Under the facts you gave us, the paying bank may be liable to your institution for its failure to provide notice of nonpayment. Under Regulation CC, a paying bank must provide notice of nonpayment so that the depositary bank receives it by 4:00 p.m. on the second business day following the banking day on the check was presented to the paying bank. The notice can be made by various means, including by sending a copy of the check. 12 CFR 229.33(a).

A paying bank that does not exercise ordinary care in meeting the above requirements can be held liable to the depository bank for up to the amount of loss incurred.  12 CFR 229.38. The Official Staff Commentary explains that your institution must prove that the paying back caused your loss, including showing that your customer will not accept a charge-back of the returned check and attempting to collect from your customer. Official Interpretations,12 CFR 229, Paragraph 38(a), Comment 3.