General Electric Capital Corporation v. Central Bank

Roger Duchow owned Duchow’s Marine, Inc. (collectively, Duchow). Duchow obtained a loan from General Electric Capital Corporation (GECC) (plaintiff) to finance the business’s boat inventory and gave GECC a security interest in the boats and their proceeds. Duchow agreed to deposit the proceeds into an account at Central Bank (defendant) under the name “Duchow Marine, Inc. GE Escrow Account” (the blocked account). Funds in the blocked account could not be disbursed without GECC’s signature. Duchow also had a separate account at Central Bank under Duchow’s name (the regular account). Duchow sold a boat for $215,370. In an attempt to defraud GECC, Duchow instructed the customer to wire transfer the funds to the regular account. The customer’s bank instructed an intermediary bank to make the transfer on its behalf. By chance, the intermediary bank botched the transfer in a way that could have ruined Duchow’s fraudulent scheme. The intermediary bank told Central Bank to credit Duchow’s account and, considering two accounts reflected Duchow’s name, Central Bank credited the proceeds to the blocked account. Duchow realized what happened when he wrote a check from the regular account to whisk away the proceeds and overdrew the account. Duchow contacted Central Bank to discuss the situation and, without notifying GECC, Central Bank reversed the credit to the blocked account and credited the proceeds to the regular account, which allowed Duchow to whisk away the proceeds. GECC sued Central Bank for conversion. Central Bank asserted a banker’s privilege and argued that a beneficiary’s bank was not liable for following an intermediary bank’s payment order. GECC argued that Central Bank did not merely follow a payment order; it unilaterally reversed the credit to the blocked account despite the discharge-for-value rule. The district court ruled for Central Bank and found that Wisconsin followed the mistake-of-fact doctrine instead of the discharge-for-value rule.