Cincinnati Insurance Co. v. Wachovia Bank

Schultz Foods signed a deposit agreement with Wachovia Bank (defendant) providing that if Schultz failed to use Wachovia's available check-fraud-detection software, Positive Pay, Schultz could not later claim against Wachovia for paying an altered or fraudulent check. Schultz did not implement Positive Pay, and a stolen check with a substituted payee was paid out by Wachovia for over $153,000. Schultz's insurer, Cincinnati Insurance Company (plaintiff), paid Schultz's claim and sued Wachovia in subrogation, arguing Wachovia violated UCC § 4-401(a) by paying a check that was not properly payable; Wachovia argued Schultz bore the loss for not using Positive Pay.