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Commercial Law Keyed to Whaley
Patriot Bank v. Navy Federal Credit Union
Citation:
2002 WL 481129 (2002)Facts
On April 4, 2001, Mr. Peeso purchased a cashier’s check from Navy FCU in the amount of $7,000 to purchase a car for his daughter from Nation’s Auto. The check was indorsed by Mr. Peeso with the statement, “Payable to Nation’s Auto Loan Center.” Beneath this indorsement, Nation’s Auto account number at Patriot Bank was handwritten. Nation’s Auto successfully deposited the check with Patriot Bank and the bank subsequently submitted the check to Navy FCU for payment through the Federal Reserve System. Navy FCU received the check on April 9, 2001, and after reviewing the check, refused to honor it. Navy FCU returned the check to Patriot Bank with the stated reason of “absence of endorsement guarantee required.” Patriot Bank argued that it believed Navy FCU wanted it to guarantee the indorsement of Mr. Peeso, which it refused to do because Mr. Peeso was not a Patriot Bank customer. On April 18, 2001, Mr. Peeso received a call from Nation’s Auto informing him that the cashier’s check was “no good,” and Mr. Peeso went to Navy FCU to stop payment on the first check and ask for second check. Navy FCU agreement to stop payment and issue a new check, despite knowing that the first check had already been deposited at Patriot Bank. Nation’s Auto deposited the second check with a different institution unrelated to the litigation.
Shortly after April 11, 2001, Patriot Bank attempted to reverse the credit to Nation’s Auto account for the first check but found that the account was overdrawn. Patriot Bank was not able to contact Nation’s Auto as it had closed its business. Later, Patriot Bank sued Navy FCU to recover on the cashier’s check. Patriot Bank learned in litigation that Navy FCU initially refused to honor the check because it had wanted Patriot Bank to guaranty the check due to a lack of indorsement by Nation’s Auto. Patriot Bank resubmitted the check to Navy FCU with a stamp guarantying the check for Nation’s Auto. Navy FCU stamped the check as “refer to maker” and returned it to Patriot Bank.
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