## Facts

- A purchaser obtained a $250 check issued by Allied Irish Bank (AIB) payable to Advance Marketing and Investment Inc. (AMI); HSBC Bank USA (as successor to Marine Midland Bank) was the drawee/payor bank.
- The check was handwritten and left limited open space in the numerical and written amount fields.
- Before deposit, the check was fraudulently altered to $250,000 by adding zeros and modifying punctuation in the numerical field and by adding abbreviated letters to the written amount.
- AMI deposited the altered check at F & M Bank Northern Virginia (F & M), the depositary/presenting bank.
- F & M presented the check for payment to HSBC, thereby warranting under Virginia’s UCC enactment that the item had not been altered.
- HSBC paid $250,000 to F & M and debited AIB’s account; after AIB reported the alteration, HSBC recredited AIB for the altered portion and sued F & M for breach of presentment warranty.
- After a bench trial, the district court entered judgment for HSBC, rejecting F & M’s affirmative defense that AIB failed to exercise ordinary care in preparing the check.

## Issues

1. Whether the district court clearly erred in finding that AIB exercised ordinary care in preparing the check, defeating F & M’s defense that the drawer’s lack of ordinary care substantially contributed to the alteration.
2. Whether leaving some open space in the amount fields, without additional proof of negligent preparation, establishes lack of ordinary care sufficient to shift loss away from the presenting bank.

## Decision

- The Fourth Circuit affirmed the judgment for HSBC.
- The court held the district court’s finding that AIB exercised ordinary care was not clearly erroneous.
- Because F & M’s only evidence was the check itself and it offered no proof of industry standards, it failed to carry its burden on the lack-of-ordinary-care defense.
- F & M remained liable to HSBC for breach of the presentment warranty that the item had not been altered.

## Legal Principles

- A presenting bank warrants to the drawee/payor bank that the presented item has not been altered under Virginia’s enactment of UCC presentment-warranty provisions.
- Loss from an altered instrument may be shifted to the drawer only if the drawer failed to exercise ordinary care in preparing the instrument and that failure substantially contributed to the unauthorized alteration.
- Leaving some blank space in the numerical or written amount lines is not, by itself, a lack of ordinary care when the overall manner of completion makes a fraudulent increase conspicuous or awkward.
- On appeal, a district court’s factual finding on ordinary care is reviewed for clear error; absent a firm mistake on the record, the finding is upheld.

## Conclusion

The presenting bank that obtained payment on an altered check was liable for breach of the statutory “no alteration” warranty because it could not show that the drawer’s preparation of the check fell below ordinary care or that any drafting choice substantially contributed to the alteration under clear-error review.


HSBC Bank USA v. F & M Bank N. Va., 246 F.3d 335 (4th Cir. 2001)