Case Law Summaries

DNI Nevada, Inc. v. Medi-Peth Medical Lab, Inc.

• Opinion Date: February 22, 2001
• Business Law
• E-Mail

CHECKS; BANKS—Regulations governing the availability of funds in a checking account do not convert a provisional credit, which is a fictitious fund, into an asset that can be levied upon.

“Generally, when a check is deposited into an account at a depository bank, it may take one or more days for the check to be processed through the banking system. When it reaches the payor bank, funds are remitted to the depository bank. In the meantime, a depository bank may provide an interim or provisional credit to its customer for the amount of the deposited check. If the payor bank refuses to honor the deposited check, for any reason, the depository bank charges back or withdraws the provisional credit from its customer.” In this case, the Court was faced with whether a depository bank can charge back a provisional credit after a levy has been placed on the account. A depositor put three checks into its bank accounts the day before the sheriff levied on those accounts. The checks were from the depositor’s other bank accounts and the depositor had been given a provisional credit in the levied accounts to reflect those deposits. When the bank notified its customer of the levy, the customer immediately stopped payment on the checks it had deposited. Two days later, the bank received the checks returned with “stop payment” notices from the payor banks. The depository bank charged back each of the accounts, leaving two of them overdrawn and a third with a minimal balance. The bank notified the sheriff’s office, whereupon the judgment creditor moved for a turnover of the levied funds. The bank objected. According to the Court, a provisional credit can be revoked at any time prior to a deposit becoming final. In fact, it doesn’t matter whether or not funds are immediately withdrawn after a provisional credit is given by a depository bank; the depository bank is not precluded from charging back the provisional credit. Therefore, if, as a result, “the account is overdrawn, the depository bank can seek a refund from its customer.” The bank in this case charged back the account within the time periods provided by federal guidelines. Nonetheless, the judgment creditor argued that if a check had been drawn against those same accounts, the bank would have been forced to pay it and then only have recourse to seek the overdraft funds from its customer. Under that theory, the judgment creditor believed that a levy should be treated the same as a check drawn on those same accounts. The Court disagreed. According to the Court, “[f]ederal and state regulations governing the availability of funds in the context of banking transactions do not convert a provisional credit, which is a fictitious fund, [into] an asset that can be levied upon.” As a result, the bank’s right to charge back takes precedence over a levying creditor.

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