></ul></ul></ul><ul><ul><ul><li>The drawer </li></ul></ul></ul><ul><ul><ul><li>The payee </li></ul></ul></ul><ul><ul><ul><li>The depositor </li></ul></ul></ul><ul><ul><ul><li>Any other endorser </li></ul></ul></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  13. 13. <ul><ul><li>SUBSTITUE WARRANTIES AND INDEMNITIES </li></ul></ul><ul><ul><li>The indemnity relates to losses incurred due to the receipt of a substitute check instead of the original check. </li></ul></ul><ul><ul><ul><li>In the instance of the warranty breach, the indemnity includes damages proximately caused </li></ul></ul></ul><ul><ul><ul><li>In the absence of a warranty breach, the indemnity if for the amount of the substituted check plus interest </li></ul></ul></ul><ul><ul><ul><li>The indemnifying bank may limit its liability if it is able to produce the original check or copy </li></ul></ul></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  14. 14. <ul><li>PRIVATE REMEDIES </li></ul><ul><li>Any recovery under the act is reduced by the amount attributable to a party whose negligence or failure to act in good faith contributed to the loss </li></ul><ul><li>Check 21 supersedes inconsistent federal and state law. The Act specifically mentions the UCC as the state that is superseded when inconsistent. The Act supersedes other law, however, only to the extent of the inconsistency </li></ul><ul><li>In all other respects, federal and state law continue to apply. Because the Act makes a substitute check the legal equivalent of the original check, other law regulating checks, such as the UCC and the Regulation CC, apply to substitute checks to the extent the other law is not inconsistent with the Check 21 Act. </li></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  15. 15. <ul><ul><li>HOW BUSINESSES WILL BE IMPACTED </li></ul></ul><ul><ul><li>Recordkeeping and internal document controls for checks and verifications of payment will need to be improved to address the fact that the original paper check will no longer be available as proof of payment in your records. Most of all, checks will not be returned to the company (or consumer) or the company bank </li></ul></ul><ul><ul><li>Checks will clear more rapidly </li></ul></ul><ul><ul><li>While checks will be clearing more rapidly, the law does not reduce the holding period on funds credited to your accounts. </li></ul></ul><ul><ul><li>Bank fees may increase </li></ul></ul><ul><ul><li>Neither you nor your bank will have the original check nor access to it. </li></ul></ul><ul><ul><li>Neither you nor your bank will have the ability to control when the original paper check is destroyed or stored. </li></ul></ul><ul><ul><li>Use of information gathered from electronic check images by the bank is not restricted . A bank wil be able to build a database from check images to profile customer buying patterns and other consumer characteristics </li></ul></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  16. 16. FORMS OF OUT OF COURT WORKOUTS AND LIQUIDATIONS (CON’T) <ul><li>Collective Creditor Agreement In this instance, the debtor has structured settlements with an entire class of creditors, such as vendors and bondholders. Generally, the debtor sets a benchmark for acceptance by the creditor class, say a supermajority, or the debtor may be forced to sell all of its assets or liquidate </li></ul>
  17. 17. <ul><ul><li>AREAS BUSINESSES NEED TO EVALUATE </li></ul></ul><ul><ul><li>What controls currently exist for issuing checks? </li></ul></ul><ul><ul><li>Are you using duplicate or triplicate checkbooks? </li></ul></ul><ul><ul><li>Who can sign checks? </li></ul></ul><ul><ul><li>What is the procedure for verifying the amount of the check to the invoice? </li></ul></ul><ul><ul><li>How will you monitor you account between bank statements? </li></ul></ul><ul><ul><li>If you don’t request substitute checks with your statements: </li></ul></ul><ul><ul><ul><li>How will you provide proof of payment in a dispute? </li></ul></ul></ul><ul><ul><ul><li>How will you monitor transactions for payment errors between statements? </li></ul></ul></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  18. 18. <ul><li>AREAS BUSINESSES NEED TO EVALUATE </li></ul><ul><li>What processes will you use to minimize the risk of fraudulent transactions in you payment system? (Remember you have no control of the original paper check for detecting alternation or forgery) </li></ul><ul><li>What will be you recordkeeping processes to support taxable transactions? </li></ul><ul><li>What will the bank account reconciliation process look like? </li></ul><ul><li>What will the impact be on your cash flow? Payments clearing more quickly, receipt of cash not increasing. </li></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  19. 