Law Firm’s Negligence Suit Against Bank Defeated By Account Agreement and UCC Article 4 (IL Law))



In July 2013, the Third District appeals court affirmed dismissal of a law firm’s (Firm) negligence suit against a bank that charged back the firm’s account after a $350,000 check deposited by the Firm turned out to be counterfeit.  Rejecting the Firm’s negligence claim, the Court found that the terms of the parties’ account agreement and the specific provisions of UCC Article  4 (governing banks’ check handling practices) trumped any common law duties owed by the bank.

In Dixon, Laukitis and Downing v. Busey Bank, 2013 IL App (3d) 120832, the plaintiff Firm deposited a $350,000 check into its account at defendant bank.  The bank provisionally credited the Firm’s account in the amount of the deposit.  But before the check was finally paid, the firm made multiple withdrawals of nearly $300,000.  A few days later, when the check turned out to be counterfeit, it was returned uncollectible and the bank charged back the Firm’s account.   The Firm sued, alleging the bank breached its duty of care by failing to recognize and alert the Firm of the suspicious check.  The trial court granted the bank’s motion to dismiss.

Held: Affirmed.  Firm’s negligence claim is defeated by the account holder agreement and UCC Article 4 provisions governing banking practices.


In dismissing the Firm’s negligence suit, the Court cited a slew of statutory and common law rules which govern both the relationship between a bank and a customer and a bank’s check handling practices.  The key rules relied on by the Court:

 The UCC governs the relationship between a bank and its customers and a bank’s general check handling duties;

– If a check doesn’t settle (isn’t paid), the collecting bank has a superior right (to the owner) to a setoff of the unpaid check;

– UCC section 4-202 delineates a bank’s duties with respect to processing a check including presenting it, sending notice of dishonor or nonpayment, timely settling it and notifying a bank customer of any loss or delay within a reasonable time.  UCC 4-202(a), (b)

– If a bank makes provisional settlement of a check but doesn’t receive final payment, the bank can charge back the customer’s account.  UCC 4-214(a);

– A private agreement between a bank and its customer is valid as long as the terms aren’t manifestly unreasonable. UCC 4-103(a);

– The risk of loss of a check not settling is on the depositor until final settlement.  UCC 2-214(a)

– The relationship between a bank and its account holder is contractual in nature and one of creditor (bank) and debtor (account holder);

– An account holder agreement between a bank and its customer creates a binding contract;

– A collecting bank owes no duty to its customer to inspect a check that is later determined to be counterfeit or to remind its customer that it bears the risk of loss before a deposited check is finally settled

¶¶10-13, 18-19.

Applying these rules in the bank’s favor, the Court noted that the bank’s supporting affidavit contained testimony that there was nothing unusual that led the bank to question the check’s legitimacy and that the bank promptly informed the Firm when the check was returned unpaid.  Since the Firm failed to challenge the bank’s affidavit, and also cited no Article 4 duties or obligations to the account holder that the bank breached, the Firm’s negligence claim failed.  (¶¶ 18-19)

The Court also dismissed the Firm’s negligence claim based on the economic loss rule.  The parties’ relationship was based on a written contract (the account agreement) and the Firm sought to recover economic loss: namely, the $350,000 charge back from the fraudulent check.  The existence of a contract between the parties spelled defeat for the Firm’s negligence suit.

Take-aways: To sue a bank and win is difficult.  The UCC and common law provide an array of  steep standards a plaintiff must surmount and defenses for a bank that is sued by a customer for negligence.  A bank-customer account agreement and the provisions of UCC Articles 3 (negotiable instruments) and 4 (depository and collecting banks) will control over any common law duties owed to an account holder.

In hindsight, the Firm maybe should have premised its claims on specific violations of UCC Article 4 instead of general negligence allegations and also should have filed a counter-affidavit or other evidence to contest the bank officer’s statements.



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Litigation attorney representing businesses and individuals in business litigation, post-judgment enforcement, collections and real estate litigation.