Mid-Cal National Bank, a National Banking Association, and v. Federal Reserve Bank of San Francisco, Bank of Stockton, And

Bank of Stockton (hereinafter “Stockton”) appeals from a summary judgment entered against it. This case presents the question whether one bank owes a legal duty to another bank to discover a check kiting scheme that results in a loss to the second bank. The court below apparently determined that no such duty was owed by appellee Mid-Cal National Bank (hereinafter “Mid-Cal”) to Stockton. We affirm.

The essential facts are as follows. Mid-Cal and Stockton were used by certain individuals in their perpetration of a check kiting scheme. In a kite, accounts are maintained in different banks and checks are drawn on one account and deposited in the other when neither account has any substantial funds in it to pay the checks drawn on it. Since it takes several days to collect a check, each account will show significant credits of uncollected checks, and those credits will persist as long as checks are drawn daily in each bank and deposited in the other. The kite collapses when one bank refuses to pay checks drawn against the uncollected funds. Normally the first bank to discover the kite can relieve itself of loss. See Blakely & Pomerantz, Anatomy of the Check Kite, 151 Bankers’ Magazine…

dissenting:

In Sun ’n Sand, Inc. v. United California Bank, 21 Cal.3d 671 , 148 Cal.Rptr. 329 , 582 P.2d 920 (1978) the California Supreme Court held that it was negligence for a bank to permit a hotel’s checks on which it was named as payee to be deposited in the personal account of the hotel’s bookkeeper, who was an embezzler. The negligence was misfeasance, as contrasted with nonfeasance, and in reliance on that distinction the court held the bank owed a duty of reasonable care to the hotel to discover the employee’s lack of authority to deposit the funds in her personal account. See id. at 692-96 , 148 Cal.Rptr. at 344-46 , 582 P.2d at 935-37 . The Sun ’n Sand decision is of controlling importance in interpreting Stockton’s counterclaim, and under its principles the counterclaim might be interpreted, or properly amended, to allege actionable misfeasance on the part of Mid-Cal Bank.

The majority holds in the case before us that Stockton’s theory of recovery must necessarily rest upon nonfeasance. While recognizing the difficulties of the misfeasance/nonfeasance distinction, I think the counterclaim can be interpreted to allege the negligent performance of active conduct,…

590 F.2d 761 MID-CAL NATIONAL BANK, a National Banking Association, Plaintiff and Appellee, v. FEDERAL RESERVE BANK OF SAN FRANCISCO, Defendant, Bank of Stockton, Defendant and Appellant. No. 76-3116. United States Court of Appeals, Ninth Circuit. Jan. 8, 1979. 1 Mark S. Bray (argued), of Cavalero, Bray, Shumway & Geiger, Stockton, Cal., for defendant and appellant. 2 E. James McGuire (argued), O'Gara & McGuire, San Francisco, Cal., for plaintiff and appellee. 3 Appeal from the United States District Court for the Northern District of California. 4 Before TRASK and KENNEDY, Circuit Judges, and TURRENTINE, * District Judge. TURRENTINE, District Judge: 5 Bank of Stockton (hereinafter "Stockton") appeals from a summary judgment entered against it. This case presents the question whether one bank owes a legal duty to another bank to discover a check kiting scheme that results in a loss to the second bank. The court below apparently determined that no such duty was owed by appellee Mid-Cal National Bank (hereinafter "Mid-Cal") to Stockton. We affirm. 6 The essential facts are as follows. Mid-Cal and Stockton were used by certain individuals in their perpetration of a check…