Patriot Bank v. Navy Federal Credit Union

47 U.C.C. Rep. Serv. 2d 662, 2002 WL 481129 (2002)

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Nature of the Case

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Facts

Peeso, a member of D, obtained a cashier's check in the amount of $7,000. The check was made payable to Mr. Peeso. Peeso's account was debited for payment of the check. Peeso delivered the check to Nation's Auto, a used car dealership. Peeso intended to use the check to purchase a used car for his daughter. Peeso indorsed the check with his signature and 'Payable to Nation's Auto Loan Center.' Underneath that was written by hand Nation's account number at P. Nation's deposited the check and P then submitted the check to P for payment. P received the check and examined it and questioned the indorsements. D returned the check to P for 'absence of endorsement guarantee required.' P testified that P wanted D to guarantee the missing indorsement of its customer, Nation's Auto. Peeso received a telephone call from Nation's that the cashier's check was somehow 'no good' and 'not negotiable.' Without retrieving the original cashier's check, Peeso returned to D and asked to stop payment on the original cashier's check and issue a new cashier's check in the amount of $7,000 made payable to Nation's Auto. D agreed to stop payment. D required Peeso to agree to indemnify D for 'all claims and demands that may be made upon the said credit union on account of refusing payment' of the original cashier's check. A second cashier's check was issued for $ 7,000, made payable to Nation's Auto. Nation's deposited the second cashier's check in another bank and was credited for the amount of the second cashier's check. Meanwhile, the first check eventually made its way back to Nation's. When P attempted to reverse the credit it had given for the first check, it discovered that the account was overdrawn. All attempts to contact the customer failed. Nation's had apparently ceased doing business. P sued D. P learned that D wanted the absence of the indorsement of Nation's Auto guaranteed when it returned the first check to P in April. P stamped the cashier's check: CREDIT TO THE ACCOUNT OF THE WITHIN NAMED PAYEE IN ACCORDANCE WITH PAYEES INSTRUCTIONS ABSENCE OF ENDORSEMENT GUARANTEED and resubmitted the first check to D in August 2001. D refused to honor the first cashier's check when D received it with the 'absence of endorsement guaranteed.' D refused to honor it because payment had been stopped. D knew that Nation's was out of business. Navy FCU stamped the first check as 'refer to maker' and returned it to P.