Understanding Negotiable Instruments and Payment Systems by William H. Lawrence

Author:William H. Lawrence [Lawrence, William H.]
Language: eng
Format: mobi
Publisher: LexisNexis
Published: 2009-09-08T04:00:00+00:00

[D] Burden of Proof — § 4-403(c)

Although subrogation rights can be very valuable to a payor bank because of their extensive nature, the predicament for the bank is that its rights can depend upon the rights of the drawer, the payee, or other holders against each other. For example, a drawer of a check might issue a stop-payment order because of an alleged defect in the goods delivered under the applicable sales contract. The payor bank that improperly pays over the drawer’s stop-payment order can subrogate to the rights of either the drawer or the payee, or both, but selection of the correct party for subrogation is predicated on resolution of the breach of warranty claim. An opportunity to implead third parties, therefore, can be very important to the bank.120 If both the drawer and the payee can be joined in one suit and their dispute litigated, the bank’s alternative subrogation rights resolve much of its dilemma.121

Payor banks have successfully impleaded third parties in subrogation cases. In Mitchell v. Republic Bank & Trust Co.,122 the appointed receiver of the drawer instituted an action against the payor bank for failure to observe a stop-payment order. The bank claimed subrogation rights of the payee against the drawer, and subsequently filed a third-party complaint against the payee based on subrogation to the rights of the plaintiff drawer. In Sunshine v. Bankers Trust Co.,123 the bank paid a check by not returning it to the depositor-payee before its midnight deadline. It nevertheless debited the payee’s account to comply with a stop-payment order, and the payee sued to recover the chargeback. The bank then impleaded the drawer. In both cases the payor bank was at odds with its drawer.

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