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Negotiable Instruments Law: Liability Of Collecting Banks... - The Lawyer's Post
"x x x.
“The second view is that the acceptor/drawee despite the tenor of his acceptance is liable only to the extent of the bill prior to alteration. This view appears to be in consonance with Section 124 of the Negotiable Instruments Law which states that a material alteration avoids an instrument except as against an assenting party and subsequent indorsers, but a holder in due course may enforce payment according to its original tenor. Thus, when the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to charge its client’s account only for bona fide disbursements he had made. If the drawee did not pay according to the original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the drawer, much less, the right to deduct the erroneous payment it made from the drawer’s account which it was expected to treat with utmost fidelity. The drawee, however, still has recourse to recover its loss. It may pass the liability back to the collecting bank which is what the drawee bank exactly did in this case. It debited the account of Equitable-PCI Bank for the altered amount of the checks.”
x x x."
