Deck 22: Banking System and Electronic Financial Transactions

Question 1

Wrongful Dishonor Larry J. Goodwin and his wife maintained a checking and savings account at City National Bank of Fort Smith (Bank). Bank also had a customer named Larry K. Goodwin. Two loans of Larry K. Goodwin were in default. Bank mistakenly took money from Larry J. Goodwin's checking account to pay the loans. At the end of the month, the Goodwins received written notice that four of their checks, which were written to merchants, had been dishonored for insufficient funds. When the Goodwins inves­tigated, they discovered that their checking account balance was zero, and the bank had placed their savings account on hold. After being informed of the error, Bank promised to send letters of apology to the four merchants and to correct the error. Bank, however, subsequently "bounced" several other checks of the Goodwins. Eventually, Bank notified all the parties of its error. One month later, the Goodwins closed their accounts at Bank and were paid the correct balances due. They sued the bank for consequential and punitive damages for wrongful dishonor. Who wins? City National Bank of Fort Smith v. Goodwin , 301 Ark. 182, 783 S.W.2d 335, Web 1990 Ark. Lexis 49 (Supreme Court of Arkansas)

Answer 1

The plaintiff bank wins the case.
At first it may appear that jury must decide in favor of the defendant since the plaintiff bank wrongfully dishonoured seven checks consecutively. However, it must be considered that the plaintiff bank did not act in bad faith. A bank can be held liable for punitive and consequential damages in case of dishonouring the checks wrongfully only if it does so in bad faith or intentionally.
Here, the bank accidently got confused because of same name of two of its customers, and thus cannot be held liable for compensatory damages. Thus, the judgement should be made in favor of the plaintiff bank.

Question 2

Stale Check Charles Ragusa Son (Ragusa), a partnership consisting of Charles and Michael Ragusa, issued a check in the amount of $5,000, payable to Southern Masonry, Inc. (Southern). The check was drawn on Community State Bank (Bank). Several days later, Southern informed Ragusa that the check had been lost. Ragusa issued a replacement check for the same amount and sent it to Southern, and that check was cashed. At the same time, Ragusa gave a verbal stop-payment order to Bank regarding the original check. Three years later, the original check was deposited by Southern into its account at the Bank of New Orleans. When the check was presented to Bank, it paid it and charged $5,000 against Ragusa's account. The partnership was not made aware of this trans­action until one month later, when it received its monthly bank statement. Ragusa demanded that Bank recredit its account $5,000. When Bank refused to do so, Ragusa sued. Who wins? Charles Ragusa Son v. Community State Bank , 360 So.2d 231, Web 1978 La.App. Lexis 3435 (Court of Appeal of Louisiana)

Answer 2

The plaintiff wins the case.
A stale check is the one that is outstanding for more than six months, and the bank is under no obligation to pay such a check. However, it may pay the check in good faith and charge its customer's account.
It must be noted that the clause that protects a bank acting in a god faith to pay a stale check, does not eliminate the need of basic concern which a bank must acknowledge in all its transactions. In this case, the payment of such an evidently stale check that was three years old depicts the lack of due care on bank's behalf, and thus prevents it from asserting the defense of "good faith".
Resulting bank's actions caused the account to be overdrawn. The bank must compensate the plaintiff for the damages so incurred.

Question 3

Postdated Check David Siegel maintained a check­ing account with the New England Merchants National Bank (Bank). On September 14, Siegel drew and delivered a $20,000 check payable to Peter Peters. The check was dated November 14. Peters immediately deposited the check in his own bank, which forwarded it for collection. On September 17, Bank paid the check and charged it against Siegel's account. Siegel discovered that the check had been paid when another of his checks was returned for insufficient funds. Siegel informed Bank that the check to Peters was postdated November 14 and requested that the bank return the $20,000 to his account. When Bank refused, Siegel sued for wrong­ful debit of his account. Must Bank recredit Siegel's account? Siegel v. New England Merchants National Bank , 386 Mass. 672, 437 N.E.2d 218, Web 1982 Mass. Lexis 1559 (Supreme Judicial Court of Massachusetts)

Answer 3

No , the bank must not recredit the plaintiff's account.
A postdated check is meant to be cashed sometime in future. A bank is required to abide by a postdated check, if the borrower follows the two steps:
• The check must be postdated to some date in future.
• The bank must be given a separate "written request" notifying the bank not to make payment for the reasonably certain check until the date on the check has arrived.
Only if the drawer follows the steps, he or she could hold bank liable for the loss so incurred due to payment of postdated check by the bank.
In this case, the plaintiff did postdate the check to some date in future but it failed to notify the bank about the same. Thus, the bank cannot be held liable for recrediting the plaintiff's account since all the requirements for a postdated check had not been met.

