Bank’s Duty to Watch for Fraudulent Checks Cannot be Waived

Columbus, OH (July 28, 2017) – The Sixth Circuit ruled last week in Majestic Building Maintenance v. Huntington Bancshares Inc. (July 20, 2018 App. No. 16-4342) that a bank cannot disclaim its duty of ordinary care and good faith in processing checks under UCC Article 4.  Huntington had been trying to push the responsibility of catching fraudulent checks onto its customers, unless the customers paid it money. The case involved several fraudulent checks that were cashed against a business’s account that were not authorized by the business.  After informing Huntington of the fraudulent checks, it refused to reimburse the business because the business did not purchase an undefined “protection” plan.  The bank alleged the protection plan would have caught the bogus checks, and that the customer should have bought the plan if it expected the bank to refund the money.  The attorney representing the business, Troy Doucet said, “Customers should not have to pay extra money to their bank for something their bank should be doing anyway under the law.”  He continued, "What is more galling here is that the bank apparently had a way to catch the fraudulent checks, but decided not to use that system because its customer didn't buy the extra product."

The business sued, citing UCC Article 4, claiming that a bank’s preexisting legal obligation to reimburse account holders for fraudulent checks cannot be completely waived by contract.  The Sixth Circuit agreed with the business’s legal proposition, and remanded the class action case so that discovery could be had regarding the effects of the specific plan.

The case is one of first impression before any federal courts of appeal on this legal issue.  Troy Doucet of Doucet & Associates Co. L.P.A. represents the business.

A link to the decision is http://www.opn.ca6.uscourts.gov/opinions.pdf/17a0158p-06.pdf.

Contact our law firm at (614) 944-5219 if you have experienced something similar with your bank.