Blake v. Woodford Bank & Trust Co

Brief Fact Summary. Two checks were deposited and returned due to insufficient funds. The bank failed to return the checks before its midnight deadline on the following banking day. The circuit court dismissed the initial acting stating the bank was excused from meeting its deadline.

Synopsis of Rule of Law. A payor bank is granted until midnight of the next business day following the business day on which it received a check to return a check for insufficient funds.

Facts. This is a review of the judgment of the circuit court dismissing the case of appellee, Wayne Blake (the “appellee”). The circuit court found that appellant, Woodford Bank and Trust (the “appellant”), was excused from not meeting its midnight deadline to return two checks.
On December 6, 1973, the appellee, deposited a check into his account at the Morristown Bank, of Morristown, Ohio. The check was drawn on the K & K Farm Account at the appellant bank, Woodford Bank and Trust. On December 19, 1973, appellee deposited a second check to be drawn on the K & K Farm Account. Upon the deposit of the second check, appellee learned that the first check was being returned due to insufficient funds. Due to successful prior dealings with K & K Farm, appellee requested that the first check be re-presented along with the presentment of the second check. The two checks were delivered to the appellant on the morning of Monday, December 24, 1973. The next day, Christmas, was not a banking day, therefore, the next banking day was Wednesday, December 26. Consequently, the bank’s “midnight deadline” was midnight on Wednesday, December 26. The appellant failed to return the checks by its midnight deadline; rather, the appellant returned the checks on Thursday, Dec
ember 27. The appellant claims that due to the increased number of checks to be processed due to the Christmas holiday, the break-down of two check processing machines and the absence of a regular bookkeeper they were unable to return the checks on time and should be excused from the deadline obligation. The circuit court found that the bank’s failure to return the two checks by its midnight deadline was excused due to the occurrence of the aforementioned events.
On cross-appeal, the appellant argues that it is not liable on the first check. The appellant argues that it met the midnight deadline when the first check was initially presented; therefore, the appellant is not obligated to meet the midnight deadline when the check was re-presented.

Issue. Was the circuit court correct in its finding that the bank was excused from returning the checks?
Is the appellant relieved of liability for the first check since it was initially dishonored by its midnight deadline?

Held. No. The circuit court finding that the bank was excused from returning the checks after its midnight deadline is reversed. The court found that the events that prevented the bank from meeting its midnight deadline were foreseeable; therefore, they are not valid excuses. The court finds that the appellant is responsible for the entire face value of the checks minus any credit that may have been received from K & K Farm. Uniform Commercial Code Section: 4-302 states that if the payor bank misses its midnight deadline, the bank is “accountable” for the face amount of the check. Uniform Commercial Code Section: 4-108(2) provides that a payor bank is excused from its midnight deadline if the failure to return the check was “caused by interruption of communication facilities, suspension of payments by another bank, war, emergency conditions or other circumstances beyond the control of the bank…”
No. The court concludes that the circuit court was correct in holding that there was no difference in the status of the first and second checks; appellant is still liable because re-presentment of a check does not relieve a bank of its obligation to meet its midnight deadline. The court held that, “if a payor bank is not bound by its midnight deadline as to previously dishonored items, then there is no way for the depository bank to know whether a previously dishonored item has been paid upon re-presentment except by direct communication with the payor bank. Such a procedure would impose an unnecessary burden upon the check collecting process.”

Discussion. “When a payor bank has paid a check by failing to return the check by its midnight deadline, the bank may be entitled to relief under U.C.C. Section: 3-418. Under the statute, payment of a check is final only in favor of a holder in due course or a person who has in good faith changed his position in reliance on the payment. Thus, if no value has been given for the instrument the holder loses nothing by the recovery of the payment and is not entitled to profit at the expense of the drawee; if he has taken the instrument in bad faith or with notice he has no equities as against the drawee.”