Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
CASE 29-3
Seigel v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
Steadman J.
* * *
The events giving rise to this lawsuit
arose in January and February of 1997 *
* * . During that time period,
plainti /appellant Seigel, a Maryland
resident, traveled to Atlantic City, New
Jersey to gamble. While there, he wrote
a number of checks to various casinos,
and, in exchange, received gambling
all the checks.
Seigel eventually gambled away all of
the chips he had received for the
checks. Upon returning to Maryland,
Seigel discussed the status of the
outstanding checks with Merrill Lynch,
informing his broker of the gambling
nature of the transactions, and his
desire to avoid realizing the apparent
losses. Merrill Lynch informed Seigel that
it was possible to escape paying the
checks by placing a stop payment order
and liquidating his cash management
account. Seigel took this advice and
instructed Merrill Lynch to close his
account, liquidate the assets, and not to
honor any checks drawn on the account.
Merrill Lynch agreed, and con1rmed
Seigel’s instructions.
plus interest * * * . Seigel 1led a motion
for summary judgment * * * . He argued
that D.C. Code §16–1701 precluded
enforcement of the checks as a void
gambling debt, or in the alternative that
New Jersey law prohibited the
enforcement of the checks, and that
therefore Merrill Lynch had no rights by
way of subrogation as a defense to its
payment over the stop payment order.
had not su ered any actual loss as a
result of the payment of the checks. On
June 24, 1998, the trial court issued an
order granting defendant’s motion, and
dismissing the complaint. This appeal
followed.
* * *
We begin with an examination of the
statutory scheme relating to stop
payment orders, because we believe
these provisions are determinative of
this appeal. The relevant sections are
found in the Uniform Commercial Code *
* * §§4403 and 4407.
The basic right of the depositor to stop
payment on any item drawn on the
depositor’s account is set forth in
Section 4403(a). However, liability on
the bank for payment over a stop
payment order is far from automatic. On
the drawer or maker (that is, the
depositor), the bank is subrogated both
to the rights of “any holder in due
course on the item” and to the rights of
“the payee or any other holder of the
item against the drawer or maker either
on the item or under the transaction out
of which the item arose.” As a leading
rights of the casino payees against
Seigel. As the payee of a dishonored
check, the casino would have a prima
facie right to recover its amount from
Seigel as drawer, 3414(b), and the
burden would be on Seigel to establish
any defense he might assert on the
instrument. 3308(b); [citation]. Seigel
asserts two such defenses: duress and
illegality. We turn to an examination of
those defenses.
* * *
The entirety of appellant’s duress
argument emanates from a single
sentence in his a-davit: “For years I
have had [a] gambling problem.” If not
ambiguous, the statement is conclusory.
Unlike the gambler in [citation],
appellant fails to produce any evidence
in the record, specific or otherwise,
regarding his problem and its relation to
any unconscionable duress in the
We therefore conclude that Seigel’s
assertion that the checks would be
unenforceable in New Jersey fails. Seigel
also invokes the fact that these checks
were given in order to obtain chips with
which to gamble, and cites us in
particular to D.C. Code * * * [which]
provides that:
In substance, Seigel claims that this
statute would serve as a defense if the
casinos were to seek to enforce the
checks in the first instance in a District
of Columbia court, and therefore this
same statute requires that he be
entitled to a-rmatively recover from
Merrill Lynch the amount of the checks
in a District of Columbia court,
regardless of the checks’ enforceability
elsewhere.
We may assume for present purposes
that this statute would prevent direct
enforcement of the checks in the District
of Columbia, a somewhat dubious
proposition in itself given the validity of
the checks where made. But that is not
this case. Rather, the question is
whether under the relevant provisions of
the Uniform Commercial Code, Seigel
has met his burden of proof to establish
actual loss. We think he has not.
have provided an appropriate forum for
enforcing the checks. The highest
Maryland court has squarely held that
because there is no longer a strong
enforce the checks directly against
Seigel in the state of his residence—
Maryland.
* * *
Case Questions
1. What does it mean for the bank to have rights of subrogation?
2. How could another check and balance be placed into this system?
Ethical Question: Who should bear the risk of loss in this case? Explain.
Critical Thinking Question: What rule should be established for liability of
a bank making a payment over a stop payment order?
Disclosure Requirements
The Truth in Savings Act, passed in 1992, requires all depositary institutions
to disclose details of customers’ accounts, including fees, interest rates, and
regulations.
Customer's Death or Incompetence
Death or incompetence revokes all agency agreements. Adjudication of
incompentency by a court is regarded as notice to the world of that fact.
Actual notice is not required.
