Opinion
5267-08.
Decided on December 31, 2009.
McNamee, Lochner, Titus Williams, P.C., Attorneys for Plaintiff, (Kenneth L. Gelhaus, of counsel), Albany, New York.
Gleason, Dunn, Walsh O'Shea, Attorneys for Defendants, (Daniel A. Jacobs, of counsel), Albany, NY.
Plaintiff JP Morgan Chase Bank, N.A. ("the Bank") moves for leave to amend its complaint, pursuant to CPLR 3025 (b), and for summary judgment on its amended complaint, pursuant to CPLR 3212. Defendant Aleksandar Popovic opposes plaintiff's motions and cross-moves for dismissal of plaintiff's complaint and for leave to amend his answer to assert a counter-claim of negligence against the Bank. For the reasons that follow, the motions for summary judgment are denied, and the motions for leave to amend are granted.
BACKGROUND
On or about May 24, 1993, defendant Aleksandar Popovic opened bank account 650679018-65 ("the Account") with plaintiff's predecessor in interest, Chemical Bank. On September 10, 2007, defendant deposited into his Account a check in the amount of $84,000, drawn on a Virgin Islands bank. The same day, defendant deposited a second check in the amount of $3,000, drawn on the same foreign bank. Shortly thereafter, the balance in defendant's Account reflected the deposit of $87,000 in funds from the two checks (collectively "the Checks").
However, on September 18, 2007, the Bank removed these funds from defendant's Account and returned the unpaid Checks to him. Defendant alleges that he made inquiries at his local Bank branch as to why the Checks had been returned and the $87,000 in proceeds deducted from his Account balance. Defendant claims that he could not obtain a satisfactory answer from Bank personnel, but was instead directed to consult with the maker of the Checks. Defendant then contacted Jeffrey Prosser, who had sent defendant the Checks in payment for painting certain murals for Mr. Prosser's home in the United States Virgin Islands. Defendant claims that he was advised by Mr. Prosser that there were sufficient funds in his account and he should simply redeposit the checks into the Account.
On September 26, 2007, defendant redeposited the Checks. Two days later, on September 28, 2007, defendant's Account showed a provisional settlement of $87,000. At that time, defendant withdrew the proceeds of the Checks from his Account in the form of an official Bank check. On October 5, 2007, defendant closed the Account.
However, on or about October 15, 2007, the two Checks were returned unpaid to the plaintiff Bank with the notation "return to maker" imprinted thereon. At that point, plaintiff reopened defendant's Account and debited the zero balance with the amount of the returned checks, thereby creating a negative balance of $87,000. Plaintiff alleges that such action was taken in accordance with Bank policies and procedures, regular banking practices, and the terms and conditions applicable to defendant's Account.
By this action, plaintiff seeks to recover the negative balance of $87,000 caused by the return of the Checks. Plaintiff proceeds on theories sounding in breach of contract, unjust enrichment and breach of warranty. Plaintiff now moves for summary judgment on these causes of action, and also seeks leave to amend its complaint to add a cause of action to recover the attorney's fees associated with this collection action.
Defendant opposes plaintiff's motion for summary judgment and cross-moves for summary judgment dismissing the complaint. In the alternative, defendant cross-moves for leave to amend his answer to assert a counter-claim alleging that the Bank was negligent.
SUMMARY JUDGMENT
Summary judgment is a drastic remedy and should only be granted if there are no material issues of disputed fact ( Sillman v Twentieth Century Fox Film Corp., 3 NY2d 395). In evaluating a motion for summary judgment, a court should simply determine whether material issues of disputed fact preclude the grant of judgment as a matter of law ( S. J. Capelin Assoc. v Globe Manufacturing Corp., 34 NY2d 338). The party moving for summary judgment has the initial burden of coming forward with admissible evidence to support the motion, so as to warrant the Court directing judgment in movant's favor; the burden then shifts to the opposing party to demonstrate, by admissible evidence, the existence of any factual issue requiring a trial of the action ( see Zuckerman v City of New York, 49 NY2d 557).