Question 4

Stop Payment Dynamite Enterprises, Inc. (Dynamite), a corporation doing business in Florida, maintained a checking account at Eagle National Bank of Miami (Bank). Dynamite drew a check on this account, payable to one of its business associates. Before the check had been cashed or deposited, Dynamite issued a written stop-payment order to Bank. Bank informed Dynamite that it would not place a stop-payment order on the check because there were insufficient funds in the account to pay the check. Several weeks later, the check was presented to Bank for payment. By this time, sufficient funds had been deposited in the account to pay the check. Bank paid the check and charged Dynamite's account. When Dynamite learned that the check had been paid, it requested Bank to rec­redit its account. When Bank refused, Dynamite sued to recover the amount of the check. Who wins? Dynamite Enterprises , Inc. v. Eagle National Bank of Miami , 517 So.2d 112, Web 1987 Fla.App. Lexis 11791 (Court of Appeal of Florida)

Question 5

Ethics Case Mr. Gennone maintained a check­ing account at Peoples National Bank Trust Company of Pennsylvania (Bank). Gennone noticed that he was not receiving his bank statements and canceled checks. When Gennone contacted Bank, he was informed that the state­ments had been mailed to him. Bank agreed to hold future statements so that he could pick them up in person. Gennone picked up the statements but did not reconcile the balance of the account. As a result, it was not until two years later that he discovered that beginning more than one year ear­lier, his wife had forged his signature on 25 checks. Gennone requested Bank to reimburse him for the amount of these checks. When Bank refused, Gennone sued Bank to recover. Did Gennone act ethically in suing the bank? Who wins? Gennone v. Peoples National Bank Trust Co., 9 U.C.C. Rep. Serv. 707, Web 1971 Pa. Dist. Cnty. Dec. Lexis 551, 51 Pa. D. C.2d 529 (Common Pleas Court of Montgomery County, Pennsylvania)

Question 6

Did Triplett act ethically in this case? Did Spacemakers act ethically when it sued SunTrust to try to recover its losses caused by the forgeries?

Question 7

Cashier's Check Dr. Graham Wood purchased a cashier's check in the amount of $6,000 from Central Bank of the South (Bank). The check was made payable to Ken Walker and was delivered to him. Eleven months later, Bank's branch manager informed Wood that the cashier's check was still out­standing. Wood subsequently signed a form, requesting that payment be stopped and a replacement check issued. He also agreed to indemnify Bank for any damages resulting from the issuance of the replacement check. Bank issued a replacement check to Wood. Seven months later, Walker deposited the original cashier's check in his bank, which was paid by Bank. Bank requested that Woods repay the bank $6,000. When he refused, Bank sued Woods to recover this amount. Who wins? Wood v. Central Bank of the South , 435 So.2d 1287, Web 1982 Ala. Civ. App. Lexis 1362 (Court of Civil Appeals of Alabama)

Question 8

Overdraft Louise Kalbe maintained a checking account at the Pulaski State Bank (Bank) in Wisconsin. Kalbe made out a check for $7,260, payable in cash. Thereafter, she misplaced it but did not report the missing check to the bank or stop payment on it. One month later, some unknown per­son presented the check to a Florida bank for payment. The Florida bank paid the check and sent it to Bank for collec­tion. Bank paid the check even though it created a $6,542.12 overdraft in Kalbe's account. Bank requested Kalbe pay this amount. When she refused, Bank sued Kalbe to collect the overdraft. Who wins? Pulaski State Bank v. Kalbe , 122 Wis.2d 663, 364 N.W.2d 162, Web 1985 Wisc.App. Lexis 3034 (Court of Appeals of Wisconsin)