Customer's Duties
A bank customer must exercise reasonable promptness in examining
account statements and canceled checks to detect unauthorized signatures
or alterations. Failure to notify the bank of any false signatures within the
*** Chapter Outcome ***
De1ne a consumer electronic funds transfer, identify the various types of electronic
funds transfers
and outline the major provisions of the Electronic Funds Transfer Act.
CASE 29-4
Mansi v. Gaines
Waller, J.
This appeal involves an issue of first
impression in Mississippi—the
interpretation of [UCC] 4–406 (Rev.
2002), which imposes duties on banks
and their customers insofar as forgeries
are concerned. The case arises from a
series of forgeries made by one person
Washington County, Mississippi. * * * The
Rogers were both in their eighties when
the events which gave rise to this lawsuit
took place. After Neal became bedridden,
Helen hired Jackie Reese to help her take
care of Neal and to do chores and
errands.
ACCOUNT
NUMBER
BEGINNING ENDING NUMBER OF
CHECKS
AMOUNT OF
CHECKS
54282309 11/27/2000 6/18/2001 46 $16,635.00
0039289441 9/27/2000 1/25/2001 10 $2,701.00
6100110922 11/29/2000 8/13/2001 29 $9,297.00
6404000343 11/20/2000 8/16/2001 83 $29,765.00
TOTAL 168 $58,398.00
Neal died in late May of 2001. Shortly
thereafter, the Rogerses’ son, Neal, Jr.,
began helping Helen with financial
matters. Together they discovered that
many bank statements were missing
and that there was not as much money
in the accounts as they had thought. In
June of 2001, they contacted Union
Planters and asked for copies of the
missing bank statements. In September
of 2001, Helen was advised by Union
Planters to contact the police due to
entered judgment accordingly. From this
judgment, Union Planters appeals.
Discussion
* * *
The relationship between Rogers and
Union Planters is governed by Article 4
of the Uniform Commercial Code,
[citation]. [UCC] Section 4–406(a) & (c)
provide that a bank customer has a duty
to discover and report “unauthorized
signatures”; i.e., forgeries. Section
4–406 of the UCC reSects an underlying
able to prevent a loss. Because the
customer is more familiar with his own
signature, and should know whether or
not he authorized a particular
withdrawal or check, he can prevent
further unauthorized activity better than
a financial institution which may process
thousands of transactions in a single
day. Section 4–406 acknowledges that
the customer is best situated to detect
A. Union Planters’ Duty to Provide
Information under §4–406(a).
The court admitted into evidence copies
of all Union Planters statements sent to
Rogers during the relevant time period.
Enclosed with the bank statements were
either the cancelled checks themselves
or copies of the checks relating to the
period of time of each statement. The
evidence shows that all bank statements
and cancelled checks were sent, via
United States Mail, postage prepaid, to
all customers at their “designated
to a customer when it “sends . . . to a
customer a statement of account
showing payment of items.” §4–406(a)
(emphasis added). [Citation.] The word
“receive” is absent. The customer’s duty
to inspect and report does not arise
when the statement is received, as
Rogers claims; the customer’s duty to
inspect and report arises when the bank
sends the statement to the customer’s
noti1ed a bank of an irregularity may be
precluded from bringing certain claims
against the bank:
(d) If the bank proves that the customer
failed, with respect to an item, to comply
with the duties imposed on the customer
by subsection (c), the customer is
precluded from asserting against the
bank:
(1) The customer’s unauthorized
signature . . . on the item, if the bank
also proves that it su ered a loss by
reason of the failure; . . .
[UCC] §4–406(d)(1).
A bank may shorten the customer’s
thirty-day period for notifying the bank
of a series of forgeries, and here, Union
Planters shortened the thirty-day period
to 1fteen days. The statute states that a
customer must report a series of
forgeries within “a reasonable period of
time, not exceeding thirty (30) days. . . .
” “The 30-day period is an outside limit
only. However 30 days is presumed to
be reasonable and the bank bears the
burden of proving otherwise.” [Citation.]
Although there is no mention of a
specific date, Rogers testi1ed that she
Reese had been forging checks until
September of 2001. Courts in Louisiana
and Texas have held that, under similar
circumstances, a customer’s claims
against a bank for paying forged checks
are without merit. [Citations.]
Rogers is therefore precluded from
making claims against Union Planters
because (1) under §4–406(a), Union
Planters provided the statements to
Rogers, and (2) under §4– 406(d)(2),
Rogers failed to notify Union Planters of
the forgeries within 15 and/or 30 days of
the date she should have reasonably
Case Questions
1. Should a bank be held responsible for checking every signature on every
check? How signiticant should a variation in signature be before it is
questioned?
2. Should a customer be held responsible for examining her bank statements
to determine if there has been any fraud? How much time should she be
allowed?
Ethical Question: Did either part act unethically? Explain.