A.Applicability of the Account Rules Regulations
For its first cause of action, plaintiff alleges that defendant is in breach of the deposit agreement with the Bank. Attached as exhibits to the affidavit of Cheryl A. Cimperman, a Vice President of the plaintiff Bank, is a copy of defendant's signed application for the Account and a copy of the Account Rules and Regulations ("ARR") allegedly governing the Account at relevant times.
Plaintiff directs the Court's attention to several provisions of the ARR that allegedly bear on the instant dispute. First, the "General Account Terms and Conditions" advises, under the heading of "Deposits or Chased Items":
Checks . . . deposited to your Account . . . may be charged back against the Account . . . if we are informed that the item is being or has been returned unpaid. . . . We may charge your Account whether or not the check is returned to us, and whether or not we can return the item or a copy to you. Even if we verify a deposited or cashed check and tell you that the check has been paid that will not release your liability as an endorser. . . . We have no duty to return a check that has been charged back to an Account if that Account has become overdrawn. We are not required to give you next-day notice if a deposited or cashed item is dishonored.
Second, under the section entitled "Credits for Deposits", the ARR provides:
[T]he availability of funds for withdrawal does not mean that the deposited check or other item is "good", has "cleared" or has been paid by the paying bank, or that the item will not be return unpaid and your Account subsequently debited, notwithstanding any period of time or any representation or belief to the contrary.
Third, the ARR further provides, under the heading "Insufficient Funds":
If we pay an item or honor your request that overdraws your Account, a deposited item has been returned unpaid or for any other reason your Account has become overdrawn, you agree to pay the amount of the overdraft. . . .
We may assess an additional fee for overdraft balances that are not promptly repaid and/or charge interest for any overdraft on your Account. You agree to pay all costs and expenses, including attorneys fees, incurred by us in the collection of any overdraft.
Thus, to establish its prima facie case for breach of contract, plaintiff relies upon defendant's signed application for the Account, the foregoing provisions of the ARR, the undisputed evidence that defendant's Account has a substantial negative balance caused by the return of the two Checks, and defendant's failure to make repayment to plaintiff pursuant to the terms of the parties' deposit agreement.
In opposition, defendant first argues that plaintiff has failed to demonstrate that he is bound by terms and conditions of the ARR. Defendant contends that he never signed the ARR and that the application for the Account, which he did sign, does not refer to the ARR. Defendant further asserts that there is nothing in the record evidencing his intention to be bound by the ARR.
With respect to this issue, Ms. Cimperman avers that it is the Bank's policy and regular business practice to send the ARR, and any changes and amendments thereto, to the address at which the account holder receives monthly banking statements. This address is essentially re-verified each month with the mailing of the customer's checking statement. Any changes of address not reported to the Bank would be discovered and corrected as a result of the account statement being returned to the Bank. Ms. Cimperman avers that the Bank was not notified of a change in defendant's address at relevant times and that no banking statements were returned by the postal service to the Bank. Further, Section II of the ARR, entitled "Deposit Account Agreement", states:
This agreement governs personal and business deposit accounts identified in this Deposit Account Agreement. . . . By signing a services application, deposit account signature card, or by otherwise opening or maintaining a checking . . . account with us, you accept and agree to be bound by the terms and conditions of this Agreement. (emphasis added).
Defendant has filed two affidavits in connection with the instant motion. With respect to the applicability of the ARR, defendant makes three averments: (1) he does not recall ever signing a document binding himself to the ARR; (2) his signature does not appear on the ARR; and (3) the signed Account application does not mention the ARR. However, defendant does not respond to Ms. Cimperman's averments that the ARR was mailed to the address at which he receives his monthly banking statements. Indeed, defendant does not deny having received copies of the ARR by mail. Defendant further admits that his relationship with the Bank is contractual in nature, and acknowledges, as he must, that his assent to the terms of the ARR may be manifested in ways other than a signed writing.
While it is a close question, the Court concludes that plaintiff has failed to demonstrate, prima facie, that the ARR upon which it relies was mailed to defendant. Mailing may be shown by evidence that the ARR actually was mailed or by proof of standard office practices and procedures followed by the Bank in the regular course of business to ensure that documents such as the ARR are duly addressed and mailed to customers such as defendant ( Kaufmann v Leatherstocking Coop. Ins. Co. , 52 AD3d 1010 [3d Dept 2008]; Pardo v Central Coop. Ins. Co., 223 AD2d 832 (3d Dept 1996]). Upon such a showing, plaintiff would be entitled to a presumption of mailing, and the burden would shift to defendant to deny receipt of the ARR and to also demonstrate that "routine office practice was not followed or was so careless that it would be unreasonable to assume that the notice was mailed" ( Nassau Ins. Co. v Murray, 46 NY2d 828, 830).
