Bank Not Liable For Embezzlement, Says NC Business Court

Do you have a client who says his associate embezzled a lot of his money?  Does he want to sue the Bank that held the funds, claiming that the Bank should have known that misdoings were afoot and blown the whistle?  You'd better tell him to think twice before bringing that claim to the Business Court, based on last week's decision in Global Promotions Group, Inc. v. Danas Inc.

The Plaintiffs in Global had given one of the Defendants signature authority over their accounts at BB&T.  That Defendant later made unauthorized wire transfers from the accounts and deposited forged and unauthorized checks drawn on those accounts into their own accounts.  The total amount embezzled was more than $300,000.

The Plaintiffs said that BB&T should have discovered and prevented these transactions, but it was a claim looking for a cause of action that just couldn't be found.

Judge Jolly first considered the North Carolina Uniform Fiduciaries Act, which states that a Bank can be liable for checks drawn by a depositor's fiduciary only if "the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing such check, or with knowledge of such facts that its action in paying the check amounts to bad faith."  N.C. Gen. Stat. §32-9.

Even if the Defendants were fiduciaries of the Plaintiffs (about which there was little discussion) Judge Jolly found nothing in the Complaint to support an allegation of bad faith, He said that "suspicious circumstances," with a "failure to make inquiry," were not "bad faith."  Op. ¶24.  A failure to make inquiry amounts to bad faith only if if it is "due to the deliberate desire to evade knowledge because of a belief or fear that inquiry would disclose a vice or defect in the transaction, - that is to say, where there is an intentional closing of the eyes or stopping of the ears.'"  (quoting Edwards v. Northwestern Bank, 39 N.C.App. 261 (1979)).

Read this article in its entirety on North Carolina Business Litigation Report, a blog for lawyers focusing on issues of North Carolina business law and the day-to-day practice of business litigation in North Carolina courts.

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Lexis.com subscribers can access Lexis enhanced version of the Global Promotions Group, Inc. v. Danas Inc., 2012 NCBC 38 (N.C. Super. Ct. 2012) and Edwards v. Northwestern Bank, 39 N.C. App. 261 (N.C. Ct. App. 1979) decisions with summaries, headnotes, and Shepard's.