Legal Memorandum: Action for Misrepresentation against the Bank

Issue: Can a bank that specializes in providing services to lawyers be liable for verifying a fraudulent check had passed through a trust account?

Area of Law: Banking & Finance Law, UCC & Secured Transactions
Keywords: Common law action against a bank; Misrepresentation and/or negligence; Fraudulent check
Jurisdiction: Massachusetts
Cited Cases: 968 F.2d 1332; 355 N.E.2d 917; 187 N.E. 232
Cited Statutes: None
Date: 04/01/2009

A common law action against a bank for misrepresentation and/or negligence is supported by the case law.  As a general matter, a bank would be vicariously liable for the misrepresentation of its employee, the bank manager.  See McCarthy v. Brockton Nat’l Bank, 314 Mass. 318, 325, 50 N.E.2d 196, 201 (1943) (stating rule that “The principle of respondeat superior applies to banks as well as to other corporations and individuals [and a] principal is liable for the fraud committed by his agent or servant acting within the scope of his employment,” and holding that the rule applied to the plaintiff’s reasonable reliance on the defendant’s agent’s misrepresentations).  Accord 604 Columbus Ave. Realty Trust v. Capitol Bank & Trust Co., 119 B.R. 350, 371 (Bankr. D. Mass. 1990), aff’d in part, rev’d in part on other grounds, 968 F.2d 1332 (1st Cir. 1992); Chapple v. Merchants’ Nat’l Bank, 284 Mass. 122, 187 N.E. 232 (1933). 

More specifically, a lawyer would have a common law action for misrepresentation or estoppel against the bank.  See Commw. Bank & Trust Co. v. Plotkin, 371 Mass. 218, 222, 355 N.E.2d 917, 919 (1976).  In Plotkin, the court rejected the plaintiff’s UCC claims where the plaintiff sued after his check was returned for insufficient funds only after the plaintiff had been advised that the check had cleared and the proceeds were available and the plaintiff issued checks on the account—but allowed that “reliance to […]

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