Plaintiff lacked standing to enforce bank rule

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Where appellant had no vested interest in the timely payment or return of a check, she lacked standing to enforce a payor bank’s alleged violation of the UCC’s “midnight deadline” rule.

Background

Appellant Stahl was the niece of Ivory Markus. Markus lived in Stahl’s home. Markus had a checking account at BB&T. She had another checking account at MCNB, which operates primarily in West Virginia. Stahl was the payable on death beneficiary of the BB&T account.

Markus attempted to move funds, with Stahl’s help, from her MCNB account to BB&T. Stahl requested an electronic transfer of the balance of the MCNB account on March 15, 2016. On March 18, MCNB issued a $245,271.25 check, payable to Markus’ BB&T account instead of Markus personally.

A BB&T branch office received the check on March 21, and gave Markus’ account a provisional credit.

BB&T electronically presented the check to MCNB  the next day, March 22. “MCNB decided to dishonor the check and return it to BB&T.

“MCNB, however, did not return the check before midnight of March 23, 2016. MCNB alleged that it returned the check to the Federal Reserve by first-class mail on March 25, 2016. Markus died intestate the next day, on March 26, 2016.”

Carol Stitt and Rebecca Mayhew were, respectively, Markus’ sister and niece. They learned about the transaction before Markus died. Mayhew told both banks the transaction was fraudulent. BB&T learned of Markus’ death and froze the account.

“BB&T subsequently learned that MCNB claimed that it had returned the check to the Federal Reserve. Despite these circumstances, BB&T presented the check to MCNB again on April 1, 2016.

“MCNB dishonored the check and returned it to the Federal Reserve by first-class mail on April 5, 2016. On April 13, 2016, the funds from the check were removed from Markus’ BB&T account and recredited to her MCNB account. After qualifying as the administrator of Markus’ estate, Stitt obtained the funds from Markus’ MCNB account on April 28, 2016.

“As the POD beneficiary of the BB&T account, Stahl maintained that she owned the funds that were deposited in the account at the time of Markus’ death. Consequently, Stahl claimed that she was entitled to the $245,271.25 that was credited to the BB&T account.”

Stahl alleged in her complaint “that MCNB violated the midnight deadline rule adopted from the UCC.” She “argued that MCNB retained the check beyond the midnight deadline ‘without paying or returning the item, and without sending notice of dishonor.’”

“Stahl maintained that, therefore, MCNB was strictly liable for the payment of the check.

Stahl moved for summary judgment. MCNB argued Stahl lacked standing to enforce the midnight deadline rule.

The circuit court granted MCNB’s motion for summary judgment. Stahl appealed.

Discussion

The circuit court relied on American Title Ins. Co. v. Burke & Herbert Bank & Trust Co., 813 F. Supp. 423 (E.D. Va. 1993), when it ruled that Stahl lacking standing.

The circuit court observed that Stahl was alive when the check was first presented to MCNB and that she was only a POD beneficiary of the BB&T account. The court concluded that Stahl had no vested interest in the check.

Both Virginia and West Virginia’s midnight deadline statutes provide that when a payor bank is presented with a demand item, the payor bank is liable if it retains the item past midnight of the banking day it received the item without paying or returning the item or send a notice of dishonor.

Both Virginia and West Virginia have defined “midnight deadline” this way: the  “‘[m]idnight deadline’ with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later[.]”

“The midnight deadline rule imposes strict liability on a payor bank that fails to meet the midnight deadline requirement.” …

The federal district court in American Title “emphasized that ‘it is the potential reliance on payor bank action that arises once a check is actually presented that provides the basis for standing to sue[.]”

In this case, “the undisputed facts of this case established that Stahl could not have relied on the prompt payment of the check as a matter of law. …

“The transaction was essentially designed to transfer funds between Markus’ accounts. Markus was the party who presented the check for payment. …

“In contrast, Stahl was only a POD beneficiary of the BB&T account when the check was initially presented for payment. …

“Under these circumstances, Stahl could not have relied on the prompt payment of the check or the availability of the funds at issue following the first presentment.

“Stahl notes that the check at issue was presented to MCNB for a second time on April 1, 2016, after Stahl acquired ownership of the BB&T account and the check on March 26, 2016.

“Therefore, Stahl argues that she had standing to enforce the midnight deadline rule following the second presentment of the check. Stahl’s eventual ownership of the BB&T account, however, does not cure her lack of standing.

“The particular facts of this case established that Stahl could not have relied on the prompt payment of the check following the second presentment.”

Both banks were alerted that the transaction was fraudulent. “Moreover, MCNB had already refused to pay the check once following the initial presentment.

“Furthermore, Markus, the holder of both the BB&T and MCNB accounts who initiated the transaction at issue, died on March 26, 2016, before the check was re-presented to MCNB on April 1, 2016.

“BB&T froze Markus’ account on the day of her death. Thus, the funds in the BB&T account were unavailable to Stahl.

“As a practical matter, Stahl could not have relied on the immediate availability of any funds that may have ultimately been deposited into the BB&T account following the second presentment.

“As Stahl could not have relied on the prompt payment of the check at issue, she lacked standing to enforce the midnight deadline rule.”

Affirmed.

Stahl v. Farah v. Stitt, et al., Record No. 201515 (Chafin) March 3, 2022. From the Circuit Court of the city of Lynchburg (Yeatts). Jordan K. Sharpes (Christopher E. Miller; BSR Legal Group, on briefs), for appellant. G. Edgar Dawson, III (M. Shane Harvey; Vivian H. Basdekis; Petty Livingston Dawson & Richards; Jackson Kelly, on brief), for appellees. VLW 022-6-012, 11 pp.