Business Law – Banks Essay
It is not unethical not to inform the bank of the error it has committed. The bank has its own accounting system to detect errors in recording. Any error committed in the current period may be corrected in the succeeding month. What is objectionable is to treat the amount of $9 as profit or a compensating equivalent for previous bank service charges.
Any amount received is considered revenue when earned. Amount not earned is not to be considered as profit. It is to be handled only as a reconciling item and not to offset or indemnify for bank services charges for checks returned due to insufficient funds. Bank service charge is a legitimate claim by the bank for the services rendered.
- It is very important to reconcile accounts monthly to keep tract of cash transactions. The accounts must reconcile up to the last penny. It is negligible if one has only very few transactions in a month. However, if numerous transactions were made it is necessary that once each month, steps are taken to ascertain that the balance shown by the bank agrees with the balance shown in the depositor’s records. Reconciliations of two balances could reveal any errors made by the bank or the depositor, as well as unauthorized withdrawals such as raised or forged checks. Reconciliation is part of internal control to safeguard assets and aids depositor in planning, decision making and managing his cash.
Under Article 4 Section 406, paragraph d, subparagraph. 2 of the Uniform Commercial Code, a customer has the duty to inform the bank of the details in connection with the alterations or unauthorized payments made by the bank. Failure on the part of the customer to notify the bank, thirty (30) days subsequent to the receipt of the bank statement, he is now prevented from asserting his right against the bank, provided the bank made the unauthorized payment in good faith. However, if the customer proves that the bank failed to exercise due diligence, the preclusion does not apply.
- Negotiation is the transfer of an instrument from one person to another by
delivery if payable to bearer and by endorsement plus delivery if payable to order making the transferee the holder thereof. In determining negotiability of instruments, the whole of the instrument shall be considered. Only what appears on the face of the instruments shall be regarded and the provisions of the Negotiable Instrument Law shall be applied.
A valid negotiable instrument requires that a check is in writing and signed by the drawer. The check in issue conforms to this requirement as it is in writing and signed by Roberta Edwards. The check also complies with the requirement that, it must contain an unconditional order to pay a sum certain in money because the promise is unqualified coupled with an indication of a particular account to be debited with the amount. It is payable to order. Evidently, it is drawn payable to the order of Sajida Edwards. The drawee is also indicated therein with reasonable certainty since undeniably it is addressed to a bank (Kosar).
Essentially, the requirements of negotiability are met except for one requirement which necessitates that the order payable on demand or at a fixed or determinable future time must not contain an undertaking or additional instruction from the one ordering to pay, to do an act. While checks purports to be payable on demand, the check in question is payable upon a contingency, after the occurrence of an intended event, the 21st birthday of Sajida Edwards which is not certain to happen in case Sajida dies before she reaches the age of twenty one. This is an additional instruction by the drawer addressed to the bank to determine aside from payment of money. [Article 3-104 (a) (3), UCC]. Read about negotiable and nonnegotiable instruments Need essay sample on "Business Law – Banks"? We will write a custom essay sample specifically for you for only $ 13.90/page
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Even if Sajida exists on her 21st birthday, the check is still not negotiable because the happening of the event does not cure the imperfection. Determinable future time requires that the check is payable at a fixed period after the date or at a fixed period after the happening of a specified event which is sure to happen though the time of occurrence be uncertain. (Nolledo, page 6).
Nolledo, J.N. (l998). The Negotiable Instruments Law. Rex Book Store, Manila
Kosar, William, E. Handbook for Negotiable Instruments Law. Retrieved on September 11,
2007 from <http://www.centralbank.gov.af/pdf/Workshop%20on%20the%20Draft%
U.C.C. Article 3- Negotiable Instruments, Part1. General Provisions. Retrieved on
September 11, 2007 from http://www.law.cornell.edu/ucc/3/3-104.html
U.C.C. Article 4-Bank Deposits and Collections. Retrieve on September 12, 2007 from