Olson Burns Lee, P.C. Law Practice

Community Bankers' Advisor

June, 2002

Page 3

being safer than filing. Under N.D.C.C. § 41-09-50(4), a purchaser for value who takes possession of an instrument without knowledge that the purchase violates the rights of the secured party generally would have priority over a security interest perfected by filing. Too, N.D.C.C. § 41-09-51(3) provides that filing a financing statement does not constitute notice that would deter a subsequent purchaser

from becoming a holder in due course and taking free of all claims under U.C.C. § 3-306. The means by which a filing may be defeated suggest that a lender should have a very

strong comfort level with the borrower if the lender is going to rely on filing to perfect a security interest in paper rather than taking possession.

CHECK KITING ON THE RISE

Check kiting losses to banks have gone up in recent years, and banks should spend a moment to instruct staff on identifying a check kiting ploy. The check kiting swindle is the manipulation of checking accounts in two or more banks which allow the payment of checks drawn on uncollected items of deposit.
The amount of time that it takes a check to move through the payment process from the depository bank, the intermediary bank or banks, to final payment by the payor bank is called the “float time.” That is, there seems to be funds on deposit in the depository bank until a worthless check has completed the payment process and is finally returned to the depository bank unpaid. That “float time,” which creates the impression of funds on deposit in the depository bank, can take as long as twelve to fifteen days, depending upon the number of intermediary banks which must handle the item and the distance between the depository bank and payor bank.
The following is an example of how balances may appear in each bank:

Date	Eastern Bank	Western Bank	Northern Bank

6-03	$10,000.00 deposit
6-04	$10,000.00 balance
6-05	$10,000.00 balance	$13,500.00 deposit
6-06	$10,000.00 balance	$13,500.00 balance
6-07	$10,000.00 balance	$13,500.00 balance	$27,300.00 deposit
6-10	$10,000.00 balance	$10,000.00 withdrawal	$27,300.00 balance
6-11	$10,000.00 balance	$ 3,500.00 balance	$27,300.00 balance
6-12	$51,345.00 deposit	$ 3,500.00 balance	$13,500.00 withdrawal
6-13	$61,345.00 balance	$ 3,500.00 balance	$13,800.00 balance
6-14	$27,300.00 withdrawal	$56,000.00 deposit	$13,800.00 balance
6-17	$34,045.00 balance	$59,500.00 balance	$13,800.00 balance
6-18	$34,045.00 balance	$59,500.00 balance	$49,500.00 deposit
6-19	$34,045.00 balance	$51,345.00 withdrawal	$63,300.00 balance
6-20	$34,045.00 balance	$ 8,155.00 balance	$63,300.00 balance
6-21	$ 6,000.00 deposit	$ 8,155.00 balance	$56,000.00 withdrawal
6-21	$40,000.00 withdrawal	$ 8,000.00 withdrawal	$ 7,000.00 withdrawal
6-21	$ 45.00 balance	$ 155.00 balance	$ 300.00 balance
6-24	$ 6,000.00 returned	$ 155.00 balance	$49,500.00 returned
6-24	$ 5,955.00 overdrawn	$ 155.00 balance	$49,200.00 overdrawn