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10/07/94 SOUTHTRUST BANK BALDWIN COUNTY v. EMPIRE

October 7, 1994

SOUTHTRUST BANK OF BALDWIN COUNTY
v.
EMPIRE CORPORATE FEDERAL CREDIT UNION AND MONY FEDERAL CREDIT UNION



Appeal from Baldwin Circuit Court. (CV-92-602). Charles C. Partin, TRIAL JUDGE.

Rehearing Overruled November 10, 1994, . Certiorari Granted Ex parte MONY (1940337) June 16, 1995. Certiorari Granted Ex parte SouthTrust (1940360) June 16, 1995. Opinion on Remand July 28, 1995, . Released For Publication February 20, 1996.

Holmes

The opinion of the court was delivered by: Holmes

HOLMES, Retired Appellate Judge

SouthTrust Bank of Baldwin County (SouthTrust) filed an action against Empire Corporate Federal Credit Union (Empire) and MONY Federal Credit Union (MONY). SouthTrust alleged in its complaint that Empire and MONY failed to give timely notice to SouthTrust of the nonpayment of a certain share draft, which is the credit union version of a check, and that such failure resulted in damages to SouthTrust in the amount of $28,762, plus interest, attorney fees, and costs.

Empire filed a motion to dismiss for lack of jurisdiction. After a hearing the trial court granted the motion to dismiss. SouthTrust filed a motion, wherein it requested that the trial court reconsider its order dismissing the action against Empire for lack of jurisdiction. SouthTrust's motion was denied.

MONY filed a motion for a judgment on the pleadings, which was denied. Thereafter, SouthTrust filed a motion for summary judgment; a motion for leave to amend the complaint to add a new theory of recovery against Empire; and a second motion, wherein it requested that the trial court reconsider its order dismissing the action against Empire. All of these motions were denied. MONY filed a motion for summary judgment, which was granted.

SouthTrust appeals. This case is before this court pursuant to Ala. Code 1975, § 12-2-7(6).

There are three main issues on appeal: (1) Whether the trial court committed reversible error when it granted Empire's motion to dismiss on the basis of lack of jurisdiction. (2) Whether the trial court committed reversible error when it granted MONY's motion for summary judgment. (3) Whether the trial court committed reversible error when it denied SouthTrust's motion for summary judgment.

Our review of the record reveals the following pertinent facts: The share draft which is the subject of the present litigation was issued by Russell Brian Drake to Floyd Enfinger, who is an attorney. The share draft, which was dated May 20, 1992, was drawn on Drake's account with MONY in the amount of $28,762. The face of the share draft provided an Opelika, Alabama, address for Drake. The share draft also indicated on its face that it was drawn on MONY in Syracuse, New York, and payable through Empire in Albany, New York.

MONY is a federally chartered credit union, which maintains its only office in the state of New York. Empire is a federally chartered corporate credit union organized to provide financial services to credit unions located in the state of New York. Empire serves as the payable-through bank for share drafts drawn on share draft accounts maintained with MONY.

When a share draft is accepted for deposit by a bank, the depository bank forwards the share draft to a collecting bank for collection and payment. Because Empire serves as the payable-through bank for MONY, Empire's federal reserve routing number appears on the face of the share drafts issued on accounts maintained with MONY. Consequently, the collecting bank will forward the share draft directly to Empire for payment, and MONY never receives the actual share draft as part of the payment process. When Empire receives a share draft for payment, it electronically transmits the relevant payment information (the member account number at MONY, serial number, amount, date received by Empire, etc.) to MONY. After receiving the relevant payment information, MONY will determine if the share draft should be paid by Empire. At the end of each business day, MONY makes a payment to Empire for all share drafts paid by Empire for that business day.

On May 22, 1992, Enfinger deposited into his trust account with SouthTrust the share draft issued by Drake. Although Drake issued the share draft to Enfinger, he had closed his share draft account with MONY prior to May 1992. At the time that Drake closed his account, MONY notified Empire that Drake had closed his account and that, therefore, as a matter of course, Empire should not pay any future share drafts which were drawn on that particular account. Consequently, the share draft issued by Drake was returned to SouthTrust unpaid.

On May 29, 1992, a check in the amount of $28,762 was issued by Enfinger on his trust account and was negotiated at SouthTrust's branch in Opelika. The unpaid share draft was received by SouthTrust on June 1, 1992.

The availability of funds and collection of checks are governed by Regulation CC, 12 C.F.R. ยง 229 (1994), which is divided into three subparts: Subpart A-General, Subpart B-Availability of Funds and Disclosure of Fund Availability Policies, and Subpart C-Collection of Checks. SouthTrust contends that Empire ...


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