## Facts

- Wesley Heights Realty, Inc. and Leopold Boeckl drew a $1,400 check payable to a Falls Church Bank customer.
- The payee deposited the check at Falls Church Bank, which granted provisional credit for the deposit.
- Before the bank learned payment had been stopped, it allowed the customer to withdraw $140 against the provisional credit.
- The drawers stopped payment; the check was returned dishonored.
- The customer disappeared and left no funds to cover the $140 paid out.
- The bank demanded $140 from the drawers; they refused, and the bank sued to recover $140.
- The Uniform Commercial Code (UCC) was in effect in the relevant jurisdictions, eliminating any choice-of-law dispute.

## Issues

1. Whether a depositary/collecting bank that permits withdrawal against a provisional credit on a deposited check gives “value” and becomes a holder in due course to the extent of the withdrawal.
2. Whether the bank may recover from the drawer the amount withdrawn when the check is later dishonored due to a stop-payment order.

## Decision

- The court reversed the judgment for the drawers and remanded with instructions to enter judgment for the bank.
- The bank acquired a UCC security interest in the deposited check to the extent of $140, the amount withdrawn before dishonor.
- Because that security interest constituted “value,” the bank was a holder in due course as to $140.
- No defenses valid against a holder in due course were asserted, so the bank was entitled to recover $140 from the drawers.

## Legal Principles

- A collecting/depositary bank obtains a security interest in an item to the extent provisional credit for the item is withdrawn or applied. (UCC § 4-208)
- For holder-in-due-course purposes, a bank gives “value” to the extent it has such a security interest. (UCC § 4-209)
- A bank may act as a collecting agent for its customer and still qualify as a holder in due course to the extent it has given value under the UCC. (UCC § 4-201; UCC scheme)
- A holder in due course takes free of most defenses; only defenses specified by UCC § 3-305(2) can defeat the claim, and none were raised here.

## Conclusion

The court held that when a depositary bank allows a customer to withdraw funds against a provisional credit on a deposited check, the bank gains a security interest and gives value under the UCC, making it a holder in due course to the extent of the withdrawal and permitting recovery of that amount from the drawer after stop-payment dishonor.


Falls Church Bank v. Wesley Heights Realty, Inc., 256 A.2d 915 (D.C. 1969)