Here, the affidavits relied upon by plaintiff fail to provide sufficient details regarding the specific policies and business practices of the Bank with respect to the mailing of the ARR to as to give rise to a presumption of mailing. The conclusory averments of plaintiff's Vice President do not disclose evidentiary facts that would permit defendant to demonstrate that the Bank failed to follow its routine procedures or that such procedures lack sufficient rigor as to render a presumption of mailing unreasonable. Simply put, plaintiff seeks the benefit of a rebuttable presumption that cannot be rebutted.
In making this determination, the Court recognizes that defendant does not deny having received copies of the ARR by mail. Nor does defendant dispute that his continued use of the Account following receipt of the ARR would constitute a manifestation of his acceptance of the terms and conditions set forth therein. However, since plaintiff has failed to meet its initial burden of proving that the ARR upon which it relies was provided to defendant, there is no need to consider the sufficiency of the opposing papers. Based on the foregoing, the Court concludes that the present record does not permit the Court to determine the applicability of the ARR to the banking relationship between plaintiff and defendant.
Insofar as defendant cross-moves for summary judgement on the ground that the ARR does not govern the parties' relationship, he too has failed to meet his initial burden.
B.Notice of Dishonor
The other major issue raised by the parties' cross-motions for summary judgment concerns whether the Bank gave timely notice of the dishonor of the Checks to defendant and the legal consequences of any defect in notice. Defendant argues that regardless of whether or not he is bound by the ARR, the Bank's failure to send prompt notice of the Checks' dishonor or return resulted in the loss of its right pursuant to Uniform Commercial Code ("UCC") § 4-212 (1) ("Section 4-212") to charge-back defendant's Account in the amount of the returned Checks. Similarly, defendant argues that the Bank's failure to give timely notice of dishonor forecloses the Bank's claim for breach of the endorser's warranty, pursuant to UCC § 3-414 (1).
1. Section 4-212
The Court begins with Section 4-212 (1), entitled "Right of Charge-Back or Refund", which provides as follows:
If a collecting bank has made provisional settlement with its customer for an item and itself fails by reason of dishonor, suspension of payments by a bank or otherwise to receive a settlement for the item which is or becomes final, the bank may revoke the settlement given by it, charge back the amount of any credit given for the item to its customer's account or obtain refund from its customer whether or not it is able to return the items if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts. . . .
Defendant argues that the Bank failed to "return the [Checks]" or "send notification" of their dishonor within a "reasonable time" after learning of the dishonor, as required by Section 4-212 (1). There is no dispute that the Bank first learned of the dishonor of the Checks on October 15, 2007. Defendant further argues that he detrimentally relied upon the provisional settlement by incurring liabilities and expending withdrawn funds in reliance thereupon, and that such detrimental reliance could have been avoided by the Bank giving prompt notice of dishonor in accordance with its statutory obligation.
The Bank does not dispute that the first written notice of dishonor provided to defendant was a telefaxed copy of the one of the Checks on December 3, 2007, seven weeks after the Bank learned of the dishonor. However, the Bank does come forward with proof demonstrating that one of its employees, Robert Fellows, contacted defendant by telephone on October 16, 2007, the day after the Bank learned of the dishonor, and that defendant and Mr. Fellows left messages for one another and thereafter communicated by telephone several times.
Plaintiff further explains, through the affidavit of Ms. Cimperman, that the Bank's usual system for returning copies of dishonored checks to customers was defeated by defendant's action in closing his Account while settlement of the Checks remained provisional. According to the Bank, defendant's mailing address no longer was considered "active" once the Account was closed, thereby leading to the initiation of telephone communications. The Bank also notes that since the Checks already had been dishonored once, it was — at the very least — improvident of defendant to have closed the Account so quickly after withdrawing he provisionally settled proceeds of the Checks. And, more fundamentally, the Bank contends that it was relieved of the obligation to return the dishonored Checks or to otherwise give timely notice of their dishonor pursuant to the terms of the ARR.
