CASHIER'S, TELLER'S OR CERTIFIED CHECKS INTRODUCTION

CASHIER'S, TELLER'S OR CERTIFIED CHECKS

INTRODUCTION

The Uniform Commercial Code ("UCC") is intended to simplify, clarify and modernize the

law governing commercial transactions. The UCC has been adopted by all states. Article III of the

UCC applies to negotiable instruments such as checks and promissory notes. Article IV applies to

bank deposits. Recently, the UCC was revised. Among the recent revisions to the UCC was the

inclusion of Section 3-312 (lost, destroyed, or stolen cashier's checks, teller's checks or certified

checks). UCC '4-111 was also revised to reduce the statute of limitations for lawsuits based upon

checks. This new amendment to Article III of the UCC significantly changed the manner in which

the Credit Union must handle a member's request for replacement of a lost, stolen, or destroyed

cashier's check, teller's check or certified check.

THE PROBLEM WITH LOST OR STOLEN TELLER'S OR CERTIFIED CHECKS

In the past there was often a difficult situation when a member obtained a cashier's check,

teller's check or certified check from the Credit Union which was subsequently lost by, or stolen

from, the member. A cashier's check was rarely issued by the Credit Union since by definition a

cashier's check is a check which the Credit Union would issue on its own bank account. The UCC

defines a teller's check as a check drawn by the Credit Union on its account at another bank. This

type of check is often referred to as an "official check." A certified check is a member's check drawn

on the member's account at the Credit Union which the Credit Union has certified for payment.

The problem arose if a member reported one of the above-indicated checks to be lost,

destroyed or stolen and requested the Credit Union to reissue the check. If the Credit Union issued

a new check it ran the risk that the original check had gotten into the hands of a holder in due course.

Section 3-302 of the UCC defines a holder in due course, as being the holder of a check who

obtained the check for value, in good faith, without notice that the check was overdue or had been

dishonored, without notice that the check contained any unauthorized signatures or had been altered,

and without notice of any claim to the check and without notice that any party has a defense to

payment of the check.

THE OLD CODE

Under the old UCC ¡ì3-804 a Credit Union was not required to issue a replacement check

unless the member went to court and posted adequate security. In the event the Credit Union chose

to honor a member's request to stop payment and reissue a lost or stolen teller or certified check, the

Credit Union would require the member to sign an indemnification agreement and to post a bond

or pledge deposit monies to cover the check in the event it was presented to the Credit Union for

payment by a holder in due course.

#163 Rev. 11/24/1997

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THE NEW CODE SECTION 3-312

The revised ¡ì3-312 eases the burden for a member by allowing the member as a "claimant"

to provide the Credit Union with a written, sworn A Declaration of Loss" explaining the

circumstances of the check's disappearance. Upon receipt of the declaration the Credit Union must

pay or reissue the check when the claim is more than ninety (90) days old; prior to that time the

Credit Union may pay the check.

Once the claim is more than ninety (90) days old, the Credit Union may issue a replacement

check and the Credit Union will no longer be obligated on the original check, even if it is presented

by a holder in due course. This is contrary to the old law, which allowed a holder in due course to

obtain payment from the Credit Union even if the Credit Union had issued a stop payment order on

the check before it was presented for payment.

However, if a holder in due course does show up, the claimant (the member who reported

the check lost, stolen or destroyed) must pay the holder in due course. Under this new code section,

the member no longer has the burden of suing the Credit Union and posting a bond as security, yet

the new rule does not increase the exposure of the Credit Union. The rule applies to lost teller's

checks, bank drafts and certified checks.

DECLARATION OF LOSS

Section 3-312, defines the Declaration of Loss as follows:

1. A written statement;

2. Made under penalty of perjury;

3. "To declare lost possession of a check" (the declarer is the drawer or payee of the check in the

case of a certified check or the remitter or payee of the check, in the case of cashier's check or

teller's check);

4. The loss of possession was not the result of transfer by the declarer or a lawful seizure;

5. The declarer cannot reasonably obtain possession of the check because the check was destroyed,

its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person

or a person that cannot be found or is not amenable to service of process.

A sample "Declaration of Loss" is attached hereto for your consideration. It is strongly

recommended that the signature of the member on the Declaration of Loss be notarized.

Upon receipt of the signed Declaration of Loss, the Credit Union must determine when the

claim becomes enforceable. The UCC indicates that the claim becomes enforceable at the later of

the time the claim is asserted, or the ninetieth day following the date of the check, in the case of a

cashier's check or teller's check, or the ninetieth day following the date of acceptance, in the case

of a certified check.

