Bank That Acted Negligently In Delaying The Processing Of A Check On A Closed Account Is Not Liable When The Depositor Of The Check Suffered No Harm As A Result

In Wells Fargo Bank v. FSI, Financial Solutions, Inc., (— Cal.Rptr.3d —-, Cal.App. 4 Dist., June 29, 2011), a California Court of Appeal considered whether a bank could be liable for damages to the depositor of a check, when the bank negligently delayed processing the check on an account that had previously been closed. The court ruled that because the depositor demonstrated no showing of actual harm as a result of the negligence, the bank could not be held liable for damages.


On November 30, 2006, FSI, Financial Solutions, Inc. (“FSI”) deposited a check for $90,000 written by Bay Capital Corp. (“Bay Capital”), into its account at Wells Fargo Bank (“Wells Fargo”). The check was returned for insufficient funds. FSI again attempted to deposit the check on December 27, 2006, and it was again returned for insufficient funds. FSI sued Bay Capital but its case was dismissed without any recovery.

On November 21, 2007, (the day before the four-day Thanksgiving holiday), FSI tried once again to deposit the check through an Automated Teller Machine (“ATM”). On November 23, Wells Fargo sent FSI written notice of a hold on the check, advising that funds would become available on November 26. On that date, FSI made several payments to its creditors against the $90,000 it believed it had in its Wells Fargo account.

On December 5, Wells Fargo received a notice that the account on which the check was drawn had been closed more than six months previously. Wells Fargo took back the remaining $28,926.37 balance in FSI’s account, leaving the account with a negative balance of $62,764.73. Wells Fargo subsequently rejected payment on several other transactions from FSI, and charged FSI fees of $748.00 for their return.

Wells Fargo sued FSI for the amount of its overdraft, and FSI countersued, alleging negligent misrepresentation and promissory estoppel. The court entered judgment for FSI, ordering repayment of the $28,926.37 Wells Fargo had recovered from its account, and to release the chargeback of $62,764.73 levied by Wells Fargo against FSI’s account.

Wells Fargo appealed.


The court first reviewed the language of the California Uniform Commercial Code. Section 4214 reads: “If a collecting bank has made provisional settlement with its customer for an item and fails by reason of dishonor … or otherwise to receive settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer’s account, or obtain refund from its customer, whether or not it is able to return the item.” That makes clear, the court said, that Wells Fargo had the right to charge back or seek the recovery of $90,000 from FSI. The issue then hinges on whether, and to what extent, Wells Fargo’s negligence (the lengthy delay in processing the check and/or its alleged misrepresentation to FSI about the funds becoming available), caused FSI to suffer.

The court explained that the elements of negligent misrepresentation include the misrepresentation, without reasonable ground to believe it to be true, with intent to induce another’s reliance upon the misrepresentation, justifiable reliance on the misrepresentation, and resulting damage. For promissory estoppel, the elements are a clear and unambiguous promise, reliance on the promise, and resulting injury. It was necessary, in both instances, for FSI to show it had been injured or damaged by Wells Fargo’s conduct however, there is no evidence of any actual damages to FSI other than the $748 it was charged in overdraft fees, the court said.

Wells Fargo’s negligence had no effect on FSI’s ability to collect the $90,000 from Bay Capital because that account had been closed months earlier and FSI could not have collected those funds in any event. Therefore, it had not been injured by Wells Fargo and there was no evidence supporting the relief ordered in the trial court’s judgment.

The court ruled that Wells Fargo was entitled to recover from FSI the amount of the overdraft, $62,764.73, reduced by the overdraft fees of $748, for a net award in favor of Wells Fargo in the amount of $62,016.73.

The trial court’s judgment was reversed and it was directed to enter the new judgment for Wells Fargo.


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