Critical Thinking Question: Do you agree with the court's decision?
Explain.
II. ELECTRONIC FUNDS TRANSFERS
The use of commercial paper for payment has already made the United
States a virtually cashless society; technological advances of computers may
bring about a virtually checkless society through electronic funds transfer
systems (EFTs).
An electronic funds transfer has been defined as “any transfer of funds,
other than a transaction originated by check, draft, or similar paper
instrument, which is initiated through an electronic terminal, telephonic
A. NATURE & TYPES OF ELECTRONIC FUNDS TRANSFERS
Automated Teller Machines (ATM)
Permit customers to conduct various banking transactions through the use of
electronic terminals. After activating an ATM with a plastic identification card
and a personal identification number (PIN) a customer can deposit and
withdraw funds from her account, transfer funds between accounts, obtain
cash advances from bank credit card accounts, and make payments on
loans.
Point-of-Sale Systems (POS)
Direct Deposits and Withdrawals
Customer-preauthorized direct deposits (such as direct payroll deposits,
deposits of Social Security payments, and deposits of pension payments)
may be made to the customer’s account through an electronic terminal.
Automatic withdrawals are preauthorized electronic funds transfers from the
customer’s account for regular payments to some other party (such as
insurance companies, utility companies or automobile finance companies).
Pay-By-Phone Systems
Online Banking
Online banking enables the customer to execute many banking transactions
via an Internet-connected computer. For instance, customers may view
account balances, request transfers between accounts, and pay bills
electronically.
*** Chapter Outcome ***
Explain wholesale funds transfers and discuss how they operate.
Wholesale Electronic Funds Transfers
Over one trillion dollars of wholesale electronic funds transfer occur each
business day between financial institutions, between financial institutions
and businesses, and between businesses, under the auspices of the Federal
Reserve wire transfer network system (Fedwire) and the New York Clearing
House Interbank Payment System (CHIPS), and a number of private
wholesale wire systems which exist among large banks.
B. CONSUMER FUNDS TRANSFERS
The Electronic Funds Transfer Act was passed in 1978 and administered by
the Board of Governors of the Federal Reserve System, the act requires
Disclosure
The act is primarily a disclosure statute, which requires the terms and
conditions of electronic funds transfers involving a consumer's account be
disclosed in readily understandable language at the time a consumer
contracts for services. Required disclosures include liabilities, charges,
rights, and procedures.
Documentation and Periodic Statements
Consumers must be provided with written documentation of each transfer
made from an electronic terminal at the time of the transfer. The
transfer; the fee for the transaction; and an address and phone number for
questions and information.
Preauthorized Transfers
A preauthorized transfer from a consumer's account must be authorized in
advance by the consumer in writing. A copy must be provided to the
consumer when made.
Error Resolution
Consumer Liability
Consumer liability is limited to $50 if noti1cation of unauthorized transfers is
provided within two days after the consumer learns of the theft, and $500 if
notice is made subsequently. Customer liability is unlimited if notice is not
given within sixty days after receipt of a periodic statement, and the bank
can demonstrate that the loss would not have occurred absent the
customer's failure to report. If the financial institution fails to investigate in
good faith, it is liable to the consumer for treble damages.
Liability of Financial Institution
The financial institution is liable for damages proximately caused by a failure
to make an EFT within the terms of the customer's account contract. There
C. WHOLESALE FUNDS TRANSFERS
Article 4A, Funds Transfers is designed to provide a statutory framework for
an electric payment system that is not covered by existing U.C.C. provisions
or the Electronic Fund Transfer Act; provides that the rights and obligations
of the parties to a funds transfer covered by the article are subject to the
contrary agreement of the parties or the funds transfer system rules
governing banks.
Scope of Article
Article 4A covers the transfers of credit that move from an originator to a
bene1ciary through the banking system. However, if any step is governed by
the Electronic Fund Transfer Act, the entire transaction is excluded from
Article 4A coverage.
Payment order — A sender’s instruction to a receiving bank to pay, or to
cause another bank to pay, a 1xed or determinable amount of money to a
bene1ciary; may be oral, electronic, or in writing.
NOTE: See Fig. 29-2: Parties to a Funds Transfer for an example.
Excluded Transactions — Article 4A provides that if any part of a funds
transfer is governed by the Electronic Fund Transfer Act, the transfer is
excluded from Article 4A coverage.
NOTE: See Figure 29-2.
Acceptance
If the bene1ciary's bank accepts a payment order, the bank is obligated to
pay the bene1ciary the amount of the order.
Erroneous Execution of Payment Orders
If a receiving bank mistakenly executes a payment order for an amount
greater than that authorized by the sender, the bank is only entitled to the
correct ordered amount.
Unauthorized Payment Orders
