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Bank Responsibility: Failing to Warn Customers About Counterfeit Postal Money Orders

I am a solo practitioner lawyer who assists some clients who desire to represent themselves pro se (without a lawyer). I was contacted by a 30-year old American citizen living in London who had some questions about settling his father's accounts and probating his estate. Eventually, this party arranged for one of his father's debtors to send me $3,000, which I was to forward to him via Western Union wire transfer.

Instead of cash arriving, on August 1, 2005, I received an envelope containing three U.S. postal money orders each for $1,000. The closest Western Union transfer office where I live is located at Kroger's grocery store. I presented the money orders to Kroger's as payment for funds to be sent by wire. Kroger could only accept payment in cash for Western Union.

Suntrust Bank operates a branch within Kroger's grocery store, and I happened to maintain a checking account with Suntrust. I then walked to the Suntrust bank and explained the Western Union wire transaction to the teller. I explained that I wanted to send money to a person in London (overseas), but Kroger, on behalf of Western Union, would not accept money orders as payment. I expressed my understanding that money orders were like cashier's checks: a party could not place a "stop payment" order on a money order, and a money order guaranteed by the U.S. Postal Service would not be returned for "insufficient funds." The teller at Suntrust's branch agreed with me: postal money orders are "as good as cash."

I indicated that I wanted to cash these money orders instantly and not deposit them into my account. In fact, I reiterated that the money orders were not to be deposited or tied in anyway to my account. In all my years of law practice, I have never accepted or held any funds in trust for the benefit of a client, and I did not want to hold the funds from the money order, which an attorney is required to deposit into a trust account.

Given these explicit instructions from me, the teller at Suntrust Bank told me to endorse each money order with my signature followed by "Not For Intended Purpose." Under Tenn. Code Ann. § 47-3-415(b), if an endorser writes "without recourse" on a negotiable instrument, such as a money order, then the endorser disclaims all liability for his endorsement is not liable for payment on the instrument. The teller negligently informed me to endorse the money orders as "Not For Intended Purpose," when in fact as per my instructions, I should have endorsed them as "without recourse." If Suntrust's teller had informed me of the correct restriction to place on the endorsement, then arguably Suntrust would not have been legally able to debit my personal checking account for $3,000 + $19.50 for a returned check fee.

At present, I have suffered the loss of $3,019.50 from my checking account, and Suntrust is disclaiming any liability towards I for its negligent conduct. In fact, I will argue in court that Suntrust owed me a duty of ordinary care to make the most minimal inspection of the money orders to prevent a transaction with fraudulent or counterfeit notes. Suntrust failed to make any inspection of the money orders and negligently accepted the money orders as bonafide without even holding them up to the light.

Tenn. Code Ann. § 45-2-403(b) requires the Suntrust to maintain "suitable insurance protection to the bank against burglary, robbery, theft, liability and other similar insurable hazards to which the bank may be exposed in the operations of its business on the premises or elsewhere." Any reasonable person would expect the bank's insurance to cover losses from fraudulent endorsements, forgeries, and counterfeit notes. Instead of filing a claim with its insurance company, Suntrust is trying to keep its insurance premiums low by filing no claims and instead forcing innocent victims, such as me, to suffer the losses of counterfeit notes that they did not even deposit into their accounts. In Martin v. State, 272 Ark. 376, 614 S.W.2d 512 (Ark. 1981) and Gardner v. Commonwealth, 262 Va. 18, 26-27 (Va. 2001), the courts ordered banks to refund to depositors money that the banks had deducted from their accounts because negotiable instruments turned out to be counterfeit. Therefore, under the right circumstances, banks can be held liable for their actions in approving counterfeit notes.

According to the website of the U.S. Postal Service, http://www.usps.com/postal inspectors/mofeatur.htm, fraudulent scams involving counterfeit postal money orders are running rampant. Members of the general public would not know to seek out and view this web page showing how to detect a counterfeit postal money order, but banks were so advised. According to that same USPS website "The Federal Deposit Insurance Corporation issued a special alert last month [March 2005], notifying bank executives of the problem." Suntrust is insured by the FDIC, and Suntrust received this special alert and apparently took no tangible response.

I would be interested in hearing from readers and attorneys who know of any circumstances in which banks have been held liable for approving a counterfeit postal money order and then weeks later coming back and deducting the entire amount from some poor customer's account.

Dr. Michael A. S. Guth
mike @ riskmgmt.biz

Dr. Michael A. S. Guth, Ph.D., J.D., is an attorney at law based in Oak Ridge, Tennessee. His practice focuses on enabling people to represent themselves pro se without a lawyer (and thereby save on legal fees), as well as full representation for appellate practice. One area his work has particularly emphasized is child support defense and elimination of the unconstitutional debtor prisons that now saturate our court jurisdictions across the nation. For more information, see URL http://riskmgmt.biz/prose.htm and http://riskmgmt.biz/samplepleadings.htm

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