First National Bank v. Colonial Bank
United States District Court for the Northern District of Illinois
898 F.Supp. 1220 (1995)
Shelley International Marketing and World Commodities (WC) -- companies with the same principals -- opened accounts at First National Bank (plaintiff) and Colonial Bank (defendant) respectively, and used the two accounts to run a check-kiting scheme, each depositing roughly $1.5 million in checks drawn on the other bank on the same day. When First National suspected fraud, it returned the WC checks to Colonial within the deadline. Colonial's own officer began investigating but, not wanting to upset WC by acting too fast, delayed based on WC's assurances the checks were good, and did not return the Colonial checks to First National until the day after the midnight deadline had passed. First National sued, arguing Colonial was required to honor the Colonial checks because it had missed the return deadline, and both parties moved for summary judgment.
Whether a bank may be found liable for losses resulting from a check-kiting scheme if it chooses to delay returning suspicious checks based on reputational or customer-satisfaction concerns.