In response, defendant makes several arguments. First, the Bank's acknowledged failure to return the dishonored checks by its midnight deadline or within a longer reasonable time forecloses its right to charge-back to defendant's Account under Section 4-212 (1). Second, any oral notification of dishonor was ineffective under the cited statute. Third, plaintiff's reliance on the ARR does not and cannot relieve the Bank of its obligations to provide prompt notice of dishonor under Section 4-212 (1).
The Court begins the with the effect of the oral notice allegedly provided by plaintiff. Pursuant to UCC § 3-508 (3), notice of dishonor "may be given in any reasonable manner. It may be oral or written. . . ." However, Section 4-212 (1) is framed in terms of the Bank's obligation to "return" dishonored checks or to "send notification" of the dishonor. Construing similar language in UCC § 4-301 (1), the Appellate Division, Third Department held the terms "return" and "send" used in Article 4 require for written notice, and insofar as the provisions of Article 3 and Article 4 conflict, the provisions of Article 4 are controlling ( General Motors Acceptance Corp. v Bank of Richmondville, 203 AD2d 851 [3d Dept 1994] ["oral notice of dishonor is not sufficient to establish compliance with UCC 4-301 and 4-302"]). While the Court sees good reasons for permitting oral notice under Section 4-212 (1), it considers itself bound by the reasoning of GMAC and, therefore, concludes that oral notice of dishonor is insufficient to demonstrate compliance with Section 4-212 (1).
Throughout his papers, defendant emphasizes that the purpose of Section 4-212 (1) is to prevent customers such as himself from detrimentally relying upon a provisional settlement in situations where a bank has failed to timely return a dishonored check or provide written notice of its dishonor. If a bank provides oral notice of dishonor, however, and the customer therefore obtains actual knowledge that a check has been dishonored, it is difficult to see how any such detrimental reliance could reasonably follow.
Next, the Court concludes that even if the ARR does govern the contractual relationship between the parties, it would not eliminate the Bank's obligation to provide reasonably timely notice of dishonor, in accordance with Section 4-212 (1). Although Article 4 sets forth the basic rights and obligations under banks and customers in relation to bank deposits and collections, UCC § 4-103 (1) confers broad authority upon the parties to vary the effect of Article 4's provisions by agreement:
UCC § 1-103 (3) defines "agreement" as "the bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing or usage of trade or course of performance as provided in this Act (Sections 1-205 and 2-208). Whether an agreement has legal consequences is determined by the provisions of this Act, if applicable; otherwise by the law of contracts. . . ." The Court is satisfied that the ARR falls within this broad definition of "agreement".
The effect of the provisions of this Article may be varied by agreement except that no agreement can disclaim a bank's responsibility for its own lack of good faith or failure to exercise ordinary care or can limit the measure of damages for such lack or failure; but the parties may by agreement determine the standards by which such responsibility is to be measured if such standards are not manifestly unreasonable.
Thus, if the ARR worked to vary the terms of the Section 4-212 (1) to both eliminate the Banks' obligations to return the dishonored Checks and to provide timely notice of dishonor, the Bank may proceed against defendant to collect the overdraft resulting from the charge-back under its contract theory without regard to compliance with Section 4-212 (1). If, however, the Bank's obligations to either "return" the Checks or "send" prompt notice of dishonor remained intact in whole or in part and the Bank failed to comply with such obligation, then the Bank lacked authority to charge-back defendant's Account and it may not proceed under a breach of contract theory to collect the negative balance caused thereby.
Defendant contends that the Bank's failure to provide prompt and reasonable notice of the dishonor of the Checks constitutes its "failure to exercise ordinary care", which cannot be disclaimed or modified under the quoted statute (citing UCC § 4-103). Prior to considering this issue, however, it is first necessary to determine precisely how the ARR purports to modify the Bank's obligations under Section 4-212 (1).
