## Facts

- Young & Rubicam, Inc. (Y&R) issued a check for $341,187.45 drawn on its account at Wachovia Bank, N.A. (Wachovia).
- The check was issued payable to “Hearst Magazines Division,” but when deposited at Chevy Chase Bank, F.S.B. (Chevy Chase), the payee appeared as “Kon Pesicka/CJ International.”
- Wachovia and Y&R used a “positive pay” arrangement under which Wachovia verified date, check number, and amount against Y&R’s transmitted data, but did not verify the payee name.
- The check presented for payment matched the positive-pay identifiers, and Wachovia paid it.
- After payment, Y&R reported a problem and asked Wachovia for the original check.
- Wachovia could not produce the original because it had destroyed the paper item after retaining a digital image pursuant to its retention policy.
- Wachovia reimbursed Y&R for business reasons and sought reimbursement from Chevy Chase, alleging breach of UCC presentment warranties.
- Because the original check was unavailable, the parties could not conclusively determine whether the payee discrepancy resulted from an alteration of the original instrument or from a forgery/counterfeit item.
- Chevy Chase filed a declaratory judgment action in the Eastern District of Virginia seeking a declaration of no liability; the district court granted summary judgment for Chevy Chase and denied Wachovia’s motion.

## Issues

1. Whether Wachovia proved, as required to recover on a presentment-warranty claim, that Chevy Chase presented an item that breached UCC presentment warranties (particularly the warranty against alteration).
2. Whether Wachovia’s destruction of the original check left an evidentiary gap that prevented Wachovia from establishing breach and causation as a matter of law.

## Decision

- The Fourth Circuit affirmed summary judgment for Chevy Chase.
- The court held Wachovia failed to establish that Chevy Chase breached any presentment warranty because Wachovia could not prove the item was altered (as opposed to forged/counterfeit or otherwise outside the asserted warranty theory).
- The court declined to shift the uncertainty created by the missing original check onto Chevy Chase; Wachovia bore the consequences of its inability to prove breach and causation.
- A dissent would have inferred alteration from the payee discrepancy and would have rejected summary judgment for Chevy Chase.

## Legal Principles

- A payor/drawee bank asserting breach of presentment warranties bears the burden to prove an actual warranty breach and that the breach caused its loss.
- The presentment warranty against alteration requires proof that the instrument was materially altered; uncertainty between alteration and forgery/counterfeit is insufficient to establish breach.
- When a party’s document-retention practices result in loss of the original instrument and the remaining evidence cannot establish a required element, summary judgment may be entered against that party on the claim.

## Conclusion

The court assigned the loss to Wachovia because it could not prove that the check presented by Chevy Chase was altered within the meaning of the presentment warranties, and the absence of the original check left the record unable to resolve alteration versus forgery in Wachovia’s favor.


Chevy Chase Bank, F.S.B. v. Wachovia Bank, N.A., 208 F. App’x 232 (4th Cir. 2006)