A client wrote me a cashier's check which was accidentally destroyed in the washer. The bank (in Kansas) insists that I need to have an indemmity bond for the replacement of check. A declaration of loss is not enough. I can not enforce my claim even after 90 days without an indemnity bond. Can they legally do that?

Edited to remove poster's email address

Yes, This is a normal requiremet. A cashiers check is an item of the bank which it guarantees, The item is good practically forever. It is not unusual for an item reported missing or destroyed to show up months and years later. The bond is to protect the bank from loss. Remember it wasn't the bank that accidently destroyed the check.

This is the law in Kansas http://www.kslegislature.org/legsrv-statutes/getStatuteFile.do?number=/84-3-312.html
"Delivery of a declaration of loss is a warranty of the truth" should surfice. I will take them to court.

Be aware that court costs could be more than the amount it would cost to provide the indemnity bond. I happen to agree that the bond should not be needed, but you have to pick your battles and court isn't my first choice.

The problem is no insurance company would issue such bonds. I have contacted the State Banking Commission. After that there is no other choice. If there is a law that forbids the banks to require the indemnity bond, the bank should be responsible for attorney fees. Banks can not just make up their policies as they want. They are not above the law. Do you know if there is any law that permits banks to require the bond with declaration of loss?

Washers don't often completely destroy paper items, they may render them unusable but not completely destroy it to the point it is not recognizable. Are they willing to accept what is left of the item in place of a bond, that way they know the check will not show up again down the road.

The check was completely destroyed. The washer went through several loads until I realized that my teenage daughter washed that shirt with the pockets with 3 checks in an envelope.

There is no law of which I am aware that would either permit or not permit a bank to require the bond. I cannot comment on your statement that no insurance company would sell such a bond, except to say I find it a little hard to believe.

I'm sorry to say that you may have to engage an attorney to argue this question with the bank. Just be aware that the attorney may convince the bank that it's wrong, but don't expect to collect your attorney's fees from the bank unless you actually slug this case out in court. I see a Pyrrhic victory.

I have contacted my insurance agent who does my car and house insurance and also contacted the insurance company the bank told me to call. I also contacted my bank with which I have the business account. None of them does indemnity bond. If the people with whom I have dealt with does not do indemnity bond, why would any insurance company provide any bond for me?

I am aware of the attorney costs, that's why "frivolous lawsuit" is a misnomer in my opinion. But what else can I do? I will wait for the state banking commision to intervene first of course.

The cite you posted also indicates if the item is paid in accordance with the holder in due course section after you receive your money, then you are responsible to repay the bank, or the holder in due course the money. The bank has a right to protect it self should such a situation occur and the bond is a means for them to do so. It also appears you are not a customer of this bank so they may feel it's necessary to require the bond - it may be better settled if the person who purchased the item filed the claim (if they are a customer of the bank, otherwise they to may be asked to post a bond).

Look at it from the bank's perspective - you - a non-customer are claiming a cashier's check - that someone else purchased - has been destroyed and you are wanting to collect the funds - they don't know you (an assumption) - therefore they have reason to believe they need some sort of protection before releasing the funds.

I'm not saying this is the right thing for them to do, but I do think they are within their rights. You may want to contact your client and see if they are willing to file the claim for you. I'm not sure if that would make a difference, but it could be worth a shot.

The bank does not have to pay the check after 90 days with the declaration of loss. So what risk are you talking about?

If the client files the claim, he will have the fund refunded in 90 days. How would I get the fund? Plus they bought some one way tickets from me to Italy for September so they won't even be here in 90 days.

I was told by the person at the Kansas State Banking Commission that they changed that UCC code exactly because it is so hard to get indemnity bond.

From the cite you posted:

(4) When the claim becomes enforceable (which as you say is after the 90 days), the obligated bank becomes obliged to pay the amount of the check to the claimant if payment of the check has not been made to a person entitled to enforce the check. Subject to the provisions of subsection (a)(1) of K.S.A. 84-4-302 and amendments thereto, payment to the claimant discharges all liability of the obligated bank with respect to the check.

(c) If the obligated bank pays the amount of a check to a claimant under subsection (b)(4) and the check is presented for payment by a person having rights of a holder in due course, the claimant is obliged to (i) refund the payment to the obligated bank if the check is paid, or (ii) pay the amount of the check to the person having rights of a holder in due course if the check is dishonored.

I wish that UCC code could be more specific leaving no room for misinterpretation.

b.4 means if for some reason, the bank failed to flag their system and paid on the originally lost check after they gave me the replacement, then I am obligated to pay them back which is fine with me.

The purpose of Section 3–312 is to offer a person who loses such a check a means of getting refund of the amount of the check within a reasonable period of time without the expense of posting a bond and with full protection of the obligated bank.http://www.ali.org/ali/AmCom3-312-312.htm

"The obligated bank MAY NOT impose additonal requirements on the claimant to assert a claim under subsection (b). for example, the obligated bank may not require the posting of a bond of other form of security." Source: Official UCC Comment

That does not prevent the obligated bank from requiring a bond if the claimant wishes the claim to be paid early.

John, we are talking about after 90 days. I am willing to wait 90 days and they still require the bond like I said in the first post. I don't know how many people the Fidelity State Bank has already unlawfully inconvenienced in the past 13 years because that statute was passed 1992! I want to be the person to force them to change their policy so nobody like me in the future will have to face this problem. Their attitude is arrogant and mean. The bank president said he can do whatever he wants because "I run the bank". Hello Mister, we have laws in this country!!!!

I applaud your efforts because I agree with your stance. The bank should not be asking for a bond if the 90 days has already elapsed.

Unless you have plenty of cash that you're willing to spend on this just cause, I thnk you're left with the option of trying to convince the state banking authorities to intervene. The bank president appears not to realize that his bank is not at risk in honoring the claim.

But I faxed to him the copy of that statute which said the bank is discharged of all liability with declaration of loss. He said he also consulted his lawyer. I can't believe it. A bank president and his lawyer can't read English!