Can a Bank Be Held Responsible for Delivering a Check to the Payee but Unlawfully Returning It to the Bank to Get It Cancelled ?
In Bunge Corp. v. Manufacturers Hanover Trust Co., 31 NY2d 223  the dishonest employee of the remitter of an official bank check delivered the check to the named payee but then (with the assistance of a confederate in the payee's employ) stole it back and returned it to the bank, which cancelled it and gave the remitter a credit.
The Court of Appeals determined that while an action could presumably be maintained by the payee against the remitter, equitable estoppel would bar the payee from pursuing a claim against the bank.
The Court held that upon the check's return by the remitter the bank had no obligation to the named payee to make any inquiry of the named payee before cancelling the check.
In a dissent, Judge Breitel objected that freeing the bank of the obligation to make some inquiry of the specific person to whose order the check was made would obliterate the "distinction between order paper and bearer paper." (31 NY2d, at 236.)
Implicit in Judge Breitel's objection (as well as the majority's holding) is that in the case of bearer paper there certainly would be no obligation on the issuing bank to make any investigation before accepting its return, and giving value for it. (See also, Heinike Assocs. v. Liberty Natl. Bank, 166 AD2d 922 [4th Dept 1990] [drawee bank was a holder in due course and thus not liable to drawer for permitting drawer's faithless employee to cash bearer instruments].)