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4000 - Advisory Opinions

Disposition of Uncollected Cashier's Checks Upon Date of Depository Institution Default


December 11, 1992

Mark Mellon, Attorney

This is in response to your memorandum of December 2, 1992 to Alan Kaplan concerning deposits of the above-named plaintiff with *** ("[Bank]"). I shall not discuss the facts since you are already familiar with the situation but shall instead directly address the issues.

The RTC was appointed as receiver of [Bank] on July 6, 1990. The RTC was therefore legally obligated to apply the insurance regulations of the abolished FSLIC when determining the insurance coverage for the accounts of [Bank]. See 12 C.F.R. § 330.16(a), see also section 402(a) and (c) of the FIRREA.

Plaintiff's chief argument is that by depositing two cashier's checks with other insured depository institutions on the day of [Bank]'s default, the checks became deposits of these other institutions and are therefore entitled to separate insurance from the remaining balance of funds in plaintiff's [Bank] accounts. This argument goes counter to the FSLIC's interpretation of its regulations pertaining to the insurance of cashier's checks, however, and is contradicted by case law.

The FSLIC Manual for Insurance Determinations, a handbook for FSLIC claims agents written in 1989, states that if a check is not finally paid as of the date of default of the payor institution, the check is to be considered part of the balance of the account upon which it was drawn and therefore subject to the statutory insurance limit. Whether final payment has occurred is determined by reference to the law of the state in which the principal office of the insured institution is located, in this case the Uniform Commercial Code as enacted by the state of Missouri. See the attached FSLIC Manual page.

Missouri law provides that final payment of a check occurs when the item is:

a.  paid in cash;

b.  settled without right of revocation; or

c.  provisionally settled but not timely revoked.

Mo. Ann. Stat. § 400.4--213 (Vernon 1965). See the attached page.

In the instant matter, none of these enumerated events had occurred as of the date of [Bank]'s default. They could not have since, by the plaintiff's own admission, he did not deposit the cashier's checks at other insured depository institutions until the day when [Bank] went out of business. The payment process had therefore only just begun. The checks should therefore be added to the balance of the account that they were drawn upon and insured to the statutory limit.

The facts of this matter are analogous to several insurance determinations which were affirmed by the FSLIC on administrative appeal. See FSLIC Insurance Appeals Nos. 87--063, 89--120 and 89--125. In those appeals, the defaulted thrifts had sent interest checks to depositors prior to default. Final payment on the checks had not occurred as of the date of default of the respective payor thrifts. Therefore, the claimants' appeals for further coverage were denied.

These appeals all cite to a case which is on point in the instant matter, FDIC v. McKnight, 769 F.2d 658 (10th Cir. 1985), cert. denied, 475 U.S. 1010 (1986). In McKnight, the Tenth Circuit found that, as a consequence of the default of an insured depository institution, the FDIA applied when determining the amount of insurance coverage that a claimant was entitled to for uncollected cashier's checks rather than state commercial law. The Tenth Circuit noted that cashier's checks are defined as being deposits by the FDIA and found that uncollected cashier's checks are converted upon the insolvency of the payor bank from negotiable instruments to deposits. McKnight at 661, see also section 3(1)(4) of the FDIA (12 U.S.C. § 1813(1)(4)).

Based on these precedents, it is my opinion that the RTC was correct in adding the sums of the two uncollected cashier's checks to the plaintiff's deposits with [Bank] and insuring that balance to the statutory limit of $100,000. This determination is in accord with the FSLIC insurance regulations, analogous FSLIC insurance determinations pursuant to those regulations that were affirmed on administrative appeal and FDIC v. McKnight. It is also my opinion that the FDIC and RTC should follow the same principle when making insurance determinations for uncollected cashier's checks under the FDIC uniform insurance regulations because the analysis applied by the FSLIC for such items under their regulations is equally applicable under the FDIC rules.

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