Opinion ID: 3013502
Heading Depth: 2
Heading Rank: 1

Heading: The Disputed Check

Text: In the proceedings before the District Court, the parties stipulated to the facts. The dispute arises out of a checkkiting scheme under which a small group of Pennsylvania business entities arranged to write checks on one account, drawing on non-existent funds, and then cover these overdrafts with checks drawn on another account that also lacked sufficient funds. In this manner, the perpetrators of the scheme sought to obtain funds to which they were not 4 entitled. The scheme collapsed when three checks initially deposited at NBT, and subsequently presented for payment to FNCB, were discovered by FNCB to have been drawn on an FNCB account that lacked sufficient funds.1 There is no dispute between the parties that two of these three checks were properly returned by FNCB to the Reserve Bank prior to the applicable midnight deadline. The Disputed Check (i.e., the third check, for $706,000), was drawn on an FNCB account and drafted by an entity called Human Services Consultants, Inc. On March 8, 2001, the Disputed Check was proffered for deposit at NBT by an entity called Human Services Consultants Management, Inc., d/b/a “PA Health.” Thus, in relation to the Disputed Check, NBT was the “depositary bank” (the first to receive the item), and FNCB was the “payor bank,” meaning that the Disputed Check was drawn on an FNCB account held by a participant in the check-kiting scheme. 1 The record does not provide additional information concerning the details of the check-kiting scheme and the fate of the scheme’s perpetrators. However, at oral argument, counsel for NBT indicated that the funds that were fraudulently obtained by the scheme’s perpetrators have not been recovered by NBT. 5