19. <ul><li>FAREWELL TO THE FLOAT </li></ul><ul><li>The benefit of the image based deposit services to a corporate client will vary widely based on the number of issues, including the potential for float reduction and the value of earlier reporting times. </li></ul><ul><li>Many bill payers are in the bad habit of writing big checks a couple of days before payday, counting on a few days of check processing delays to give them time to make a deposit to cover the amounts. </li></ul><ul><li>Those who play timing tricks are more likely than ever to get stung by bounced check fees </li></ul><ul><li>You are better off having more money in you checking account before you write that check! </li></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  20. 20. <ul><li>IMPACT ON CREDIT </li></ul><ul><li>Faster processing should translate into improved notification of NSF check. This will help those selling to marginal customers because they may be able to stop shipments to customers who gave bad checks </li></ul><ul><li>Banks may offer clients a service that allows them to deposit their checks remotely much like swiping a credit card at the point of deposit. </li></ul><ul><li>Check 21 will allow check to be cleared in hours rather than days </li></ul><ul><li>Since financial institutions may no longer have a paper check to inspect, it seems likely counterfeiters will exploit the inability of digital images and substitute checks to retain traditional security features. </li></ul><ul><li>The timeframes banks are allowed to place holds on deposited items may be reduced making fraud more difficult to prevent. </li></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  21. 21. <ul><ul><li>CHECKS CAN OPEN DOORS TO FRUAD AS ELECTRONIC DEBITS GROW </li></ul></ul><ul><li>As banks move away from paper based transactions, their customers may experience fraudulent automatic deduction </li></ul><ul><li>If you don’t’ know the merchant, don’t use a paper check because it does not offer the protections of a credit card </li></ul><ul><li>Even the check processing industry suggests you guard account numbers as closely as any sensitive personal information. </li></ul><ul><li>A creditor does not have to get authorization from a consumer to deduct money from their account </li></ul><ul><li>Check 21 law represents a death knell for the fading practice of banks returning original checks to consumers with their monthly statements or when there is a problems with a particular check. </li></ul><ul><li>It becomes more difficult to prove forgeries and check alterations </li></ul>CHECK CLEARING FOR THE 21ST CENTURY ACT “CHECK 21”
  22. 22. Bad Check Laws <ul><li>PURPOSE </li></ul><ul><li>A purported purchaser deceives the vendor into believing that payment is made, and the vendor releases the goods in reliance on such representation </li></ul><ul><li>In all states the maker of a check, who tenders a check knowing there is insufficient funds or credit behind the check, may be guilty of a crime and may be subject to civil penalties. </li></ul><ul><li>The intent to defraud and knowledge of insufficient funds is required to be present by most states bad check laws. The intent to defraud is sufficient. It is not necessary for the payee to have actually been defrauded. </li></ul><ul><li>In most states statutory provisions provide that it is prima facie evidence of insufficient funds if: (a) the check was not paid by the bank on presentation for payment and (b) the drawer did not pay the check within a specified number of days after written notice to the bank of dishonor of the check. </li></ul>
  23. 23. Bad Check Laws <ul><li>TYPES OF BUSINESSES: LLC, CORPORATION, PARTENRSHIP, OR SOLE PARTERNSHIP </li></ul><ul><li>State Law: </li></ul><ul><li>Claims/Causes of Action by Vendor </li></ul><ul><ul><li>Breach of Contract </li></ul></ul><ul><ul><li>Fraud and Check Deception: the purported purchaser of goods without the intent to pay may constitutive fraud. Misrepresentation </li></ul></ul><ul><li>Remedies </li></ul><ul><ul><li>Amount of Check </li></ul></ul><ul><ul><li>Treble Damages </li></ul></ul><ul><ul><ul><li>Up to $1,500 plus attorney’s fees and costs </li></ul></ul></ul><ul><ul><ul><li>Demand letter for payment at last know address </li></ul></ul></ul><ul><ul><ul><li>Advise customer of treble damages and opportunity to cure </li></ul></ul></ul><ul><ul><ul><li>Send by certified mail, 30 days to cure, court award is mandatory absent good faith dispute </li></ul></ul></ul><ul><ul><li>Consequential and punitive damages </li></ul></ul>
