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City Check Cashing, Inc. v. Jul-Ame Construction Company

A-1161-98T5, 1999 WL 1140833 (N.J. Super. App. Div. 1999)

BANKS; UCC; CHECKS—Banks can have a duty to non-customers with respect to the validity of a check, especially a certified check, even before the check is presented for payment.

A check cashing service was presented with a large check which apparently had been certified by a bank. Because the date on the check had been altered, the service called the successor to the certifying bank. The bank told the check cashing service that the serial number may not have been the correct number and requested that the check be faxed to the bank for review. The check cashing service did that and included its name and telephone number. More than two hours passed without any word from the bank, and the check cashing service, believing the check to be authentic, cashed it for its customer. It then deposited the check into its New Jersey Bank. Ultimately, the “certifying” bank dishonored the check because it was certified with an obsolete stamp, it was drawn on a closed account, and it did not have the punched holes that the bank used when certifying a customer’s check. Later, it determined that the check was not listed on its issuing branch’s certified check log and the certification signature was not from anyone employed at the bank. The check cashing service sued the bank and the party that cashed the check. The party that cashed the check disappeared. In its suit against the bank, the service claimed that the bank had waited too long before dishonoring the check. Although New York law controlled the matter, the Court doubted that there was “any difference” between New York and New Jersey law on any relevant points. Under the UCC as in effect in New York, the time within which a bank can dishonor a check can be varied by agreement if the new standards are not manifestly unreasonable. In addition, “Federal Reserve regulations and operating letters, clearing house rules, and the like, have the effect of agreements ... whether or not specifically assented to by all parties interested in items handled.” Under the New Jersey Clearing House rules, “[t]he exchange of unpaid return demand items shall be made no later than at the exchange of the second day of banking business following the day such items were received by the paying bank.” The Court, finding no definition for the word “receive” concluded that its meaning was equivalent to the word, “presented.” Banks are permitted to fix 2:00 PM as a cut-off hour for the handling of money. Any items received after 2:00 PM are considered to have been received on the next banking day. Therefore, when the certifying bank received the check after its close of business on a given day, it was necessary to determine when the next bank business day occurred. A banking day is that part of any day on which a bank is open to the public for carrying on substantially all of its banking functions. Under that definition, banks that provide limited services on a Saturday are not charged as if Saturday were a banking day. Therefore, under New Jersey Clearing House Rules, when the check was received on Friday, July 15 after 2:00 PM, the first business day would have been Monday, and the second business day would have been Tuesday. Under the circumstances, the bank’s return of the check on Tuesday, was timely under the rules. The Court also determined that applicable federal rules requiring that the check be returned as quickly as the second business day following the banking day in which the check was presented to the paying bank were also satisfied. In sum, the bank returned the dishonored check on a timely basis.

The check cashing service also claimed that the bank was negligent in not advising it that the check was counterfeit. The lower court held that the bank had no duty, did not assume any duty, and did not give the check cashing service any reason to believe the check was valid. Consequently, it granted the bank summary judgment on those grounds. The Appellate Division, however, looked at the relationship between the bank and the check cashing service to see whether it would, in fairness, give rise to the duty of care. “In the absence of any agreement, undertaking or contact, the bank owes no general duty, other than those set forth in the UCC, to a non-customer who undertakes the cash its depositor’s checks.” Here, however, the bank specifically asked the check cashing service to fax the certified check for its review and requested the service’s phone number. The Court believed that by this action, the bank implied that it would answer the service’s question. There was some argument as to exactly what the check cashing service was asking, but once the bank received the fax, “its representative knew, or should have known, that the check was drawn on a closed account, certified by a bank no longer in business, contained a numbering code not used by [the bank], and did not have the customary punched holes… .” In fact, once the bank received the fax, it was immediately evident the check was counterfeit. In addition, the bank knew that the service intended to cash the check and thus, its injury was foreseeable. The bank argued, however, that drawee banks should have no obligation to do anything with a check until after presentment. The Court generally agreed with the bank’s position as it related to ordinary checks. “Yet, in this case and under these unique circumstances, [the bank] was aware that plaintiff held a large check, purportedly certified, and [the bank] asked the plaintiff to fax the check for its review.” In addition, the Court found that a certified check was special. “The integrity of the certified check is a valuable asset in our economy.” “Accordingly, because the check was proportedly certified, once [the bank] requested the facts, under the circumstances of this case, [the bank] assumed an obligation to respond, within a reasonable time regarding any certification problems it perceived, at least on the face of the check. Based upon the motion facts, because [the bank] did not respond before plaintiff cashed the check, a factual dispute existed concerning whether the lack of response constituted negligence.” Accordingly, it reversed the dismissal of the lower court alleging negligence and remanded the matter for further proceedings.


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