## Facts

- Thomas Peeso obtained a $7,000 cashier’s check from Navy Federal Credit Union (Navy), payable to Peeso, to buy a used car from Nation’s Auto Loan Center (Nation’s Auto).
- Peeso signed the back of the check and added language making it “Payable to Nation’s Auto Loan Center,” then delivered it to Nation’s Auto.
- Nation’s Auto wrote its Patriot Bank account number on the back of the check and deposited the check into its account at Patriot Bank, N.A. (Patriot).
- Patriot credited Nation’s Auto’s account for the $7,000 and forwarded the cashier’s check through normal collection channels to Navy for payment.
- Navy received the check, reviewed it under an internal policy for higher-dollar items, and returned the check unpaid to Patriot, stating “absence of indorsement guarantee required.”
- Nation’s Auto told Peeso the check was “no good” or “not negotiable.” Peeso returned to Navy and asked Navy to stop payment on the original cashier’s check and issue a new cashier’s check payable directly to Nation’s Auto.
- Navy stopped payment on the first cashier’s check even though it knew the item had been deposited at Patriot and was moving through the collection process; Navy also obtained an indemnity agreement from Peeso tied to refusing payment.
- Navy issued a second cashier’s check payable to Nation’s Auto, and Nation’s Auto deposited that second check at another bank.
- Patriot attempted to reverse the credit it had given Nation’s Auto for the first check, but Nation’s Auto had ceased doing business and its Patriot account was overdrawn, leaving Patriot out $7,000.
- During the dispute, Patriot stamped the original check with an “absence of indorsement guaranteed” legend and resubmitted it to Navy, but Navy again refused payment.
- Patriot sued Navy, claiming Nation’s Auto had validly indorsed the first cashier’s check and that Navy wrongfully refused to honor it.

## Issues

1. Did Nation’s Auto’s handwritten Patriot account number on the back of the cashier’s check constitute a valid indorsement under the UCC so that the check was properly negotiated for collection?
2. If the check was properly indorsed and in the collection stream, did Navy wrongfully refuse to pay (and improperly stop payment), making it liable to Patriot for the check amount?

## Decision

- Judgment for Patriot Bank.
- The court found that Nation’s Auto’s act of writing its account number on the check functioned as an indorsement for deposit and collection.
- The court held Navy wrongfully refused to honor the cashier’s check and could not avoid liability by returning it for lack of an indorsement guarantee or by later stopping payment after the check had been deposited for collection.
- The court awarded Patriot $7,000 plus interest, costs, and attorney’s fees.

## Legal Principles

- An indorsement under UCC Article 3 can be made by a “signature,” and a signature may be a symbol or mark adopted with the present intent to authenticate; it need not be a traditional handwritten name.
- When the evidence supports that a payee wrote identifying information (such as an account number) on an instrument to authenticate it for deposit, that writing may qualify as the payee’s indorsement.
- A cashier’s check is the issuing bank’s direct obligation; refusal to pay a properly payable cashier’s check can constitute wrongful dishonor under the UCC.
- An issuing bank’s attempt to stop payment on its cashier’s check, after the item has been deposited and is moving through collection, may expose the issuer to liability to a bank that took the item for deposit and gave value.

## Conclusion

Patriot Bank recovered on the cashier’s check because the court treated Nation’s Auto’s handwritten account number as a valid indorsement made for deposit, meaning the check was properly negotiated into the collection process; Navy’s refusal to pay and later stop-payment, despite knowing the check had been deposited for collection, was wrongful, so the loss did not remain with Patriot.


Patriot Bank v. Navy Federal Credit Union, 2002 WL 481129 (2002)