  24. 24. Bad Check Laws <ul><li>State Law (Con’t) </li></ul><ul><li>Defenses that Check is Unenforceable (Bad Check statute is not strict liability statue) </li></ul><ul><ul><li>Good Faith Dispute Defense </li></ul></ul><ul><ul><ul><li>The goods or services provides were not as promised </li></ul></ul></ul><ul><ul><ul><li>The goods or services were not delivered </li></ul></ul></ul><ul><ul><ul><li>Overcharges </li></ul></ul></ul><ul><ul><ul><li>Rationale for Exception: vendor cannot coerce another into paying a bill which is unjust or which the buyer in good faith, disputes </li></ul></ul></ul><ul><ul><ul><li>Compare with Accord and Satisfaction. </li></ul></ul></ul><ul><ul><li>Representative Capacity Defense: Check maker was mere agent or conduit </li></ul></ul><ul><ul><li>Illegality of the Contract </li></ul></ul><ul><ul><li>Capacity to Contract </li></ul></ul>
  25. 25. Bad Check Laws <ul><li>Bankruptcy Law </li></ul><ul><li>Claims/Causes of Action </li></ul><ul><ul><li>Non dischargeable Claim </li></ul></ul><ul><ul><ul><li>Claim against bankrupt individual not corporation or LLC </li></ul></ul></ul><ul><ul><ul><li>Property obtained by the debtor’s false pretense, false representation or actual fraud </li></ul></ul></ul><ul><ul><ul><li>Legal Issue: Whether presentation of the check misleads the vendor into believing that the buyer intends to pay, thereby rasing to the level of false pretense, false representation or actual fraud. </li></ul></ul></ul><ul><ul><ul><li>Distinction by courts between express and implied misrepresentation </li></ul></ul></ul><ul><ul><ul><li>Lack of due diligence of vendor as a defense by debtor </li></ul></ul></ul><ul><ul><li>Remedy </li></ul></ul><ul><ul><ul><li>Claim rides through bankruptcy </li></ul></ul></ul>
  26. 26. Bad Check Laws <ul><li>Criminal Laws </li></ul><ul><li>In the majority of states, the crime is treated as a misdemeanor. In states that make a distinction between a felony and a misdemeanor, the amount of the check usually determines if the crime rises to the level of a felony. </li></ul><ul><li>In some states there is a criminal offense only when the bad check is given in exchange for property for a present consideration. In other states, it is a criminal offense to issue a bad check with insufficient funds with the intent to defraud or with knowledge of insufficient funds. </li></ul><ul><li>California Penal Code Section 476(a) </li></ul><ul><ul><li>Elements </li></ul></ul><ul><ul><ul><li>Intent to defraud </li></ul></ul></ul><ul><ul><ul><li>The drawing of a check on a bonk or other drawee </li></ul></ul></ul><ul><ul><ul><li>Lack of sufficient funds or credit at the time the check is made </li></ul></ul></ul><ul><ul><ul><li>Knowledge on the part of the offender of the lack of funds or credit </li></ul></ul></ul>
  27. 27. Bad Check Laws ) <ul><li>California Penal Code Section 476(a) (Con’t) </li></ul><ul><ul><li>Punishment </li></ul></ul><ul><ul><ul><li>The offense of issuing a check without sufficient funds if a felony punishable by imprisonment in the county jail or in the state prison for up to one year </li></ul></ul></ul><ul><ul><ul><li>The issuance of a check with insufficient funds is not included within the crime of theft, but is distinct and separate. The issuance of a check is properly considered related to, although distinct from, theft by false pretenses. Therefore, a person may be convicted of both theft and issuing a check with intent to defraud, though both offenses arise out of the same transaction. </li></ul></ul></ul><ul><ul><li>District Attorney </li></ul></ul><ul><ul><ul><li>Bad Check school to reform check signers </li></ul></ul></ul>
  28. 28. Bad Check Laws <ul><li>PERSONAL LIABILITY OF SIGNER OF CHECK </li></ul><ul><li>Does and individual signing a check which commits the corporation also commit the individual to personal liability? </li></ul><ul><li>Representative signing in a proper representative capacity: </li></ul><ul><ul><li>Naming the Corporation </li></ul></ul><ul><ul><li>Signing </li></ul></ul><ul><ul><li>Signer’s representative capacity: “ABC Corp. by Francis Smith, Treas.” </li></ul></ul><ul><li>Revision to Uniform Commercial Code </li></ul><ul><ul><li>Authorized Representative signing check is representative capacity is not personally liable </li></ul></ul><ul><li>Fraud </li></ul><ul><ul><li>Individual signed checks aware that they would bounce as there were insufficient funds on deposit in the corporate account to cover the two checks </li></ul></ul><ul><ul><li>Whether the vendor may establish that the signer of check knew there were insufficient funds when signing checks, but signed check to get the vendor to deliver more goods. </li></ul></ul>
