11 Am. Jur.

2d Bills and Notes § 183

American Jurisprudence, Second Edition

August 2017 Update

Bills and Notes

Jill Gustafson, J.D., Janice Holben, J.D., Jack K. Levin, J.D., Jeffrey J. Shampo, J.D., and Eleanor L.
Grossman, J.D. of the staff of the National Legal Research Group, Inc.

VI. Transfer, Negotiation, and Indorsement

A. Transfer, in General

§ 183. Transfer for value—Bank deposit credit as value

Topic Summary | Correlation Table | References

West's Key Number Digest

 West's Key Number Digest, Bills and Notes 186, 207

A.L.R. Library

 When is instrument issued or transferred for “value” under U.C.C. sec. 3-303, 77 A.L.R.5th 429

A bank gives value for a deposited item when it credits the depositor's account and allows the depositor
to withdraw the face amount of that item. 1 Where a bank accepts a check from its depositor and allows
checks to be drawn against a portion of the deposited amount pending collection, the bank is a holder in
due course to the extent of the advances thus made to its depositor. 2 However, when a check is
deposited but no withdrawal is ever made with respect to the deposited amount, the bank has not given
value for it and, therefore, is not a holder in due course. 3 Thus, a bank has given value, for purposes of
determining its status as a holder in due course, when it has acquired a security interest in a deposited
item by permitting a withdrawal or credit against the deposit, 4 provided that the check is taken in good
faith and without notice that it is overdue or has been dishonored or of any claim or defense to which
any person is entitled.5

Observation:

An exception to the rule that the mere crediting of an account is not the giving of value pertains where
the depositor is entitled to withdraw against the credit as of right, even though the depositor has not yet
done so.6

It is well established that the granting of provisional credit, conditioned on payment of the deposited
check, does not constitute a taking for value. 7 On the other hand, a bank takes an instrument for value
when it extends credit, even though provisional, in reliance on a deposited check drawn on another bank
and allows its depositor to make withdrawals against the uncollected funds. 8 A bank makes a loan to its
customer by allowing an account overdraft, which creates an antecedent claim within the meaning of
U.C.C. Article 3,9 and by applying credit given for a check to reduce an existing overdraft in the
depositor's account, a bank gives value for the check even if the credit is provisional. 10 However, a
drawee bank which allows a depositor of a check issued by it to overdraw a checking account does not
attain holder-in-due-course status, notwithstanding the rule that allows a bank which credits a customer
with the amount of a deposited check drawn on another bank to claim such status. 11

© 2017 Thomson Reuters. 33-34B © 2017 Thomson Reuters/RIA. No Claim to Orig. U.S. Govt. Works. All
rights reserved.

Footnotes

Home Bank of Guntersville v. Perpetual Federal Sav. and Loan Ass'n, 547 So. 2d 840, 10 U.C.C. Rep. Serv.
2d 879 (Ala. 1989); Sun'n Sand, Inc. v. United California Bank, 21 Cal. 3d 671, 148 Cal. Rptr. 329, 582 P.2d
920, 21 U.C.C. Rep. Serv. 2d 1003 (1978); Richardson's Restaurants, Inc. v. National Bank of South
Carolina, 304 S.C. 289, 403 S.E.2d 669 (Ct. App. 1991).

St. Cloud Nat. Bank & Trust Co. v. Sobania Const. Co., Inc., 302 Minn. 71, 224 N.W.2d 746, 15 U.C.C. Rep.
Serv. 679 (1974).

As to what constitutes a holder in due course, see §§ 218 to 227.

Rockland Trust Co. v. South Shore Nat. Bank, 366 Mass. 74, 314 N.E.2d 438, 14 U.C.C. Rep. Serv. 1342
(1974).

General Motors Acceptance Corp. v. Bank of Carroll County, 138 Ga. App. 654, 226 S.E.2d 815, 19 U.C.C.
Rep. Serv. 1375 (1976).

G.F.D. Enterprises, Inc. v. Nye, 37 Ohio St. 3d 205, 525 N.E.2d 10, 6 U.C.C. Rep. Serv. 2d 460 (1988).

Marine Midland Bank-New York v. Graybar Elec. Co., Inc., 41 N.Y.2d 703, 395 N.Y.S.2d 403, 363 N.E.2d
1139, 21 U.C.C. Rep. Serv. 1094, 97 A.L.R.3d 1104 (1977).
7

General Motors Acceptance Corp. v. Bank of Carroll County, 138 Ga. App. 654, 226 S.E.2d 815, 19 U.C.C.
Rep. Serv. 1375 (1976); St. Paul Fire and Marine Ins. Co. v. State Bank of Salem, 412 N.E.2d 103, 30 U.C.C.
Rep. Serv. 557 (Ind. Ct. App. 1980); Marine Midland Bank-New York v. Graybar Elec. Co., Inc., 41 N.Y.2d
703, 395 N.Y.S.2d 403, 363 N.E.2d 1139, 21 U.C.C. Rep. Serv. 1094, 97 A.L.R.3d 1104 (1977); Lynnwood
Sand and Gravel, Inc. v. Bank of Everett, 29 Wash. App. 686, 630 P.2d 489, 33 U.C.C. Rep. Serv. 1703 (Div.
1 1981).

First of America Bank-Northeast Illinois, N.A. v. Bocian, 245 Ill. App. 3d 495, 185 Ill. Dec. 449, 614 N.E.2d
890, 23 U.C.C. Rep. Serv. 2d 122 (2d Dist. 1993) (holding that the bank acquired a security interest in the
deposited instrument); St. Paul Fire and Marine Ins. Co. v. State Bank of Salem, 412 N.E.2d 103, 30 U.C.C.
Rep. Serv. 557 (Ind. Ct. App. 1980); St. Cloud Nat. Bank & Trust Co. v. Sobania Const. Co., Inc., 302 Minn.
71, 224 N.W.2d 746, 15 U.C.C. Rep. Serv. 679 (1974); Citizens Nat. Bank of Englewood v. Fort Lee Sav. &
Loan Ass'n, 89 N.J. Super. 43, 213 A.2d 315, 2 U.C.C. Rep. Serv. 1029 (Law Div. 1965); Peoples Bank of
Aurora v. Haar, 1966 OK 252, 421 P.2d 817, 3 U.C.C. Rep. Serv. 1065 (Okla. 1966); Washington Trust Co. v.
Fatone, 104 R.I. 426, 244 A.2d 848, 5 U.C.C. Rep. Serv. 859 (1968).

U.C.C. § 3-303(a)(3).

10

Laurel Bank & Trust Co. v. City Nat. Bank of Connecticut, 33 Conn. Supp. 641, 365 A.2d 1222, 20 U.C.C.
Rep. Serv. 685 (Super. Ct. Appellate Sess. 1976); U. S. Cold Storage Corp. v. First Nat. Bank of Fort Worth,
350 S.W.2d 856 (Tex. Civ. App. Fort Worth 1961), writ refused n.r.e., (Feb. 14, 1962); Lynnwood Sand and
Gravel, Inc. v. Bank of Everett, 29 Wash. App. 686, 630 P.2d 489, 33 U.C.C. Rep. Serv. 1703 (Div. 1 1981).

11

West v. Federal Deposit Ins. Corp., 149 Ga. App. 342, 254 S.E.2d 392, 26 U.C.C. Rep. Serv. 1192 (1979),
judgment aff'd, 244 Ga. 396, 260 S.E.2d 89, 27 U.C.C. Rep. Serv. 1335 (1979).

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.