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Triffin v. First Union Bank, N.A.

319 N.J. Super. 72, 724 A.2d 872 (App. Div. 1999)

BANKS; UCC; EXCULPATION—Under the UCC, a customer can agree to exonerate its bank so long as it is not from the bank’s failure to exercise ordinary care or lack of good faith, thereby shifting risk of loss to the customer.

A bank and a travelers check company jointly issued a holiday club check to a customer. That customer, or somebody purporting to be that customer, cashed the holiday club check at a check cashing service. Allegedly, the check cashing service had no knowledge of any defenses or claims by any party to the check at the time the check was cashed. Sometime after the check was cashed, payment was stopped on the instrument. There was no claim that the bank was at fault or acted in bad faith in connection with the stop payment. The check cashing service and the bank operated pursuant to a written Cash Management Services Agreement which contained an “exculpatory” or “risk-shifting” provision, as follows: “Although Bank shall provide the services in accordance with the prevailing reasonable commercial standards of the banking industry, Bank shall not be responsible for any loss sustained by Customer [check cashing service] unless and to the extent that such loss was caused by Bank’s gross negligence or willful misconduct.” In addition, the agreement provided that in no event would the bank be liable to any customer regardless of whether any claim was based upon contract or tort or for any special, consequential, or indirect damages. The agreement was to be governed by New York law. Subsequently, the check cashing service assigned its claim against the bank on the instrument to a commercial discounter and buyer of dishonored instruments.

At the outset, the Court concluded that choice of law was of no importance because under New York or New Jersey law, the agreement was enforceable as written and the claim against the bank was barred. The claimant argued that the exculpatory language covered only contract or tort claims and not statutory claims under the UCC. In the Court’s view, the cited clause clearly shifted the risk of “any loss sustained by Customer” to the claimant without limitation or characterization relevant to this particular case. The agreement was reached by commercial parties and New York’s UCC permits shifting of the risk of loss. While the UCC does not permit an agreement to disclaim a bank’s responsibility for its own lack of good faith or failure to exercise ordinary care, the UCC otherwise can be varied by agreement and the parties, by agreement, may determine the standards by which responsibility is to be measured if such standards are not manifestly unreasonable. Having found the agreement to be enforceable, the Court enforced it as written because in the context of this case, the agreement was not being invoked to exonerate the bank from its own fault or lack of good faith.


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