  29. 29. Bad Check Laws <ul><li>CHECK FRUAD </li></ul><ul><li>Perpetrator’s Action Plan </li></ul><ul><ul><li>Perpetrator obtains vendor’s checking account number </li></ul></ul><ul><ul><li>Produces checks with vendor’s name </li></ul></ul><ul><ul><li>Contacts bank and verifies funds on hand </li></ul></ul><ul><ul><li>Uses fake ID </li></ul></ul><ul><li>Vendor’s Protection </li></ul><ul><ul><li>Lock up all checks, check stock and statements </li></ul></ul><ul><ul><li>Deposit payments in Deposit Only account. </li></ul></ul><ul><ul><li>Set up Positive Pay account </li></ul></ul><ul><ul><li>Set up Reverse Positive Pay/Customer Match Account </li></ul></ul><ul><ul><li>Contact your vendors for payment by Electronic Funds Transfer </li></ul></ul><ul><ul><li>Have all deposit slips, new checks, and statements sent to vendor’s branch. </li></ul></ul>
  30. 30. Accord and Satisfaction <ul><li>ACCORD AND SATISFACTION DEFINED </li></ul><ul><li>Accord: is an agreement to accept, in extinction of an obligation, something different from or less than that to which the person agreed to accept is entitled. </li></ul><ul><li>Satisfaction: is acceptance, but the creditor, of the consideration of an accord extinguishes the obligation, and is called satisfaction </li></ul><ul><li>Necessity of Execution: Though the parties to an accord are bound to execute it, yet is does not extinguish the obligation until it is fully executed. California Civil Code Section 1522. </li></ul><ul><li>Since an accord is an executory contract, it must be based upon a valid consideration. The old obligation remains in force until the new contract if formed by satisfaction </li></ul><ul><li>Under the common law, if a creditor received a check for less than the full amount owed, and that check contained a suspicious notation that it was tendered as satisfaction of the entire debt, the creditor had two options </li></ul><ul><ul><li>Reject the offer by returning or destroying the check or </li></ul></ul><ul><ul><li>Chas the check and accept the account. </li></ul></ul>
  31. 31. Accord and Satisfaction <ul><li>CODIFICAITON OF COMMON LAW UNDER THE UCC </li></ul><ul><li>UCC 3-311 Discharge of Claims </li></ul><ul><li>Before and accord and satisfaction can be establishes, there must be a bona fide dispute between the parties </li></ul><ul><li>The test of whether or not a bona fide dispute exists is whether the dispute was in good faith </li></ul><ul><li>A party cannot write a check “acceptance of this check is payment in full” when there is really no dispute creating an accord in an attempt to merely no pay the full obligation </li></ul><ul><li>If a bona fide dispute is established, the party who presents the check must make clear by appropriate working that cashing the check will be construed as settlement of all outstanding claims between the parties </li></ul>
  32. 32. Accord and Satisfaction <ul><li>CODIFICAITON OF COMMON LAW UNDER THE UCC </li></ul><ul><li>UCC 3-311 Discharge of Claims </li></ul><ul><li>Such a notation can take the form of: </li></ul><ul><ul><li>Payment in full settlement of the stated accounts </li></ul></ul><ul><ul><li>Endorsement of the check constitutes a settlement of your claim. </li></ul></ul><ul><li>A party may avoid an accord and satisfaction by the meony within 90 days </li></ul><ul><li>If a dispute exists, a party’s attempt to prevent a satisfaction by accepting the check, but sratching ot the restrictive endorsement and addding the words, “without prejudice” is of no avail </li></ul><ul><li>Under the UCC, words of protest cannot change the legal effect of an accord and satisfaction once a check has been cashed </li></ul><ul><li>The UCC provides for prevention of an accord an on mistakenly taking place, a creditor may require that, to be effective, any attempted satisfaction must be sent to a particular office </li></ul>
