Leibling, P.C. v. Mellon PSFS (NJ) National Association

FACTS Mr. Scott D. Leibling, P.C. (hereinafter Plaintiff) is an attorney at law. Plaintiff maintains an attorney trust account (Account) at Mellon Bank (NJ) National Association (Mellon). Mellon uses a computerized system to process checks for payment.
Plaintiff represented the defendant, Fredy Winda Ramos (Ramos) in a personal injury action which resulted in a settlement. On May 19, 1995, plaintiff issued Check No. 1031 in the amount of $8,483.06 to Ramos, representing her net proceeds from the settlement. Mellon honored that check on May 26, 1995. On May 24, 1995, plaintiff mistakenly issued another check, Check No. 1043, to Ramos in the same amount of $8,483.06. Realizing his error, Plaintiff called Ramos in Puerto Rico and advised her that Check No. 1043 had been issued by mistake and instructed her to destroy the check. Plaintiff then called Mellon and ordered an oral stop payment on the check.
On December 21, 1996, some nineteen months after plaintiff issued Check No. 1043, Ramos cashed the check in Puerto Rico. Plaintiff filed this complaint against both Ramos and Mellon. Ramos defaulted. Plaintiff’s complaint against Mellon alleges breach of duty of good faith, negligence, breach of fiduciary duty, payment of a stale check, and breach of contract as a result of Mellon’s honoring the second check.

DECISION Judgment for Mellon: the bank’s conduct was fair and in accordance with reasonable commercial standards.

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OPINION The issue turns on whether Mellon acted in good faith when it honored plaintiff’s check. It appears clear that the Uniform Commercial Code acknowledges that computerized check-processing systems are common and accepted banking procedures in the United States. Therefore, it cannot be said that defendant bank acted in bad faith by using a computerized system when it honored plaintiffs “stale” check. Thus, as long as the defendant bank used an adequate computer system for processing checks, it appears to have acted in good faith even though it did not consult the Plaintiff before it honored the “stale” check that had an expired oral stop payment order on it. The obligation of a bank to stop payment on a check does not continue in perpetuity once the stop payment order expires.

INTERPRETATION It is the responsibility of the banking customer either to regain possession of the mistakenly issued check or to renew the stop payment order in writing every six months for as long as the risk of payment exists.

Do you think that banks should be required to offer a permanent stop payment option? Explain.

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