Q. We use a “Declaration of Loss on Certified, Cashier's,
or Tellers Checks” when one of these documents is lost or
destroyed. Where does the authority for the "Declaration of
Loss" originate, and are these documents different from Indemnity
Letters for lost official checks?
Answer: The "declaration of loss" derives
from the UCC § 3-312 (N.D.C.C.§ 41-03-37.1). The Declaration
of Loss is used to enforce a claim the funds for a lost, stolen,
or destroyed cashier's teller's, or certified check. The declaration
is only enforceable after 90 days have lapsed from the time the
check was issued. The Declaration of Loss serves pretty much the
same function as the traditional indemnity letter or indemnity bond
does, except there is no direct statutory prescription for indemnity
bonds. Also, there is no 90-day time period required before an indemnity
bond can be enforced. However, these documents should not be confused
with the right of stop payment. There is no right of stop payment
where the item is an obligation of the paying bank rather than an
item drawn on the customer's account. the Indemnity Bond for Lost
Instruments which can be used to cash out a lost certificate of
deposit. It can also be used for a lost cashier, teller, or certified
check.
(See the article below for a more detailed discussion)
Early Stop Payment On An Official Check
By Mary Beth Guard
Question: We have a customer who closed
an account with the bank and requested the funds from the closing
be sent to their out of state address. It was mailed about a month
ago and the customer has not received the cashier's check the
bank mailed. Can we put a stop payment on our own cashier's check
before 90 days?
Answer: Don't use a stop payment. Instead, use the
procedure under Section 3-312 of the Uniform Commercial Code [N.D.C.C.§
41-03-37.1] to provide a legal basis for you to return the check
unpaid and protect your institution against getting sued for wrongful
refusal to pay the cashier's check. If you truly can't wait ninety
days, there are some precautions you will want to take, too.
First, have the customer sign a Declaration of Loss form under
oath before a notary attesting to the fact that the customer has
lost the cashier's check or never received it. It should include
all the facts, as the customer knows them.
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You will want
to make sure the customer states that he never received it, or that
if he received it, then lost it, that he did not endorse it prior
to losing it. If the lost item has already been endorsed, the customer
is out of luck.
Once 90 days have passed, if the item is presented for payment, you
can return it unpaid due to an enforceable claim being made under
UCC 3-312/N.D.C.C.§ 41-03-37.1.
If the customer does not want to wait until the ninety days have
passed, you are taking a risk if you place a stop payment on the item.
If the check is presented for payment, but has a forged endorsement,
you can return the check unpaid by the midnight deadline marked "forged
endorsement" -- NOT "stop payment". We would hope that
having a stop payment on the item would simply give you a method,
operationally, to kick it out and allow you to process it in a timely
fashion. You would not want to return it marked "stop payment"
under the scenario just described because that doesn't alert the depositary
bank to the real problem - and it makes it look like you have wrongfully
refused to pay the check.
If the check comes in during the 90 day period after it was issued
and it has a valid endorsement on it and has been negotiated over
to a holder in due course, you would need to pay it. Failure to do
so could give rise to a claim against you. If you decide (and I wouldn't
advise it) as an accommodation to the customer, to refuse payment
of the check, even if it appears to have a good endorsement, you would
want the customer to agree to indemnify you for all claims and charges
you incur as a result of not paying the check during that 90 day period
(before the declaration of loss becomes enforceable and you have a
legal right to return the check unpaid). You can only require the
indemnification for the period of time that you have exposure to liability
before the Section 3-312/N.D.C.C.§ 41-03-37.1 protection clicks
into place.
As with many other banking matters, it's simply an issue of risk
management. If you are willing to take the risk that the check might
show up validly endorsed and you could end up paying twice - or if
you are willing to take the risk with prudent steps to insulate yourself
from liability by getting an indemnity agreement or a bond, then you
can put the stop payment on. You simply need to understand the potential
liability before you do and you need to make an informed decision
about whether it's worth it - or whether you should wait it out.
(Originally printed at http://www.bankersonline.com
Reprinted with permission from the author)
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