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Compliance Companion®
Standard Procedures Manuals (SPM)
 

Negotiable Instruments Law January 2023


This Manual examines the law of negotiable instruments, particularly Articles 3 and 4 of the California Commercial Code. The text of this Manual is 390 pages, plus 53 pages of appendixes. The Manual is divided into four parts.

Part One addresses the check collection process and the expedited funds availability requirements, including the following areas:

  • Basics regarding negotiable instruments as provided in UCC Articles 3 and 4
  • Issues regarding drawer signatures, such as a drawer’s liability, remotely created checks and unsigned checks, multiple signatures and agency issues
  • Issues involving the issuance of checks (aka “instruments&rduo;), such as how a check is issued, the parties that are liable on an instrument, negotiation and indorsement of instruments, and holder in due course principles
  • Collection and return of checks, including indorsement standards, presentment and dishonor requirements, electronic presentment, notice of dishonor, same-day settlement, electronic checks, Regulation CC expeditious return requirements, UCC midnight deadline, warranties and indemnities
  • Bank collection issues, including overdrafts and check kiting, a payor bank’s compliance with legal process and stop payment orders, chargebacks, payable-through checks and drafts, “payment in full” checks (accord and satisfaction principles), death or incompetence of a depositor, postdated checks, and bulk filing
  • Expedited funds availability, including Regulation CC and California’s funds availability requirements
  • Account agreements and contractual issues
  • Automated overdraft protection guidance

Part Two discusses financial institution instruments and government checks, including:

  • Cashier’s checks, teller checks and certified checks
  • Money orders and traveler’s checks
  • Government checks, such as U.S. Treasury checks and California checks and warrants

Part Three covers substitute checks, electronic items, and check conversion, such as:

  • Check 21 rules
  • Check truncation and imaging
  • Electronic items and image exchange
  • Electronic Check Clearing House Organization (ECCHO) requirements
  • Remote deposit capture
  • Check conversion to ACH entry

Part Four addresses claims and defenses of the parties in the case of forged or altered items, including:

  • Forged or unauthorized drawer signatures
  • Forged or missing indorsements
  • Altered checks and other instruments
  • Claims procedures for forged or altered items
  • Financial institution’s liability to third parties

 

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Compliance Companion® is a one-stop regulatory compliance resource for financial institutions. This online compilation of 19 industry-leading compliance manuals, including SPM #07, Negotiable Instruments Law, takes the legalese out of federal and California laws and regulations, making it easier to understand and keep up with ongoing compliance developments.

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* Janet Bonnefin is retired from the practice of law with the firm.
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