In March, the US Court of Appeals for the Fourth Circuit reversed a lower court’s ruling in Studco Building Systems US, LLC v. 1st Advantage Federal Credit Union, consistent with the amicus brief filed in support of 1st Advantage by TCH and Nacha.  At issue in the case is whether a beneficiary’s bank (1st Advantage) is liable for a fraud perpetrated on a sender (Studco) under UCC Article 4A; whether a beneficiary’s bank would be liable if the name of the beneficiary on the payment order the bank received did not match the account to be credited as identified in the order; and whether a beneficiary’s bank could be held liable on a theory of bailment. 

The Court of Appeals held that 1st Advantage had no liability under UCC § 4A-207 for its reliance on the account number because it lacked actual knowledge of the mismatch of name and account number on the payment order.  The court also concluded that a general deposit in a bank is not a bailment.  Additionally, Judge Wynn’s concurring opinion recognized the privity requirement of Article 4A’s misdescription provision, stating that the sender must seek recovery of its funds from its own bank, and cannot recover directly from the beneficiary bank.  Studco has filed for en banc review of the decision.

To read the court filings, click here.