Defensive banking tips for the law office.Managing an office today requires a good defensive strategy--thoroughly vetting potential employees to avoid future personnel problems, instituting segregation of duties to limit the possibility that employees will embezzle embezzle To take illegally something of value being held in custody for someone else. , incorporating tight online security measures Noun 1. security measures - measures taken as a precaution against theft or espionage or sabotage etc.; "military security has been stepped up since the recent uprising" security to protect against hackers. But one aspect of firm management often is overlooked when legal administrators are planning their next defensive move--banking. Following is a summary of some of the key laws that could affect the way your firm conducts its banking business, including tips on how to protect your firm from some common banking mistakes. Retainer agreements A retainer agreement is work for hire contract intermediate between simple contracting and direct employment but essentially still contracting. One element that distinguishes it from any other service contract is that a primary consideration which the buyer purchases is an option : The structure of your retainer agreements can facilitate--or hamper--opening deposit accounts and depositing checks. If appropriate, make sure your retainer agreements give you the power to endorse and deposit checks payable to your client (whether payable to the client alone or payable to both the attorney and client). Without this, banks may require the client's signature to be guaranteed by his or her bank (which could be a problem if the client does not have an account) or that the client be present when the check is deposited. Depositing checks into your trust account and "collected" funds: When a check is" deposited, your bank must get the money from the bank of the person who issued the check. Until it actually collects, your bank may allow you to use the "uncollected" funds. While you can write checks against those funds, you do so at your own risk. If the deposited check is paid, no problem. If returned unpaid, potential problem. If you have paid out funds on a check later returned unpaid, you are out of trust--you used one client's funds to pay another client. If the returned check creates an overdraft A check that is drawn on an account containing less money than the amount stated on the check. The term overdraft is also used in reference to the condition that exists when vouchers , your bank must report you to the State Bar, and the State Bar may sanction you. To avoid these problems, explain to clients that you will not be able to issue a check against the deposited funds for a week (for local checks) or two (for checks out of the area). You may want to try to verify that a check has been finally paid. Contact the bank on which an item is drawn to confirm receipt and payment. Accord & Satisfaction ("Paid in Full" Checks): Before 1993 you could take a check marked "paid in full" which actually was for less than the amount due, strike the restrictive language, cash the check, and preserve your rights to collect the balance. Now, with few exceptions, under Commercial Code [section] 3311, if you cash a check which says "paid in full" and the debt is disputed, payment really is in full. You can't recover the balance, even if you could prove more is owed. Don't cash "paid in full" checks unless you are prepared to accept the sum as payment in full. Death/Incompetence of Bank Customer: After a bank customer has died or been declared incompetent incompetent adj. 1) referring to a person who is not able to manage his/her affairs due to mental deficiency (lack of I.Q., deterioration, illness or psychosis) or sometimes physical disability. , a bank is not liable for paying checks against that person's account until the bank has been given official notification of death or adjudication The legal process of resolving a dispute. The formal giving or pronouncing of a judgment or decree in a court proceeding; also the judgment or decision given. The entry of a decree by a court in respect to the parties in a case. of incompetence in·com·pe·tence or in·com·pe·ten·cy n. 1. The quality of being incompetent or incapable of performing a function, as the failure of the cardiac valves to close properly. 2. and has a reasonable opportunity to act upon it. A bank may pay checks up to 10 days after the date of death unless it is ordered to stop payment by a person claiming an interest in the account. (Commercial Code [section] 4405) Postdated Checks postdated check n. a check delivered now with a written date in the future, so that it cannot be cashed until that date. The danger to the recipient is that such a check is legally only a promissory note due at the later date, and if the account is closed or short : Banks may pay early unless the customer gives it notice of postdating. Most banks have a form for this notice. Such notice generally is effective for six months. (Commercial Code [section] 4401) Staledated Checks: There is no legal obligation to pay checks more than six months old, but a bank may pay staledated checks "in good faith." Never assume an "old" check won't be paid, simply because it is old. (Commercial Code [section] 4404) Stop Payment Order (on your check): Any signatory sig·na·to·ry adj. Bound by signed agreement: the signatory parties to a contract. n. pl. sig·na·to·ries One that has signed a treaty or other document. on an account has the right to stop payment on a check issued against the account, regardless of which authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: signer signed the check. A stop payment is genera genera, in taxonomy: see classification. y effective for 14 clays if it's an oral order, six months if confirmed in writing. Some banks allow "permanent" stop payments. If the bank pays a check after a stop payment has been issued, the accountholder must prove loss. A stop payment does not prevent a "holder in due course" from collecting on the check. (Commercial Code 4403) Stop Payment Order on bank's "Cashier's Check cashier's check n. a check issued by a bank on its own account for the amount paid to the bank by the purchaser with a named payee, and stating the name of the party purchasing the check (the remitter). " or other official check: A cashier's check is an obligation of a bank, rather than an individual. If a Cashier's Check or other bank check is lost or stolen, the purchaser or payee The person who is to receive the stated amount of money on a check, bill, or note. payee n. the one named on a check or promissory note to receive payment. PAYEE. The person in whose favor a bill of exchange is made payable. of the check may execute a declaration of loss and, on the 90th day after issuance of the check (or the date of the declaration of loss if more than 90 days after issuance), if the check has not been paid, the bank shall pay the amount of the check to the claimant CLAIMANT. In the courts of admiralty, when the suit is in rem, the cause is entitled in the Dame of the libellant against the thing libelled, as A B v. Ten cases of calico and it preserves that title through the whole progress of the suit. . If the bank pays the amount of the check to the claimant, it is not liable on the instrument. So, if you're given a cashier's check that's more than 90 days old, it may not be good. Writs WRITS, JUDICIAL, practice. In England those writs which issue from the common law courts during the progress of a suit, are described as judicial writs, by way of distinction from the original one obtained from chancery. 3 Bl. Com. 282. and levies and the attorney-client trust account: When suits are filed or judgments are obtained against attorneys, creditors sometimes place a hold on that attorney's funds. Banks first will hold the individual funds of the attorney. However, if individual funds are not sufficient to satisfy the attachment or levy, many banks will hold funds in an attorney-client trust account. Attorneys often are surprised to learn that their trust accounts are not exempt from levy. If this happens, call the levying party rather than the bank--especially when the levying party is represented by counsel. The bank will not release the funds unless so advised by the sheriff's office. Usually the levying party's counsel will agree to release funds held from the attorney's attorney-client trust account. Most people only discover some of these basic banking laws after a costly mistake. The more you know now, the better able you and your firm will be to avoid hassles in the future. Diane Baxa is Senior Counsel for City National Bank. Please note that this article summarizes general principles and is not intended to express any legal opinions or advice. You should review the applicable law and/or consult an attorney for legal advice. |
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