I. EXAMPLE AND COMMENT
Bank honors depositor’s checks and then later learns that depositor died prior to their payment. Are such checks properly payable? The answer depends upon the bank’s “actual knowledge.” See, U.C.C. § 4-405.
Discussion: Bank’s authority to pay check not revoked until bank has actual knowledge of depositor’s death or declared incompetency by a court of law.
Bank may continue to pay or certify checks drawn on or before the date of death or incompetency, even after it has knowledge for 10 days, unless ordered to stop payment by a person claiming an interest in the account.
Bankruptcy or insolvency revokes bank’s authority to pay checks on an account. Bank making payment in good faith and without knowledge of bankruptcy or insolvency is protected in its payment.
II. EXAMPLE
Farmer writes check for $5,000 payable to Dealer on April 1. Unknown to the bank, Farmer dies in accident on April 2. On April 20, the bank paid Farmer’s check and when Farmer’s estate learned of payment demanded reimbursement from the bank arguing that the check was not properly payable because it was paid more than 10 days after Farmer’s death. Was the check properly paid?
Discussion: A court would probably find the check to be properly paid in that the bank did not have “actual knowledge” (actual knowledge invokes the 10-day rule).