Case Law Summaries

City Check Cashing, Inc. v. Manufacturers Hanover Trust Company

• Opinion Date: January 17, 2001
• Business Law
• E-Mail

CHECKS; BANKS; UCC—In claims by check cashing services against banks, unless the facts create a “special relationship,” such as by agreement or undertaking that gives rise to a duty, the sole remedies available are those under the UCC.

A check cashing company refused to cash a check after learning through a computer at the bank that the check was not good. It told its customer that it would not cash the check unless it was certified. Two weeks later, the customer reappeared with another check drawn on the same account and signed by the same person. This one was stamped with the bank’s certification, although by that time, the bank had merged with another bank. In addition, the date on the check had been changed to a date that was about one week prior to its presentation. A clerk at the check cashing firm called the bank to verify the authenticity of the check. The bank’s employee with whom the clerk spoke questioned the serial number on the certification and asked the check cashing firm’s clerk to send a facsimile of the check. It did so, “stating on that facsimile form the need to verify if the check date had been changed prior to certification.” The check cashing company clerk asked to be called as soon as possible. Although the check cashing firm did not hear back from the bank that day and was unable to verify from any other source that the check was good, it cashed the check. When the check was presented to the bank for payment, the bank’s computer found the check to be invalid because the account number did not exist, the certification had been by an old, unused stamp, and the punched holes used by the bank for certification were not present. The customer disappeared after telling the check cashing firm he would make good on the check. The check cashing firm sued the customer, the maker of the check, and the bank. In its complaint, it alleged, among other things, that the bank was negligent in dealing with the check and that it violated several provisions of the Uniform Commercial Code (UCC), “the statutory framework for allocating and apportioning the risks of handling checks.” The Appellate Division “found that when the Bank is [sic] agent had asked for a facsimile of the check, the Bank undertook a duty to respond within a reasonable time and that it was for a jury to decide whether the Bank’s actions were negligent.” The New Jersey Supreme Court disagreed, holding that there was “no agreement, undertaking, or [contract] between the Bank and [the check cashing firm] that established a duty on the part of the Bank to respond to [the check cashing firm] any earlier than the statutory deadline, so there [was] no basis for a negligence claim against the Bank.” Its reasoning was that the Legislature expressed, through the UCC, “policy choices in allocating liability in the collection and payment of checks. For this reason and because of the comprehensiveness of the regulatory framework, most courts have been reluctant to recognize common law negligence claims.” Further, “[i]n the realm of check collection, unless the facts establish a special relationship between the parties created by agreement, undertaking or contact [sic], that gives rise to a duty, the sole remedies available are those provided in the U.C.C.” According to the Court, there was no agreement between the bank and the check cashing firm, a non-customer, “establishing an obligation on the Bank to respond to [the check cashing firm’s] inquiry about the check prior to the midnight deadline set by the U.C.C. And, although the Bank’s agent undertook to try to answer the inquiry, there was no undertaking to respond prior to the statutory midnight deadline. The contact between the parties did not establish an obligation for the Bank to respond by a certain, earlier time than the midnight deadline.” Further, “[a] reasonable person in the position of the Bank’s employee could not have foreseen that within two hours of the open-ended conversation, [the check cashing firm] would negotiate a check for almost $300,000. The Bank did not unreasonably create a risk of foreseeable harm for which fairness requires a remedy. In this case there is no articulable purpose that would be served by departing from the provisions of the U.C.C., which produce commercial certainty. That the check at issue was certified is not significant as the U.C.C. does not distinguish between certified and other checks.” Consequently, the judgment of Appellate Division was reversed.

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