#163 Rev. 11/24/1997

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REVISED STATUTE OF LIMITATIONS FOR CHECK ACTIONS

In addition to the revision set forth above, the New Jersey Uniform Commercial Code, ¡ì4111, was revised to include a statute of limitation for lawsuits based upon checks or sharedrafts. The

new ¡ì4-111 states that any action arising out of a check collection dispute under either Article III

or IV of the UCC must be commenced within three (3) years after the cause of action accrues. The

old code contained no statute of limitation for Credit Unions -- member's disputes. As a result, there

has been much litigation regarding the applicable statute of limitations for a variety of deposit

disputes. The revision provides a clean, predictable three (3) year statute. In most cases, this new

statute will help the Credit Union because it undercuts the argument that a longer limitation period

applies to deposit agreements where the checks themselves are "written agreements." Under New

Jersey law contracts and other written agreements have a six (6) year statute of limitation.

If you have any questions in reference to the foregoing please feel free to contact me.

#163 Rev. 11/24/1997

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DECLARATION OF LOST, DESTROYED OR STOLEN CASHIER'S CHECK,

TELLER'S CHECK OR CERTIFIED CHECK PURSUANT TO N.J.S.A. 12A:3-312

State of New Jersey, County of

SS:

I,

, the person whose name appears below, being of full

age and sound mind hereby propose and swear as follows:

1. I have lost possession of the following check:

Check #

Amount of Check

Date of Check

Cashier's or Teller's Check

(Certified Check)

Check Payee

Institution on which the check is drawn:

2. I hereby request the Bank to stop payment on the above-indicated check and to issue to me a new replacement

check in the same amount. I am the drawer or payee of the check (in the event the check is a certified check).

If the check is cashier's check or teller's check I am the remitter or payee of the check. The loss of possession

of the check was not a result of a transfer by myself or a lawful seizure of the check. I cannot reasonably obtain

possession of the check because the check was destroyed, its whereabouts cannot be determined, or is in the

wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of

process.

3. I have prepared this Declaration of Loss in furtherance of my request to the Credit Union to issue a replacement

check and I acknowledge that the Credit Union is relying upon the accuracy of my statements as set forth in this

Declaration of Loss.

4. This claim for replacement of the above-indicated check becomes enforceable at the later of the date this fully

completed, signed and notarized Declaration of Loss is presented to the Credit Union or the ninetieth (90th) day

following the date of the check in the case of a cashier's check or teller's check, or the ninetieth day following

the date of acceptance in the case of a certified check.

5. I acknowledge and agree that pursuant to New Jersey Statute 12A:3-312, I may be liable for payment of

the above check if it is presented for payment by a holder-in-due course. I certify that the foregoing

statements are true under penalty of perjury.

Sworn and subscribed to before me

this

day of

,

.

(Signature of person preparing Lost, Destroyed or

Stolen Cashier's, Teller or Certified Check)

#163 Rev. 11/24/1997

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STOP PAYMENT REQUEST FORM AND

INDEMNIFICATION AND HOLD HARMLESS AGREEMENT

I/We, the undersigned, hereby requests the

Federal Credit Union,

to stop payment on the Credit Union check or our certified sharedraft (instrument) listed below. I/We acknowledge

and agree that the Credit Union is under no obligation to honor this stop payment request and is only doing so as

a result of this Indemnification and Hold Harmless Agreement and the representations contained herein. I/We

further acknowledge that the Credit Union may be subject to claims by stopping payment on the instrument listed

below.

I/We, agree to reimburse the Credit Union for all damages, costs and expenses including attorneys fees

which it may be subjected to by reason of its compliance with my/our stop payment request concerning the

instrument below; and further agree to indemnify and hold harmless the Credit Union from any and all liability as

a result of the Credit Union's compliance with this stop payment order.

I/We pledge the sum of money set forth below which will be frozen in my/our account at the Credit Union.

These funds may be used by the Credit Union, to pay any claim or demand which is made against the Credit Union

as a result of its having acted in accordance with this stop payment order. In the event this amount is insufficient,

I further agree to immediately pay, upon written demand by the Credit Union any additional amount necessary to

reimburse the Credit Union for any reasonable costs, expenses, or attorneys fees that it may incur in defending itself

against any claims or demands made against it as a result of the Credit Union acting in accordance with this stop

payment request.

I/We understand that the holder of the instrument listed below may properly require the Credit Union to pay

the instrument even though a stop payment order has been placed against the instrument. I acknowledge and agree

that the Credit Union, in its sole discretion, may subsequently choose to pay the instrument despite the fact that a

stop payment order was initially made by the Credit Union. In the event the Credit Union, in its sole discretion,

subsequently agrees to pay the holder of the instrument, I/We will have no further claim against the Credit Union

because of such payment, however, the terms and provisions of this Indemnification and Hold Harmless Agreement

will remain in effect and I agree to immediately reimburse the Credit Union for any additional damages, costs and

expenses, including attorneys fees, which the Credit Union may incur by reason of its initial compliance with this

stop payment request.

Please stop payment of the following Credit Union check/certified sharedraft.

Instrument #

Amount $

Number

For the following reason:

Payable to the order of:

Dated

I/We pledge as security for this Agreement the following sum of $

in my/our

Credit Union account number

which funds will be held by the Credit Union as

security for this Agreement.

#163 Rev. 11/24/1997

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