A California appellate court recently allowed a bank to pursue $468,000 in overdrafts against a customer who unknowingly participated in a Nigerian-style e-mail scam. See Chino Commercial Bank, NA v. Peters, 190 Cal.App.4th 1163, 118 Cal.Rptr. 866 (Cal. App. 2010). In that case, the appellant Brian Peters agreed that his corporation would receive money supposedly owed to a gentleman in Malaysia, and would then pay that money out at the gentleman’s direction, in return for a fifteen percent fee. His corporation received checks totaling $808,988.90 and deposited them in an account with Chino Commercial Bank, N.A. (the “Bank”). His corporation then had the Bank make wire transfers totaling $468,000 out of the account. Not surprisingly, each of the checks had been carefully altered to change the name of the payee. All of the checks eventually bounced, which resulted in an overdraft on the corporation’s account.
After the checks bounced, the Bank promptly obtained a right to attach order against Peters. Peters appealed from the right to attach order arguing that the Bank had the burden of proving that it did not act negligently and that it failed to carry this burden. The Court did not agree. Instead, the Court held that, even assuming the Bank had the burden of proof, it introduced sufficient evidence that it did not act negligently in accepting the checks for deposit. Specifically, the Court held that the Uniform Commercial Code (“UCC”) precluded any claim that the Bank acted negligently in making the wire transfers. Indeed, because ordinary care as defined in the UCC, rather than common law negligence, was the measure of bank liability for accepting checks, the bank’s compliance with that standard permitted it to charge back the amounts of the checks that were subsequently dishonored.
While this opinion was a great result for banks, the Court did share one point of caution. In this case, the Bank informed Peters that two of the checks it took for deposit had “cleared.” The Court implied that Peters could have successfully argued that the Bank’s representations about check clearance precluded it from recovering from Peters. Peters apparently made no such contention, so the argument was waived.