## Facts

- A borrower refinanced his home using a settlement agent acting for a title insurer.
- The settlement agent issued two checks drawn on its account at a payor bank: one to the borrower for cash-out funds and one payable to the borrower’s lender to pay off and close a line of credit secured by a deed of trust.
- The settlement agent gave both checks to the borrower along with a payoff instruction letter addressed to the lender; the lender did not receive the letter.
- The borrower indorsed both checks and deposited them into his personal account at the lender/depositary bank.
- The depositary bank accepted the check payable to itself and credited the proceeds to the borrower’s account rather than applying them to the line of credit.
- The line of credit remained unpaid; the depositary bank later pursued foreclosure under its lien.
- The settlement agent demanded that the payor bank re-credit its account on the ground that the payoff check was improperly paid; the payor bank refused because the check was facially valid and indorsed.

## Issues

1. Whether the payor bank was liable to its customer for honoring and charging the customer’s account for the payoff check under the UCC “properly payable” rule.
2. Whether the depositary bank could be liable in negligence to the non-customer drawer for accepting a check payable to the bank and crediting it to the drawer’s debtor’s personal account.
3. Whether, and to what extent, the UCC displaces a common-law negligence claim in this bank-collection context.
4. Whether Maryland’s economic-loss “intimate nexus” requirement (privity or its equivalent) was satisfied so as to create a tort duty from the depositary bank to the non-customer drawer.

## Decision

- The court affirmed judgment for the payor bank, holding it was not liable for honoring the check and charging the drawer’s account.
- The court held the check was “properly payable” because it bore an authorized drawer signature, was unaltered, and was presented with facially valid indorsements.
- The court held the depositary bank owed no actionable negligence duty to the non-customer drawer for purely economic loss because there was no privity or equivalent relationship.
- The court held the UCC did not categorically eliminate all negligence claims, but declined to recognize a negligence duty that would disrupt the UCC’s allocation of rights and loss among participants in the check-collection system.

## Legal Principles

- Under UCC § 4-401, a payor bank may charge a customer’s account for an item that is properly payable; payment is generally proper where the item is authorized, unaltered, and bears facially valid indorsements.
- A payor bank is not required to police or second-guess a depositary bank’s internal application of proceeds when the presented item is facially regular.
- In Maryland, negligence claims seeking purely economic damages generally require an “intimate nexus” between plaintiff and defendant—contractual privity or its equivalent—before a tort duty will be recognized.
- The UCC permits common-law principles to operate unless displaced, but courts should not create tort duties that materially reallocate losses or conflict with the Code’s risk-and-remedy structure for negotiable instruments and bank collections.
- A depositary bank’s acceptance of a check payable to itself for deposit to a customer’s account, without more, does not create privity or its equivalent with the non-customer drawer sufficient to support a negligence duty for economic loss.

## Conclusion

The court held that the payor bank properly honored a facially valid, fully indorsed payoff check and could charge the drawer’s account, and that the depositary bank was not liable in negligence to the non-customer drawer because Maryland’s economic-loss duty requirement was not met and recognizing such a duty would be inconsistent with the UCC’s loss-allocation scheme.


Chi. Title Ins. Co. v. Allfirst Bank, 394 Md. 270, 905 A.2d 366 (Md. 2006)