Troy Bank & Trust Co. v. The Citizens Bank

Ronnie Gilley Properties, LLC issued a check for $100,000 to Cile Way Properties, LLC. Cile deposited the check at Citizens Bank (defendant) on December 16. However, when Citizens processed the check to collect the money from Troy Bank & Trust Co. (plaintiff), Gilley’s bank, Citizens incorrectly encoded the amount of the check as $1,000. Troy paid the $1,000. Citizens discovered the encoding error on January 22 and sent Troy an adjustment notice to recover the remaining $99,000. Troy honored the adjustment notice and sent the additional funds to Citizens. When Gilley originally wrote the check, its account with Troy had sufficient funds to cover the $100,000. However, by the time Troy honored the adjustment, Gilley’s account no longer had sufficient funds to pay the check’s full amount, and Troy suffered a loss of $98,436.43. Troy sued Citizens in Alabama state court, alleging that Citizens breached its encoding warranty under Uniform Commercial Code (UCC) § 4-209(a). That section provides that a party that encodes a check warrants that the encoded information is correct. Citizens conceded that it breached the warranty but argued that Troy could not recover because Troy did not dishonor the check by its midnight deadline (that is, before midnight on the close of the first banking day after Troy received the check). Citizens also argued that Troy could not recover because Troy did not follow the Federal Reserve’s claim procedure for submitting its claim. The trial court granted summary judgment for Citizens, and Troy appealed to the Alabama Supreme Court.