As part of the check collection process governed by Article 4 of the Uniform Commercial Code (“UCC”), the “midnight deadline” rule of § 4-302 requires that a payor bank pay or return an item, or send notice of its dishonor, before midnight of the next banking day following the banking day on which the bank receives the item. The rule imposes strict liability on a payor bank that fails to meet the midnight deadline requirement. But what if something happens to the payee while the check is being dishonored as part of the collection process? Who has standing to sue the payor bank to enforce the midnight deadline rule?
That was the unusual question decided by the Virginia Supreme Court in Stahl v. Stitt, ___ Va. ___, 869 S.E.2d 55 (2022). In that case, Ivory Markus had checking accounts at Branch Banking and Trust Company (“BB&T”) and MCNB Bank and Trust Company (“MCNB”). Markus’s niece, Sheree Stahl, was designated as the payable-on-death (“POD”) beneficiary on the BB&T account. On March 15, 2016, Stahl made an electronic request for a check transferring the $245,271.25 balance of the MCNB account to the BB&T account. On March 18, MCNB’s online banking system issued a check in that amount for mail-in deposit into the BB&T account. A BB&T branch received the check on March 21, and BB&T provisionally credited Markus’s account on that day. On March 22, the check was electronically presented to MCNB for payment. MCNB decided to dishonor the check and return it to BB&T but failed to do so until March 25, after MCNB’s midnight deadline. Markus died intestate on March 26.
Stahl sued MCNB, claiming that she owned the funds that were deposited in the BB&T account at the time of Markus’s death. Stahl argued that MCNB retained the check beyond the midnight deadline without paying or returning the item or sending notice of its dishonor and was therefore strictly liable for the payment of the check under UCC § 4-302. However, neither the trial court nor the Virginia Supreme Court reached the substantive issue, concluding that Stahl lacked standing to enforce the midnight deadline rule against MCNB. Section 4-302 of the UCC “confers standing upon a ‘limited class comprised of those involved in the collection and payment of the check at issue who may be directly harmed (but are not necessarily actually harmed) by the failure of the payor bank to adhere to the . . . midnight deadline.’” 869 S.E.2d at 59 (quoting Am. Title Ins. Co. v. Burke & Herbert Bank & Tr. Co., 813 F. Supp. 423, 428 (E.D. Va. 1993)).) Standing is thus based on the would-be plaintiff’s “potential reliance on payor bank action that arises once a check is actually presented” to the bank for payment. Id. (quoting Am. Title, 813 F. Supp. at 428).)
In the Stahl case, Markus was the party who initially presented the check for payment to MCNB on March 22 and could have relied on the prompt payment of the check and the resulting availability of the funds at issue. Stahl, by contrast, was only a POD beneficiary of the BB&T account on that date and could have been removed as the beneficiary by Markus after the check was presented for payment. Accordingly, Stahl was a crucial step removed from the transaction and did not have a vested interest in the check—that is, a right to rely on the prompt payment of the check—when MCNB failed to take action by its midnight deadline. Stahl thus lacked standing to enforce the midnight deadline rule.