This is going to be kind of long and drawn out so I apologize in advance.

Back story: I was contacted by my customer "Charlie Customer" and he requested to have two stop payments placed against two personal checks each for $5,000.00. The following day a now previous employee cashed these two checks to Frank Fraud. These two checks were suppose to be earnest money for a upcoming home sell that fell through due to Frank Fraud and no contract was signed since they operated under a gentlemans agreement so Charlie Customer did not receive any services or products for these two checks. We made contact with Frank Fraud which of course refused to bring the funds back to the bank.

Question: Does the bank have any legal recourse to recover these funds? It seems the only person that would be able to file a suit would be Charlie Customer however, since he placed the stop payment accordingly the funds came from the bank instead of Charlie Customers account which now has no motivation to file suit since he isn't out any money.

We referred to the UCC code for our state however; like most states it covers the customers damages and doesn't seem to give any guidance to the finical institutions.

Your bank cashed these checks over a stop payment? You have no recourse - it is a loss - pure and simple.

That is correct. Sadly enough, I figured that would be the answer. I was hoping for some sort of legal recourse against the non customer since they profited from the banks mistake however, I believe that we are just grabbing for anything at this point not to write this up as a loss.

Just out of curiosity the argument that kept coming up around the office today is how this differs from the mistake that Wells Fargo made with the $68,000.00 deposit to the wrong account and after the customer spent the majority of the funds on a new car and other miscellaneous items the local police charged him with 2 felonies?

Thank you for the response and for your time!

The issue comes down to intent. Did Frank know that he was fraudlently cashing the checks? Did Charlie tell him not to cash them?

The Wells Fargo customer had no reason to believe that he just came into 68,000 and he knowingly took the money.

Since this was part of a business transaction, you will have a higher burden of proof.

Thanks for all your help once again everyone. I have a meeting with my higher ups this afternoon and I wanted to make sure that we have covered every angle of this thing and to determine if we would just be throwing good money at bad money by getting legal involved with this situation.

Addressing the possibility of intent: I believe the intent to defraud was there and wouldn’t be hard to establish with a couple of affidavits. The title company that was overseeing the transaction indicated to our mortgage department that Frank Fraud had to come up with $20,000+ before closing to complete the transaction. Less than an hour later he arrived at the bank with the 2 checks and cashed the checks (wish I could say attempted there) and soon after dropped off the grid and has made no attempt to complete the transaction along with the title company washing their hands of the deal due to not being able to contact the seller Frank Fraud.

A very BIG mess!!!! From the bleak outlook I suppose we are lucky it was only 10K!

Thanks for everyone’s input once again!

Start with the basics:

1. Was the stop payment order received in sufficient time before the bank had to act on paying the checks? Apparently so. The checks were presented to the bank for payment on the day after the stops were placed.
2. For what amount was the bank responsible to its depositor for paying the checks over the stop order? The burden is on the depositor to establish the fact and the amount of the loss. Based on the narrative by rzrbackbanker, the bank has already reimbursed its customer for the amount of the checks. Whether or not any added damages will be claimed is unknown.
3. Can the bank recover from anyone under UCC 4-407? The bank is subrogated to the rights of its customer as against the payee of the checks (Frank Fraud). If Frank Fraud can be located and has any assets, the bank can sue him for recovery to the extent of its losses.

I'll add that the bank may have a hard time pursuing Frank Fraud since there apparently is no written agreement between Charlie and Frank. But the bank ought to discuss the problem with its legal counsel to find out if there's any way to chase the funds in the courts.

Even if there's a way to chase them in the courts, attorney fees add up quickly and it may not be worth trying to recover the $10K. That's assuming you can find the guy to begin with.

If you can prove he wasn't due the funds-and that's a big IF-you can sue him civilly for unjust enrichment. We have done that and won, but yes it costs money, so you'll have to weigh at what dollar point it is worth it..