Incompetence or Death of a Customer

A bank might find itself in the unfortunate circumstance of dealing with an account for a customer who has passed away or is rendered incompetent in some other fashion. For example, a given individual might write a check to another party and then get into a car accident by accident, resulting in the drawer's death.

The question then arises for the drawer's bank: does the payee still have a right to present the check for payment? If the payee does so, should the bank deny the check or should it pay from the account of the dead drawer? Even in cases where the drawers do not die, it is possible for those drawers to instead be reduced to an incompetent state in which they can neither validate nor stop a check. In these cases, the banks of the drawers would face a similar dilemma.

The Uniform Commercial Code provides specifically for this circumstance with a subsection under Article 4. According to this subsection, banks are allowed to continue to accept, pay, or collect negotiable instruments with regard to a dead or incompetent customer as long as the banks do not yet have knowledge of the death or incompetency of the customer.

If, for example, the customer drew a check shortly before his or her death, then the bank of that customer would still be within its rights to pay on that check, assuming that the bank has not received notice of the customer's death.

This is to prevent situations in which the authority of banks to serve their necessary roles with regard to customers would suddenly vanish as soon as the customer dies or is rendered incompetent, even though the bank would have no knowledge of such a state of affairs. This is, in effect, an extension of the good faith principles espoused elsewhere in American commercial law. As long as the banks in question are not knowingly committing any kind of wrongdoing, they are protected.

When a bank is notified of a customer's death or incompetence, the bank actually still retains the necessary authority to deal with checks drawn prior to the date of death or incompetence for 10 days after that date. This allows banks to continue to deal with accounts as necessary in order to pay off checks drawn while the customer was still alive or competent without problem.

After 10 days have passed from the date of incompetency or death, the bank would lose such authority, assuming that it had knowledge by that point of the customer's death or incompetency. The only exception to this "10 day" rule is when a party with a clear interest in the account of the customer intercedes and orders the bank to stop payment on checks drawn from the customer's account.

For example, if the wife of a dead man were to officially gain control of the dead man's account, then she could order the bank to stop payment on any drafts drawn from that account, and the bank would be obligated to do so, despite the fact that 10 days may not have passed.

Any checks drawn on the account after the customer's death would likely be fraudulent. Unless the account was a joint account, then it would be attached to the single party. Even if another party would come to have possession of the account and the funds therein, the fact remains that until legal transfer of the account could be completed, banks should not allow for payment on any checks drawn from that account after the date of death or incompetency.

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