With respect to the return of the Checks, the ARR states that "[the Bank] may charge your Account whether or not the check is returned to us, and whether or not we can return the item or a copy to [the customer]." It further provides that the Bank has "no duty to return a check that has been charged back to an Account if that Account has become overdrawn." Through these provisions, the Bank expressly disclaims any duty to return the dishonored Checks to defendant, as would otherwise be required under the UCC.
As to the giving of notice of dishonor, the ARR provides that the Bank is "not required to give [the customer] next-day notice if a deposited or cashed item is dishonored." Under Section 4-212 (1), the Bank must send notice of dishonor by its "midnight deadline or within a longer reasonable time after it learns" of the dishonor. The "midnight deadline" is defined as "midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later" (UCC § 4-104 [h]). By eliminating the duty of "next-day notice", the ARR clearly intended to relieve the Bank of the obligation to adhere to the stringent "midnight deadline" for notification. However, the ARR does not speak directly to the Bank's duty under Section 4-212 (a) to send customers a notice of dishonor within a reasonable period after learning of the dishonor, thereby leaving this default provision intact.
Based on the foregoing, the Court concludes that the ARR, to the extent it applies to defendant's Account, operates to modify Section 4-212 (1) to eliminate the requirements of returning the dishonored Checks and providing notice of dishonor by the midnight deadline, but leaves in place the requirement that the Bank send notice of dishonor to defendant within a reasonable time. Interpreted in this manner, the Court rejects defendant's argument that the modifications worked by the ARR run afoul of UCC § 4-103 (1). The ARR is not relieving the Bank of liability for failing to exercise ordinary care, but instead modifying the standard of conduct by which its duty of care is to be measured. And there has been no showing that dispensing with the return of the dishonored Checks or eliminating the midnight deadline in favor of a more flexible standard of reasonableness is itself "manifestly unreasonable".
The issue then becomes whether the Bank complied with Section 4-212 (1) by sending written notice to defendant within a reasonable time after learning of the dishonor. As noted above, the first written notice of dishonor was sent on December 3, 2007, whereas the Bank learned of the dishonor on October 15, 2007. The Court concludes that this delay of seven weeks cannot be said to be reasonable. While the Court recognizes that defendant's actions may have contributed to the delays of which he claims in certain respects — including his closing the Account prior to final settlement of the Checks, with knowledge that it took eight days for the Checks to be returned following their first deposit — the record is clear that the Bank had defendant's current mailing address throughout this period. Moreover, Bank personnel were obviously aware of the issue and in communication with defendant at least to some extent, so even if the Bank's automated processes were stymied by the intervening closing of defendant's Account, it would have been a simple matter for the Bank to manually prepare and send defendant the written notice required by Section 4-212 (1) in a reasonably prompt manner.
Having concluded that the Bank failed to send defendant written notice of dishonor within a reasonable time, the Court must then address the legal effect of this failure. Defendant contends that the sending of prompt notice is a condition precedent to a charge-back of his Account. Defendant grounds this contention largely upon the need to protect customers from continued detrimental reliance upon provisionally settled checks that have proven uncollectable.
The effect of a bank's failure to comply with Section 4-212 (1) is not a novel question, but it remains an unsettled one, at least in the New York courts. This Court joins a divided panel of the Appellate Division, First Department ( see Bank of NY v Asati, Inc., 184 AD2d 443 [1st Dept 1992]), in finding persuasive the reasoning and holding of Northpark Nat. Bank v Bankers Trust Co., 572 FSupp. 524 [SDNY 1983] [Knapp, J.]) on this issue:
We hold that UCC § 4-212(1) establishes a duty of care, not a condition to the right to charge-back. . . . [P]laintiff, therefore, has the burden of establishing the actual damages caused by the collecting bank's failures. We could safely rest our holding on the persuasive statutory exegesis in Appliance Buyers [ Credit Corp. v. Prospect Nat. Bank, 708 F2d 290 (7th Cir. 1983)]. In addition, however, we observe that comment 1 to UCC § 4-108 specifically refers to UCC § 4-212 as "prescrib[ing] . . . time limits . . . within which a bank, in fulfillment of its obligation to exercise ordinary care, must handle items entrusted to it for collection . ." . . .
