Cincinnati Insurance Company v. Wachovia Bank

2010 WL 2777478, 72 U.C.C. Rep. Serv. 2d 744 (2010)

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Nature of the Case

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Facts

Schultz Foods (P), issued a check in the amount of $153,856.46 to Amerada Hess Corporation. Thieves stole the check, changed the name of the payee to 'Kenneth Payton,' and induced Payton to deposit the check into his account at TCF Bank ('TCF'). TCF presented the check for payment to P's bank, Wachovia (D), and D charged the amount of the check against P's account. P discovered the fraud but Payton had wired the funds to an overseas bank account, and the thieves had disappeared with the money. While banking with D, P was the victim of check fraud on four separate occasions. P and D resolved the first three instances of check fraud. P closed the compromised account and opened a new account, and D absorbed the fraud-related loss. The fourth occasion gave rise to this lawsuit. P sued D demanding that D must bear the loss because it processed the altered check in violation of UCC 4-401(a). D claims that because P failed to implement 'Positive Pay' for check-fraud P would have prevented the loss. Under the terms of the deposit agreement between P and D, the failure of P to implement Positive Pay made P liable for the loss. Positive pay merely transmits the details on the check by software to D when P issues the check so that if it does not match when presented, it can be refused.