## Facts

- IBP, Inc. bought cattle from Meyer Land & Cattle Company and, on July 15, 1986, issued a $135,234.18 check drawn on Mercantile Bank of Topeka.
- The check was payable jointly to Meyer and Sylvan State Bank; Sylvan was named due to its security interest related to Meyer’s cattle.
- Meyer misplaced the original check and did not negotiate it at the time.
- In fall 1995, Meyer’s president found the original 1986 check and endorsed it.
- Meyer presented the check to Sylvan for deposit; Sylvan accepted it and forwarded it through normal collection channels.
- Mercantile, as payor bank, paid the check and debited IBP’s account after confirming no stop-payment order existed; it did not review the check date for staleness.
- IBP sued Mercantile (negligence; breach of contract), Sylvan (conversion; unjust enrichment; negligence), and Meyer (conversion; unjust enrichment).
- Defendants moved for summary judgment.

## Issues

1. Whether the payor bank breached a UCC or contractual duty of ordinary care by paying a check more than six months old without reviewing the date or notifying the customer.
2. Whether the depositary/payee bank committed conversion, was unjustly enriched, or acted negligently by accepting and collecting a nine-year-old check from a named payee without contacting the drawer.
3. Whether the co-payee’s negotiation and retention of proceeds constituted conversion or unjust enrichment where the drawer owed the underlying debt and the check had not been replaced.

## Decision

- Summary judgment was granted for Mercantile on IBP’s negligence and contract claims.
- Summary judgment was granted for Sylvan on IBP’s conversion, unjust enrichment, and negligence claims.
- Summary judgment was granted for Meyer on IBP’s conversion and unjust enrichment claims.
- Meyer’s motion on Mercantile’s third-party claim was denied as moot.

## Legal Principles

- Under UCC § 4-404, a bank is not required to pay a check more than six months old, but may pay it in good faith and charge the customer’s account.
- “Ordinary care” under UCC Articles 3 and 4 is evaluated against reasonable commercial standards in the banking industry; a payor bank does not breach ordinary care merely by using processing practices that do not routinely screen check dates for staleness.
- A breach-of-contract claim against a bank requires an applicable contractual term; absent an agreement imposing a staleness-screening or notice requirement, UCC default rules govern.
- Conversion of an instrument under UCC § 3-420 requires payment to a person not entitled to enforce the instrument; where the payee is entitled to payment of an unpaid debt, negotiation and collection are not conversion.
- Unjust enrichment generally does not lie where the proceeds are paid to a party entitled to them and the alleged “enrichment” is limited to routine banking functions rather than retention of the funds.

## Conclusion

The court held that paying and collecting a nine-year-old check did not create liability where the payor bank paid in good faith consistent with banking practice, no contract required special stale-check handling, and the payee was entitled to the funds for an unpaid underlying obligation.


IBP, Inc. v. Mercantile Bank of Topeka, 6 F. Supp. 2d 1258 (D. Kan. 1998)