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Kaspi v. Columbia Bank

A-2457-04T1 (N.J. Super. App. Div. 2005) (Unpublished)

CHECKS; UCC—When a check is deposited into an account it is given a provisional credit which may be revoked if the check is uncollectible when all of the banks handling the item act properly within their various deadlines, such as the midnight deadline, as provided by the Uniform Commercial Code and applicable federal law.

A bank customer with a checking account deposited a check into the account. The check was processed on July 12 and the bank sent the instrument to the maker’s bank for collection. It posted a conditional credit to its customer’s account in the amount of the check. The next day, the maker’s bank provisionally paid the check. However, at some point prior to July 15, payment was stopped by it. The bank at which it was deposited was notified on July 15 of the dishonor. On July 16, its customer withdrew money from its account, but at noon on that same day, he was notified by his bank that the check had been dishonored. The bank’s customer sued the bank claiming entitlement to the money “as a result of the bank’s allegedly illegal manipulation of the account, illegal confiscation of monies in it and breach of its duty of good faith and fair dealing.”

The Appellate Division was satified that the bank “acted in this matter in accordance with its contract with its depositor [], Article 4 of the Uniform Commercial Code (UCC) ... and the Expedited Funds Availability Act.” It found no dispute that the bank “properly and timely presented the [] check to the payor bank, ..., for payment.” Once that occurred, the payor bank had to either “make settlement or dishonor the check by its midnight deadline, defined as midnight of the banking day following the banking day of receipt of the item.” The UCC further required the payor bank “to make at least initial provisional settlement by midnight of the banking date of receipt. It did so by provisionally paying the item and stamping the back of the check to indicate that provisional payment.” It was that notation upon which the bank’s customer relied. According to the Court, he “failed to recognize that, once a provisional payment was timely made, [the payor] had an additional day [until midnight of the next banking day after the banking day of receipt] either to make final payment or to revoke settlement and dishonor the item. ... In this case, settlement was in fact revoked by [the payor bank].” There was no evidence to suggest that the payor bank missed its midnight deadline. Further, the payor bank was not a party to the action. The payor bank was then required to send written notice of dishonor or nonpayment or return the actual check to the bank at which it had been deposited in an “expeditious manner.” Under federal regulations, “expeditious manner is defined as meeting either of two tests set forth in the Regulation: the two-day/four-day test or the forward collection test.” Testimony was that the bank at which the check had been deposited received the check, marked “Payment Stopped” on a date that was timely under the Regulations. That bank, as a depository and collecting bank was held to have “acted in this transaction as agent for [its customer] and was bound by a duty to use ordinary care. ... In this case, the Bank had made provisional settlement with [its customer] with respect to the check at issue pursuant to [the UCC] as it was required to do under 12 U.S.C.A. [section] 4002, which provides: ‘not more than one business day shall intervene between the business day on which funds are deposited in an account at a depository institution by a check drawn on a local originating depository institution and the business day on which the funds involved are available for withdrawal.’”

Under the UCC, the depository bank “was authorized to revoke its provisional settlement upon notice of dishonor from [the payor bank], to charge back the amount of any credit given for the item to [the depositing customer’s] account and to obtain a refund from him if [the payor bank’s] settlement had not become final and if [the depository bank’s] revocation occurred ‘by its midnight deadline or within a longer reasonable time after it learns the facts.’” Accordingly, the record supported the depository bank’s position “that its conduct in connection with this transaction complied with applicable statutes and regulations, and thus [its customer’s] cause action against it lacked legal support.

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