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Drew v. Commerce Bank, N.A.

A-5691-05T3 (N.J. Super. App. Div. 2007) (Unpublished)

CHECKS; UCC — Under the Uniform Commercial Code, a depositor assumes the risk of its deposit of a counterfeit instrument and bears the loss of a charge back against its account for monies provisionally advanced pending clearance even if the depositor’s bank uses the ambiguous language of “availability of funds” when it explains to its customer how the funds are treated on such a provisional basis.

A bank’s customer “advertised an automobile for sale on e-bay and accepted an offer for $2,000 from a purported purchaser in England.” He received an international money order “in the amount of $3,800, with instructions to wire $1,800 to a third-party shipper in London and retain the balance as payment for the vehicle.” The seller deposited the money order into his bank account on Saturday and then “made several inquiries of the bank staff as to the authenticity of the document, and after being told that the funds were ‘available,’ [he] withdrew $1,800 cash on Tuesday” and wired it to the shipper. “The next day a ‘hold’ was placed on the account due to a [later proven] concern that the money order was fraudulent.” When the money order was returned to the bank as “counterfeit,” the bank charged its entire amount to its customer’s account, “causing him to suffer an $1,800 loss.”

The customer sued his bank, “contending [that the bank] negligently misrepresented the ‘availability’ of the funds.” Testimony at trial, accepted by the lower court, was that the bank only told the customer that the funds were “available,” and never told the customer that the money order was authentic or that it was “good.”

Under the Uniform Commercial Code (UCC), a depositor “assumes the risk of his deposit of a counterfeit instrument and bears the loss of a charge back against his account for monies provisionally advanced pending clearance.” The Court criticized the bank, saying that it could have used “better explanations in their conversations with depositors,” but concluded that the “bank’s use of ambiguous language of ‘availability’ of funds did not transfer liability to it.”

The customer appealed, contending that the bank was liable for negligent misrepresentation “because he informed various representatives that he did not want to withdraw the funds if the money order was not ‘good,’ i.e., authentic, and was assured that the funds were not only ‘available’ but that the money order was good for the funds before he drew upon the account, which he relied to his detriment, resulting in the charge back.” The Court pointed out that the lower court had found the facts to be different and therefore was not persuaded by the customer’s arguments. It pointed out that the UCC “and the bank’s deposit account rules and regulations authorize[d] the bank to charge back a returned item to the customer’s account.” The bank’s availability policy “essentially provide[d] the customer with provisional credit, subject to a charge back if the deposited item [was] returned by the payor bank.” Just making the funds “available” on the next day “in accordance with current banking practices,” did not make the bank into a guarantor of the counterfeit money order.

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