Los Angeles National Bank v. Bank of Canton

This appeal involves the construction and applicability of California Uniform Commercial Code section 4302 which requires a bank to give notice of dishonor or refusal to pay a check by midnight of the day following receipt of the check, otherwise known as the “midnight deadline” rule. Here, over $2 million in losses were sustained when two individuals, Tony Lam and Peter Wong, cashed twenty-eight worthless checks written on an account issued by appellant, Bank of Canton of California (BOC), over a period of three days at the Monterey Park branch office of respondent Los Angeles National Bank (LANB). The main issue presented is which bank should bear the loss.

Summary judgment was granted in favor of LANB based upon BOC’s failure to meet the midnight deadline. A subsequent motion for new trial by BOC was denied. BOC appeals. We affirm the judgment.

Procedural and Factual Background

1. The check kiting scheme

Lam and Wong were principals at Golden Fields Leasing Company, Inc. (Golden Fields), and had established a checking account at BOC in Golden Fields’s name. They had also established a banking relationship with LANB and were familiar with one of its tellers, Mrs.…