Wednesday, May 26, 2010
C.A.: Bank Can Pursue Victim of Check-Cashing Scam
By STEVEN M. ELLIS, Staff Writer
A Chino bank can pursue recovery from a customer whose participation in a check-cashing e-mail scam led to a nearly $459,000 overdraft, the Fourth District Court of Appeal ruled yesterday.
Div. Two said the “Nigerian-style” scam’s victim, who challenged the bank’s right to attach his account, bore the burden of proving the bank acted negligently when it accepted the checks for deposit and wired funds to banks in Hong Kong and China at his direction.
Chino Commercial Bank filed an action to recover the overdraft after three checks totaling more than $800,000 that were deposited at the direction of Brian Peters, the president of construction business Faux Themes Inc., bounced.
Peters, acting on an e-mail solicitation, agreed to deposit checks supposedly owed to a Malaysian citizen and then pay that money out as directed in exchange for a 15 percent fee. The e-mail, purportedly from one Husaine Norman, stated that Norman was owed money by third parties in the United States and Canada who would not transfer the funds “to any bank account outside America [sic] continent due to their new company policy.”
Peters, who later conceded he was “less than smart in moving forward on the transaction,” received one check for $178,000 in April 2009 and two more for $374,000 and $257,000 the next month. He directed his corporation’s treasurer, Marilyn Charlnoes, to deposit the checks, and she had the bank wire $80,000 to a bank in Hong Kong after Chino confirmed that the first check cleared.
Charlnoes directed Chino to wire $71,000 to the same Hong Kong bank after Peters received the second check, and then told Chino to wire an additional $317,000 to a bank in China after Peters received the third check and confirmation that the second check cleared.
None of the checks had any facial irregularities, but Chino in late May 2009 learned that they had been altered with acid to change the name of the payee to Faux. The bank then filed suit against Faux, Peters and Charlnoes for breach of contract and fraud, and applied for an order allowing it to attach property of Peters and Charlnoes.
San Bernardino Superior Court Judge David A. Williams, rejecting the argument that the order should be denied due to Chino’s alleged negligence, granted it as to Peters. Williams reasoned that Peters, as a result of his own negligence, bore the burden of proving the bank was negligent.
He also concluded that Peters failed to introduce sufficient evidence to meet that burden.
Peters appealed, but the Court of Appeal affirmed in an opinion by Justice Betty Ann Richli.
Richli said the “crucial provision” was California Uniform Commercial Code Sec. 3406. Amended in 1992, it precludes a person whose failure to exercise ordinary care contributed to an alteration of an instrument from asserting the alteration against one who accepted the instrument in good faith.
If the party who accepted the instrument failed to exercise ordinary care, the statute allocates any resulting loss between both parties according to the extent to which their failure to exercise ordinary care contributed to the loss. However, it also provides that the burden of proving that a party who accepted the instrument failed to exercise due care falls on the party making that allegation.
Placing the burden on Peters, Richli wrote that he failed to meet it because he did not show that the bank violated its own procedures or that those procedures varied unreasonably from those generally used by other banks. She also noted that there was no evidence that prevailing commercial standards required the bank to question large wire transfers to China from an account that traditionally held a balance of only $3,000 to $5,000.
Justices Thomas E. Hollenhorst and Art W. McKinster joined Richli in her opinion.
The case is Chino Commercial Bank, N.A. v. Peters, E049170.
Copyright 2010, Metropolitan News Company