Heartland State Bank routed eight checks to a collections bank, Federal Reserve. Federal Reserve then delivered the checks and additional cash letters to the defendant bank, American Bank & Trust, on April 10, 2002. The defendant bank picked up the checks and then returned them for insufficient funds before midnight on April 11, 2002. The plaintiff bank, Heartland, sued the defendant payor bank, asserting that the returns were untimely. The trial court granted the defendant’s motion for summary judgment, reasoning that, under the Uniform Commercial Code midnight-deadline rule for check processing, a payor bank must send notice of dishonor by midnight of the next banking day; therefore, the defendant’s return of the checks to Heartland by April 11, 2002, was timely. The plaintiff bank appealed.
JUDGE KONENKAMP When a bank returned a series of checks for insufficient funds, the returns were challenged as untimely. Under the Uniform Commercial Code midnight-deadline rule for check processing, a payor bank must, after receipt of a check presented for payment, pay the check, return it, or send notice of dishonor by midnight of the next banking day. Otherwise, the payor bank becomes “accountable” for the amount of the check.
When a payor bank receives a check, it is considered “presented,” meaning a demand for payment has been made upon the party obligated to pay the check.
Once a check has been provisionally settled through a Federal Reserve Bank, a payor bank upon receipt can effect final payment in several ways. But the payor bank may also revoke a provisional settlement and return the check, if the payor bank has not made final payment and returns the check before the midnight deadline. The “midnight deadline” is the “next banking day following the banking day on which [the bank] receives the relevant item or notice or from which the time for taking action commences to run, whichever is later[.]” If the midnight deadline is not met, the payor bank becomes “accountable”—strictly liable—for the amount of the check regardless of whether there were sufficient funds in the customer’s account to cover payment.
American requested that the Federal Reserve Bank deliver the checks to its mailing address. The checks were so delivered on April 10, 2002. Because American had until “midnight on its next banking day following the banking day on which it” received the checks, American had until midnight April 11, 2002.
to return the checks. As the checks were returned by that date, the circuit court properly granted summary judgment to American. We affirm the circuit court’s grant of summary judgment.
CRITICAL THINKING;
The judge found the defense’s evidence persuasive enough to rule that American adhered to the UCC’s midnight-deadline rule for presenting notices of dishonor.
What evidence seemed to convince the judge? What evidence was the plaintiff relying on to support its conclusion on appeal?
ETHICAL DECISION MAKING:
Think about the WPH process of ethical decision making. What is the purpose of creating rules of timeliness for presenting notices of dishonor? Who in the business community is affected when a bank does not adhere to the midnight-deadline rule upheld by the UCC?