  33. 33. Accord and Satisfaction <ul><li>CODIFICAITON OF COMMON LAW UNDER THE UCC </li></ul><ul><li>UCC 3-311 Discharge of Claims </li></ul><ul><li>If a person against whom a claim is asserted proves that: </li></ul><ul><ul><li>That person in good faith tendered an instrument to the claims as full satisfaction of the claim </li></ul></ul><ul><ul><li>The amount of the claim was un liquidated or subject to a bond fide dispute </li></ul></ul><ul><ul><li>The claimant obtained payment of the instrument, the following subdivisions apply; </li></ul></ul><ul><ul><li>Unless subdivision (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered in full satisfaction of the claim </li></ul></ul><ul><ul><li>Subject to subdivision (d), a claim is not discharged if the claiming proves that within a reasonable time before the tender, the claimant sent a conspicuous statement to the person against whom the claim is asserted that communications concerning debts, including a instrument tendered as satisfaction of a debt, are to be sent to a designated person, was not received by that designated person </li></ul></ul>
  34. 34. Checks From Your Insolvent Customer <ul><li>Reclamation </li></ul><ul><li>Into Bankruptcy </li></ul><ul><ul><li>Pre Petition Check Bounces Because of Bankruptcy </li></ul></ul><ul><ul><li>Pre Petition Check Clears Post Petition </li></ul></ul><ul><ul><ul><li>Post Petition Preference </li></ul></ul></ul><ul><ul><ul><li>Critical Vendor </li></ul></ul></ul><ul><ul><ul><li>Ordinary Course Transaction </li></ul></ul></ul><ul><ul><li>Preference Issues </li></ul></ul><ul><ul><ul><li>Replacement Checks </li></ul></ul></ul><ul><ul><ul><li>Tying Checks to most recent Invoices </li></ul></ul></ul>
  35. 35. Check By Fax <ul><li>Checks by Fax Software allows a merchant to take check information form a customer, enter it, print a check, and deposit the check the same day. </li></ul><ul><li>WHAT ARE THE ADVANTAGES OF CHECK BY FAX? </li></ul><ul><li>Eliminates hassles regarding losing customers who do not have credit cards and the wait for that particular “check in the mail” </li></ul><ul><li>A customer signature is not required, rather verbal or written customer authorization obtained via phone, fax, or e-mail is sufficient </li></ul><ul><li>Checks by Fax Software are available with no up fee, monthly fee, per check fee, or printing charges. </li></ul>
  36. 36. Check By Fax <ul><li>IS CHECKS BY FAX LEGAL? </li></ul><ul><li>Sending checks by fax has been legal for years; a process that has been regulated by the Federal Trade Commission </li></ul><ul><li>Permission has been granted by Federal banking regulations and the UCC so that any business may utilize this service </li></ul><ul><li>Printing checks is also a legal process, accoriding to the United States Banking Statutes. </li></ul>
  37. 37. Check By Fax <ul><li>WILL BANKS ACCEPT PRINTED CHECKS? </li></ul><ul><li>Most banks should accept these printed checks </li></ul><ul><li>Some older banks may not have upgraded their systems, and thus may still require checks to be printed with magnetic ink. Most likely, a local bank will accept these printed check, but if not , magnetic ink may be purchased from any office supply store. </li></ul><ul><li>If questions arise as to the legality of the printed check, relevant statues are available on all Checks by Fax websites. </li></ul><ul><li>These Checks must be printed on special “secure” paper, as required by the Federal Reserve Board. All online services or local office supply stores should provide this paper. </li></ul>
  38. 38. Check By Fax <ul><li>STEPS A VENDOR CAN TAKE </li></ul><ul><li>Check Guarantee Services </li></ul><ul><ul><li>Guarantee of up to 100% of the face value of checks returned by bank. </li></ul></ul><ul><ul><li>Premium: charge for guarantee service. Generally fixed monthly fee of 1-2% transaction fee </li></ul></ul><ul><ul><li>Contingency Check Service </li></ul></ul><ul><ul><ul><li>Vendor is paid for only those checks that are collected. </li></ul></ul></ul>
  39. 39. Check By Fax <ul><li>CHECK VERIFICATION SERVICES </li></ul><ul><li>Vendor checks data bases and then decides whether to accept thee check. Vendor pays for the information but if the check is bad, vendor takes the loss. </li></ul>
  40. 40. <ul><li>Presented By: </li></ul><ul><li>Scott E. Blakeley, Esq. </li></ul><ul><li>Blakeley & Blakeley LLP </li></ul><ul><li>2030 Main Street, Suite 210 </li></ul><ul><li>Irvine, California 92614 </li></ul><ul><li>Telephone: 949 260 0611 </li></ul><ul><li>Facsimile: 949 260 0613 </li></ul><ul><li>Email: seb@vendorlaw.com </li></ul><ul><li>Internet: www.vendorlaw.com </li></ul>