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Banking practice in North America has long allowed withdrawals against uncleared deposits. The difference in UK banking practice on this point is one of the many surprises that await the expatriate. But practice is changing, with Barclays now allowing this to a limited extent.

I would have thought the term "kiting" is only appropriate to the form of fraud in which this facility is exploited via accounts at multiple banks. The debtor makes multiple circular deposits, drawing on uncleared effects which were earlier created by drawings on even earlier uncleared effects. A large but effectively non-existent balance is built up, and then withdrawn in some form. As I understand your facts this is not quite what the debtor was doing.

It seems to me that it is the 8th circuit CA which is unprincipled. To say that when a bank allows this no debt is created makes little sense. Certainly the banker takes a credit risk, and from the banker's point of view credit is being extended. Moreover, there is certainly consent on the banker's side when this is done; it knows very well that is taking a credit risk, since if the cheques do not clear the account will be overdrawn. The customer's side is a little harder. The writing of a cheque for which there are not sufficient cleared funds is often said to be a request for credit, to which the banker accedes if it meets the cheque; on this view, the debt is entirely consensual. It may be shading into fiction if the customer is unaware of the state of the account, but could a customer reasonably say, "I only wanted my cheque to be met if there were sufficient cleared funds"? I expect in most cases the account agreement would explicitly cover such situations, especially if the bank's practice is to allow drawings against uncleared cheques, and the debt would be referable to the express contractual terms; but even failing that it would be a pretty clear case for an "officious bystander" implied term. I would agree with your suggestion that in this case the debt is contingent on non-clearance, just as when I pay for goods with a cheque my contractual obligation to pay the price is suspended until the cheque fails to clear. (That is probably the best analogy for this problem, and clearly the debt is consensual there.) And the UCC is therefore perfectly justified in giving the bank a security interest in the deposited cheques and their proceeds, to secure the debt owing to it via advances on uncleared effects; and the result of the case is supportable on that basis.

There is one factual point on which I am unclear. If the deposited cheques which created the negative collected funds balance did not clear, then to that extent surely there was a loan and a debt? But if they all cleared in the end, why would the bank resist paying the $4m? There would be a positive account balance of at least that much. Had the debtor already withdrawn it before filing?

Lionel