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Howell v. First Union National Bank

A-1294-01T2 (N. J. Super. App. Div. 2002) (Unpublished)

BANKS; CHECKS— A bank’s obligation to advise a customer as to delays in funds availability goes to those delays beyond the unavailability period permitted by law or that were otherwise disclosed.

On December 1, a customer opened a new checking account by making a minimum deposit. He received a notice respecting the availability of deposited checks. That notice provided that deposits made with non-local checks “would not be available until the fifth business day following the banking day on which the funds [were] deposited.” On Saturday, December 9, which was not a banking day, the customer deposited two out-of-state checks. The checks were posted on Monday, December 11. Therefore, the fifth banking day was Monday, December 18. On Tuesday, December 12, the day after the checks were posted, the depositor mailed a check to a stockbroker to pay for stock he had purchased. The check was presented for payment on Wednesday, December 13 and dishonored, because of insufficient funds, on Friday, December 15. The following Wednesday, December 20, the broker sold the securities it had purchased for the customer’s account. The customer incurred a loss on the sale. He then sued the bank claiming that the bank violated 12 C.F.R. sec. 229.13, “the so-called safeguard exceptions.” He sought to rely on paragraph (g) which states that if a bank “chooses to delay the availability of funds beyond the normal periods,” it must “give special notice to the depositor of when the funds will be available.” In essence, the depositor claimed he received no special notice. The Court found that all of the customer’s losses occurred “within the permitted five-day unavailability.” It felt that dishonor of the check on December 13, two days after the deposit was posted, “was entirely unexceptional, and it was that dishonor that was the effective cause of the ultimate loss.” Consequently, the delay “in making the funds available on the fifth business day following posting was, therefore, irrelevant, particularly in view of the fact that [the customer] could have but did not ask [the brokerage firm] to redeposit the check on or after December 18 when the funds were available and the security still not sold.” Essentially, the Court decided that the “special notice” rule was applicable, “on a case by cases basis,” when the unavailability period extends beyond that permitted by law or what was otherwise disclosed.

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