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Banks & Banking – Stop Payment – Cashier’s Check – Affidavit Of Fraud

A Fairfax Circuit Court dismisses plaintiff businessman’s suit to collect damages under Va. Code § 8.3A-411 from defendant bank for issuing a stop payment order on plaintiff’s $35,000 cashier’s check drawn on plaintiff’s title company account because an affidavit of fraud presented to the bank by plaintiff’s business partner gave the bank a defense to plaintiff’s action.

Plaintiff Asim Khan had a dispute with Sibtain Kazmi, his business partner in Advantage Title & Escrow LLC. Kazmi wrote to defendant Alliance Bank, where they had their business account, and requested that Khan be removed as a signatory from all Advantage Title accounts. Several days later, Khan wrote Alliance Bank a $35,000 check from the business account in exchange for a cashier’s check. The next day, Kazmi delivered an “Affidavit of Fraudulent Transaction” to Alliance Bank, stating that the $35,000 cashier’s check was “fraudulently obtained.” Alliance issued a stop payment on the check and re-credited the money to Advantage’s account. The business partners later executed a joint agreement to transfer the remaining funds to a trust account.

Khan, as an individual, now asserts claims against Alliance Bank for conversion, breach of contract and specific performance for issuing the initial stop payment order on the $35,000 cashier’s check.

Asserting that the cashier’s check constituted an unconditional promise of payment per Va. Code § 8.3A-106, Khan claims he is entitled to damages, interest and attorney’s fees pursuant to Va. Code § 8.3A-411.

This court finds that plaintiffs’ common law claims of conversion, breach of contract and specific performance fall within the purposes and policies advanced by the UCC and that they are preempted by its terms. Article 3 specifically regulates cashier’s checks.

The issue here becomes whether defendant Alliance Bank “wrongfully” refused to honor the cashier’s check. Under Va. Code § 8.3A-4, if the bank is not obligated to pay, there is no recovery.

The court finds that the terms of Code § 8.3-411(c) prevent plaintiff from prevailing upon a claim under Va. Code § 8.A-411(b). Here, the undisputed facts show that Alliance Bank stopped payment on the cashier’s check because Kazmi advised the bank that Khan had procured the cashier’s check by fraud. A bank may stop payment on its cashier’s check if it has reasonable grounds to believe the check was procured by fraud.

In this case, Kazmi presented Alliance Bank with a sworn affidavit, stating that authorization for the $35,000 check drawn from Advantage’s account was never given by any authorized representative of the company and that the check was “insofar as the affiant is concerned…fraudulently obtained.” The court finds this affidavit presented the bank with reasonable grounds to believe the check was procured by fraud.

In a remarkably similar case, the U.S. District Court for the Eastern District of Michigan found in EA Mgm.t, 2008 U.S. Dist. Lexis 78232, that a bank properly stopped payment on a cashier’s check after it was advised that it was procured by fraud. This court finds the reasoning in the EA Mgmt. case persuasive. The Michigan statute and the Virginia statute are identical.

Defendant Alliance Bank’s plea in bar is granted and the matter dismissed with prejudice.

Khan v. Alliance Bank (Bellows, J.) No. CL 2009-14692, Dec. 22, 2009; Horace McClerkin, Patricia V. Fettmann for the parties. VLW 010-8-020, 6 pp.

VLW 010-8-020

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