The clearest expression of the purpose to be served by the notification requirement in the charge-back statute is provided by comments 1 and 4 to UCC § 4-207 (1950 Edition). Notification is intended, the comments tell us, promptly to advise an unsuspecting customer and to protect him from having checks (drawn on his account) returned unpaid. Even on the plausible assumption that the duty of prompt notification was also intended to allow the customer and a collecting bank to protect their rights against third parties, there is no logical reason to suppose that such intention implies that the violator of the duty be held liable, irrespective of the causal connection between the breach and the plaintiff's inability to collect on the item. Cf. UCC §§ 4-202 (duty) and 4-103(5) (measure of damages). Indeed, all decisions which we have been able to locate denying a defendant's right to charge-back under UCC § 4-212 for failure to notify (or to forward the item), are cases in which causation is established because the defendant's failure led to a detrimental change in plaintiff's position, which change could have been avoided by prompt notification.
( id. at 529-531 [internal citations, quotations and footnote omitted]).
To similar effect is Ossandon v Swiss Bank Corp. ( 1988 US Dist. LEXIS 14034 [SDNY 1988]), which holds:
The question of whether UCC § 4-212(1) establishes conditions precedent to the right of chargeback or whether it defines a duty of ordinary care relative to the right of chargeback is not one of first impression. In Northpark, Judge Knapp adopted the reasoning of Appliance Buyers . . . holding that delayed notification of dishonor does not preclude the depositary bank from charging back or reversing a provisional credit. Thus, even if [the bank] had failed to exercise due care in handling [the dishonored check], it would not forfeit its remedy of charge-back.
This Court is persuaded by Judge Knapp's analysis of section 4-212(1). Although that section is not a condition to the right of charge-back, under it a plaintiff could hold the collecting bank responsible for such damages as were proximately caused by the collecting bank's failure timely to discharge its duty to notify or to return the item. This Court fails to see any casual connection between plaintiffs' misfortunes and [the bank's] delayed notification of dishonor.
(internal citations and quotations omitted).
Thus, for the reasons set forth in Northpark, Ossandon and Bank of New York, the Court concludes that while a lack of strict compliance with Section 4-212 (1) does not preclude the Bank from charging back to defendant's Account the amount of the dishonored Checks, defendant has a cause of action for damages flowing from his alleged detrimental reliance thereupon.
The Court notes that the principal case relied upon by defendant, Manufacturers Hanover Trust Co. v Akpan ( 91 Misc 2d 622 [NY Civ Ct 1977]), was distinguished by the Ossandon and Bank of New York courts on the ground that the banking customer's detrimental reliance was substantially co-extensive with the amount of the charge-back sought by the bank. But the Court cannot agree with defendant's argument that Akpan stands for the proposition that Section 4-212 (1) operates as a condition precedent if there has been any detrimental reliance by the customer. Indeed, defendant's interpretation of the statute runs directly counter the reasoning of Ossandon and Northpark.
In his motion papers, defendant claims substantial detrimental reliance, contending that if he had been provided prompt notice of dishonor, he could have avoided paying several months rent for studio space, renegotiated his payment obligations to sub-contractors and material suppliers and/or reduced the compensation he drew for his own personal labor and disbursements associated with the Prosser project. This alleged detrimental reliance also forms the basis of defendant's proposed amended answer, which would assert a counter-claim against plaintiff under UCC § 4-202.
Plaintiff does not directly contravert the specifics of defendant's alleged reliance, though it notes that the documentary evidence attached to defendant's supplemental affidavit substantiate only a tiny fraction of his claimed reliance damages. And defendant's papers do not establish precisely when he incurred the reliance damages he seeks to recover from the Bank.
The Bank also argues that since defendant received timely oral notice of dishonor, any subsequent detrimental reliance on the Bank's failure to return the Checks or send written notice of dishonor was unreasonable. The Court sees considerable force in this contention. While oral notification is insufficient to establish compliance with Section 4-212 (1)'s requirement of sending timely notice of dishonor, reliance on a bank's failure to send timely written notice of dishonor becomes unreasonable as a matter of law once the customer obtains actual notice of dishonor, whether orally from the Bank or by other means. And continued reliance upon a provisional settlement following actual notice of dishonor cannot be said to be the proximate cause of any claimed reliance damages.
