## Facts

- Hechinger, Inc. issued Outdoor Technologies, Inc. a check for $706,735.62 to pay for goods Outdoor had sold to Hechinger.
- The check was drawn on Hechinger’s account at First Omni Bank, N.A. (Omni), but the face of the check incorrectly identified First National Bank of Maryland (FNB) as the location of the account.
- Outdoor learned Hechinger was preparing to file for bankruptcy and sought immediate payment rather than using ordinary deposit and collection.
- Outdoor’s controller, John Hurt, went to FNB to negotiate the check more quickly, but FNB told him it could not do so because the account was actually at Omni.
- Hurt then went to Omni’s corporate parent (Maryland Bancorp, later Allfirst Financial, Inc.) and spoke with Omni’s corporate attorney, William Thomas.
- Thomas told Hurt that Omni would negotiate (honor) the check only if: (1) Hechinger had sufficient funds, (2) Hechinger had not yet filed bankruptcy, and (3) Hurt presented the check in person with “proper authorization.”
- Hurt did not ask what “proper authorization” meant, and Thomas did not define it during that conversation.
- Hurt went to an Omni branch and presented the check along with a letter signed by Outdoor’s president stating Hurt was authorized to negotiate the check.
- Omni refused to negotiate the check, stating that “proper authorization” required a board-of-directors resolution authorizing Hurt to negotiate it.
- Because obtaining a board resolution would take too long, Outdoor deposited the check through its own bank using normal collection channels.
- Before Omni paid the check, Hechinger filed bankruptcy, and payment from Hechinger’s accounts was blocked.
- Outdoor sued Omni, FNB, and Bancorp (Allfirst-related entities), asserting fraud, negligent misrepresentation, and civil conspiracy. (A third-party-beneficiary contract theory had been dismissed earlier.)

## Issues

1. Whether Outdoor produced evidence of fraud based on the attorney’s conditional statement that Omni would negotiate the check upon satisfaction of stated conditions, including “proper authorization.”
2. Whether the defendants owed Outdoor (a non-customer) a duty to provide more detail about what “proper authorization” meant, such that the communications could support negligent misrepresentation.
3. Whether Outdoor produced evidence of a civil conspiracy among the related banking entities, including an agreement to commit an underlying tort that caused Outdoor’s loss.

## Decision

- The court granted summary judgment for defendants on the fraud claim because Outdoor failed to present evidence that defendants made a knowingly false statement or made a promise with a present intent not to perform.
- The court granted summary judgment for defendants on negligent misrepresentation because Outdoor did not show an actionable false statement or omission, and the circumstances did not establish a disclosure duty requiring the bank to specify what documentation would satisfy “proper authorization.”
- The court granted summary judgment for defendants on civil conspiracy because the underlying tort claims failed and Outdoor produced no evidence of an agreement to commit a wrongful act.
- Defendants prevailed on all remaining claims.

## Legal Principles

- A fraud claim based on a promise of future conduct requires evidence that, when the promise was made, the speaker did not intend to perform; later refusal or nonperformance, standing alone, is not enough to show fraudulent intent.
- A conditional assurance (“we will negotiate the check if X, Y, and Z occur”) is not, without more, a misstatement of existing fact; a plaintiff must show the condition was misstated, deceptive, or asserted with knowledge of falsity.
- Negligent misrepresentation requires a false statement (or, when a duty to speak exists, a misleading omission), reasonable reliance, and resulting loss.
- Delaware recognizes that a disclosure duty may arise in a business relationship from which the parties expect pecuniary benefit, but the relationship and communications must be sufficient to impose such a duty on the speaker.
- Civil conspiracy requires (i) a combination of two or more persons, (ii) an unlawful act or unlawful means, (iii) an overt act in furtherance of the agreement, and (iv) damages; without an underlying tort, conspiracy fails.
- When a drawee bank has not accepted a check and statutory duties under the U.C.C. primarily run to the bank’s customer (the drawer), a payee may be left without a U.C.C. remedy, but common-law claims still require proof of each element.

## Conclusion

Outdoor’s loss resulted from Hechinger’s bankruptcy and the timing of ordinary collection, not from proof that the banks knowingly misled Outdoor or negligently supplied false information. Because the attorney’s statement was expressly conditional, “proper authorization” was never defined in a way that could be shown false at the time of the initial communication, and no underlying tort was established to support conspiracy, the Delaware Superior Court entered summary judgment for all defendants.


Outdoor Technologies, Inc. v. Allfirst Financial, Inc., 44 UCC Rep. Serv. 2d 801 (2001)