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.
In this regard, I am in full accord with the thoughts expressed by the Kentucky court in Blake v. Woodford Bank & Trust Co. 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 representment except by direct communication with the payor bank.View Full Point of Law
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.”