1. When was there a dishonor of the check? What is the significance of that time?

2. Why does the dissenting judge disagree with the majority’s decision?

3. What do you learn about cautions that customers should take to be sure they have no losses from counterfeit checks?

Greenberg, Trager & Herbst, LLP (GTH), is a law firm specializing in construction litigation law. In September 2007, a partner at GTH received an e-mail from a representative of Northlink Industrial Limited, a Hong Kong company. Northlink was looking for legal representation to assist it in the collection of debts owed by its North American customers. Through a series of e-mails GTH agreed to represent Northlink and requested a $10,000 retainer. GTH then received a Citibank check for $197,750 from a Northlink customer and was told that it could take its retainer from those funds. On Friday, September 21, 2007, GTH deposited the check into its account at HSBC.

The next business day, Monday, September 24, HSBC processed the check through the Federal Reserve Bank of Philadelphia (FRBP) and, because of the federal funds availability law, provisionally credited GTH’s account for $197,750. FRBP presented an image replacement document (IRD) of the check to Citibank that same day.

Because the routing number was not recognized by Citi’s processing system, the automated sorting system directed the IRD to the reject pocket.

HSBC received the IRD with the notation “sent wrong” the next day, September 25, 2007. Because the check was marked “sent wrong,” HSBC assumed that there was a problem with the routing number that required sending the check to a different Federal Reserve bank. On September 26, 2007, HSBC sent the check to the Federal Reserve Bank, San Francisco (FRBS). HSBC never informed GTH of the “administrative return” of the check.

On September 27, 2007, a GTH partner called HSBC to determine whether the check had “cleared” and if the funds were available for disbursement. GTH was informed that the funds were available. Later that day, GTH wired $187,750 from its account to Hong Kong as Northlink instructed. On October 2, 2007, HSBC received Citibank’s notice that the check was being dishonored as “RTM [return to maker] Suspect Counterfeit.” HSBC contacted GTH to inform them that the check had been dishonored. HSBC then revoked its provisional settlement and charged back GTH’s account.

GTH filed suit against HSBC and Citibank for failure to inform GTH that the check had been returned and dishonored on September 25 and for informing GTH over the phone that the funds had “cleared” and were available for disbursement. HSBC and Citibank moved for summary judgment.

The trial court found that HSBC had no duty under the UCC to inform GTH that the check had been returned “sent wrong” on September 25, but rather that the dishonor actually took place when HSBC discovered that the check was “Suspect Counterfeit,” and dismissed the complaint.

JUDICIAL OPINION

CIPARICK, Judge … Pursuant to the Expedited Funds Availability Act (12 USC § 4001 et seq.), banks are required to make funds from a deposited check available for the depositor’s withdrawal within certain short time periods. Funds availability is provisional and the collecting bank has the right to charge back the amount if the check is dishonored or the bank fails to receive a settlement for the check (see UCC 4-212). ……………………