NBT Bank v. First National Community Bank

A check-kiting scheme carried out by various Pennsylvania businesses collapsed when a check deposited at NBT Bank, N.A. (NBT) (plaintiff) and presented for payment to First National Community Bank (FNCB) (defendant) was found to have been drawn on an FNCB account without sufficient funds. The events began when NBT sent the check to the Federal Reserve Bank of Philadelphia (Reserve Bank) to be presented to FNCB for payment. After providing NBT with provisional credit for the check from FNCB’s Reserve Bank account, the Reserve Bank presented the check to FNCB on March 12, 2001. The next day, after finding that the account lacked sufficient funds, FNCB took steps to return the check to NBT by delivering it to the Reserve Bank before midnight and sending a notice of dishonor to NBT, which was received by NBT the same day. When FNCB sent the check to the Reserve Bank, FNCB attached a strip of encoded magnetic ink to facilitate processing. However, FNCB had encoded the strip with the incorrect routing number, causing a three-day delay of return to NBT. NBT filed suit against FNCB, arguing that FNCB was liable to NBT for the full check amount due to FNCB’s encoding mistake. At trial, the parties stipulated that NBT did not suffer any actual damages or loss resulting from the error because NBT had received actual notice of dishonor from FNCB on March 13. Both parties moved for summary judgment. The district court granted FNCB’s motion and denied NBT’s motion. NBT appealed.