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Counselor's Corner
Question: We have an account holder that deposited a check with us for $326.15. Unfortunately, when we processed it through the work, our proof and transit area encoded the check $3,261.50 and made the "correction" to the account, giving our customer $2,935.35 too much. When we were contacted by the paying bank about the error, we went back to the account - which now has $4.20 in it. Our customer has taken out all but that much. Is there any way we can recover our money? The deposit ticket, written by her, has the correct amount on it, as does her deposit receipt.
Answer: This question raises issues relating to encoding warranties and the use of unjust enrichment and related theories to recover money paid by mistake.
First with respect to your potential liability for the encoding error, this issue is governed by a specific provision in the UCC. Under UCC §4-209(a), when you encode information onto an item you automatically give a warranty to all subsequent collecting banks and to the drawee bank that the information you encoded is correct. If you breach that warranty through an encoding error, you could be responsible for damages equal to the amount of the loss suffered as a result of your error, plus expenses and loss of interest. Thus, even if the drawee bank had not caught the error until after the item had been paid, it still would have been entitled to recover the over-encoded amount from you through a demand letter, lawsuit or other method outside of the check collection system.
Second, with respect to your ability to recover the money from your customer, you should be able to proceed under a theory of unjust enrichment, the law of mistake and restitution or a similar theory.
Clearly your customer was not entitled to the excess funds and was the beneficiary of a windfall.
Of course, in this situation you will probably need to file a lawsuit, obtain a judgment and then take steps to collect on it. In that regard, you should bear in mind the fact that your ability to collect your judgment through garnishment may be limited by the provisions of 15 U.S.C. §1673. Under that statute, wages below a specified amount (generally determined by reference to the Federal minimum wage) are exempt from garnishment.
Given all of those factors, you may decide to chalk this one up to experience.
Mark is a partner with Shook, Hardy & Bacon L.L.P., Kansas City. His practice
focuses on the law of financial institutions, with special emphasis on issues involving commercial paper, bank deposits, collections and regulatory compliance matters. Questions for the Counselor's Corner can be forwarded to the BANKERS' HOTLINE editorial office, FAX (610) 872-6231; email: hurst@bankersonline.com
Copyright © 1998 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 8, No. 10, 9/98
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