Smallman v. Home Federal Savings Bank of Tennessee

David and Tommie Smallman (plaintiffs) made a sale to Ms. Petruzello for $703.87. Ms. Petruzello tendered a check drawn on AmSouth Bank in that amount to the Smallmans. On April 22, 1985, the Smallmans deposited the check in their account at Home Federal Savings Bank of Tennessee (defendant), which Home Federal then submitted for processing and collection. But AmSouth refused to honor the check due to insufficient funds in Ms. Petruzello’s account. The check was lost in the mail at some point in the return process to Home Federal. On July 30, Home Federal received notice that the check would not be paid but no explanation for its delay. Believing that the check had not been processed in a timely fashion, Mr. Underwood, an officer of Home Federal, set out to collect the check. On August 30, Home Federal received a second notice that the check would not be paid and, this time, an explanation that the delay had not occurred in relation to the collection process but because it had been lost in the return process to Home Federal. Mr. Underwood then contacted AmSouth, who confirmed that the check would not be honored due to insufficient funds. On September 5, a dishonor notice to the Smallmans was prepared and a charge back effected. While the dishonor notice was en route, however, the Smallmans discovered a zero balance in their account at Home Federal. On September 9, the Smallmans contacted Mr. Underwood and received actual notice that the check had been returned due to insufficient funds and that their account had been charged back. Due to the charge back, the Smallmans had 14 checks returned unpaid. The Smallmans sued Home Federal to recover the amount of the check.