Plaintiff accepted the check for deposit to Martha Bonanni whose account was provisionally credited in the amount of $ 18,800.00. The check was then forwarded through the Federal Reserve system for presentment to defendant.
Plaintiff, a "depository institution" within the meaning of Regulation J, 12 C.F.R. § 210, sent the check, a "cash item" within the meaning of Regulation J, through the Federal Reserve system, and the check was presented for payment to the defendant, a "paying bank" within the meaning of Regulation J, on January 5, 1987. On January 6, 1987, defendant dishonored the check as having been drawn on a closed account and returned the check to the Federal Reserve Bank of Chicago.
The defendant did not notify plaintiff that it was dishonoring the check as required by Regulation J, 12 C.F.R. § 210:12(c). On January 9, 1987, Martha Bonanni withdrew $ 12,000.00 from her account. On January 12, 1987, at 11:59 a.m. Martha Bonanni withdrew an additional $ 5,000.00 from her account.
Plaintiff did not receive notice of defendant's dishonor of the check until January 12, 1987, at 1:45 p.m. when its correspondent, Provident National Bank, telephoned notification to plaintiff that the check had been dishonored by the defendant. At the time the check was charged back against Martha Bonanni's account, there was left on deposit the sum of $ 1,800.00. The return of the check by the defendant resulted in a $ 17,000.00 overdraft to the account of Martha Bonanni. Plaintiff has recovered from its customer $ 500.00 of the $ 17,000.00 overdraft, thereby leaving a principal loss of $ 16,500.00.
Subsequent to defendant's dishonor of the check, it was discovered that Henry Skorr's endorsement was forged. This was not, however, the reason that defendant dishonored the check. The check was dishonored because the drawee's account was closed at the time the check was delivered to defendant for payment. Defendant has refused to honor plaintiff's Regulation J claim because the payee's endorsement on the check is a forged endorsement.
Plaintiff notified its customer, Martha Bonanni, that the check was dishonored on January 12, 1987. In conducting its investigation, First American learned that Martha Bonanni was the mother of Roger Bonanni. Martha Bonanni advised plaintiff that she knew nothing about the transaction other than she engaged in the transaction at her son's request. During the early months of 1987, the Bank made a number of efforts to collect this indebtedness from Roger Bonanni who was ultimately arrested on February 6, 1987. Plaintiff has made demand upon both Martha Bonanni and Roger Bonanni to repay the amount of the overdraft and, other than the payment of $ 500.00, no further sums have been paid by Martha or Roger Bonanni. Plaintiff has not commenced any legal proceedings against Martha or Roger Bonanni to effectuate the collection of this indebtedness.
Essentially, plaintiff First American Savings seeks compensation from defendant M & I Bank for the loss it suffered because M & I Bank did not notify First American Savings that it was dishonoring a check for $ 18,800.00 as required by Regulation J, 12 C.F.R. § 210:12(c). Regulation J provides, in pertinent part, as follows:
(1) A paying bank that receives a cash item in the amount of $ 2,500 or more directly or indirectly from a Reserve Bank and determines not to pay it shall provide notice to the first bank to which the item was transferred for collection ("deposition bank") that the paying bank is returning the item unpaid.