Payment Systems

This course studies written instruments which represent money, such as promissory notes and drafts (e.g., checks), as well as guaranties and letters of credit. If certain requirements are satisfied, the person in possession of a note or draft may have superior rights to the transferor and may be able to enforce payment even though the obligor has defenses which would have been effective under contract law. The law with respect to notes and drafts is codified in Articles 3 and 4 of the Uniform Commercial Code, and the course emphasizes problem-solving under these provisions.

The course examines the formal requirements that a note or draft must meet to be deemed negotiable, how the negotiable instrument is negotiated to a holder, and the requirements which the holder must satisfy to be deemed a holder in due course, the bona fide purchaser of commercial paper. The focus then shifts to the various types of liability which may arise on commercial paper: contract, warranty, and tort. The course examines the rights and liabilities of various parties when commercial paper contains forgeries or alterations.

The course also examines the checking account payment system, the bank collection process, and the rights and liabilities of banks and their customers. The course will consider the evolution of alternative payments systems, including the credit-card system, debit cards, wire-transfers, stored-value cards, and electronic money and commerce on the internet, as well as various closed, locally-based payment systems.