While the Court accepts plaintiff's position on this point as an abstract matter, it finds that the present record is insufficient to establish that defendant's alleged detrimental reliance occurred subsequent to defendant receiving oral notification of dishonor from the Bank through the telephone conversations with Mr. Fellows. Plaintiff's proof, consisting of business records logging certain phone calls between defendant and Mr. Fellows, fails to establish the substance of these conversations and precisely when defendant was informed of the Checks' dishonor. And while defendant acknowledges that Mr. Fellows advised him "that there were issues again with the Checks", defendant's affidavit does not specifically disclose when he had been advised of the Checks' dishonor. And for the reasons set forth above, defendant has failed to adequately document his reliance damages (some of which appear to be expectation damages) and show precisely when they were sustained.
On the basis of the foregoing, the Court concludes that the Bank's failure to send timely notice of dishonor as required by Section 4-212 (1) does not eliminate its right to pursue collection of the $87,000 overdraft resulting from the charge-back of the dishonored Checks under a breach-of-contract theory, but that defendant would be entitled to an offset against such sum for reliance damages caused by the Bank's failure to send written notice of dishonor within a reasonable time following October 15, 2007. However, any such detrimental reliance may not extend beyond the time when defendant acquired actual knowledge of the Checks' dishonor, whether from oral communications by Bank employees or from other sources.
2.Section 3-414
Plaintiff also proceeds against defendant pursuant to Section 3-414 (1), which reads as follows:
Unless the indorsement otherwise specifies (as by such words as "without recourse") every indorser engages that upon dishonor and any necessary notice of dishonor and protest he will pay the instrument according to its tenor at the time of his indorsement to the holder or to any subsequent indorser who takes it up, even though the indorser who takes it up was not obligated to do so.
There is no dispute that defendant was an indorser of the Checks within the meaning of the foregoing statute. However, defendant contends that plaintiff's failure to provide the "necessary notice of dishonor" is fatal to this claim.
With respect to notice of dishonor, UCC § 3-508 (1) requires that "[a]ny necessary notice must be given by a bank before its midnight deadline and by any other person before midnight of the third business day after dishonor or receipt of notice of dishonor." The statute further provides that "[n]otice may be given in any reasonable manner. It may be oral or written and in any terms which identify the instrument and state that it has been dishonored" ( id.).
For the reasons set forth supra, the issues of whether and when the Bank provided oral notice of dishonor to defendant cannot be resolved upon the factual record compiled to date. Nor can the issue of whether the ARR excused the Bank from providing notice before its midnight deadline be decided as a matter of law at this time. Accordingly, summary judgment on plaintiff's claim based on a breach of the indorser's warranty must be denied.
MOTIONS TO AMEND
The Court grants plaintiff's motion to amend its complaint to add a cause of action for attorney's fees and defendant's motion to file an amended answer asserting a counter-claim of negligence pursuant to UCC § 4-202. The foregoing analysis is sufficient to demonstrate that neither amendment is palpably lacking in merit, and there has been no demonstration of undue prejudice or surprise resulting from the proposed amendments.
CONCLUSION
The Court has considered the parties' remaining contentions and finds them to be without merit or unnecessary to the disposition of the pending motions.
Accordingly, it is
ORDERED that plaintiff's motion for summary judgment is denied; and it is further
ORDERED that defendant's motion for summary judgment is denied; and it is further
ORDERED that plaintiff's motion seeking leave to file an amended complaint adding a fourth cause of action to recover attorney's fees is granted; and it is further
ORDERED that defendant's motion seeking leave to file an amended answer adding a counter-claim sounding in negligence is granted; and it is further
ORDERED that all remaining pre-trial disclosure shall be completed by May 14, 2010; and it is further
ORDERED that plaintiff shall file a note of issue by June 1, 2010; and it is further
ORDERED that any dispositive motions shall be filed within ninety (90) days after the filing of the note of issue.
This constitutes the Decision and Order of the Court. The original Decision Order is being transmitted to plaintiff's counsel. All other papers are being transmitted to the County Clerk for filing. The signing of this Decision and Order shall not constitute entry or filing under CPLR Rule 2220. Counsel is not relieved from the applicable provisions of that Rule respecting filing, entry and Notice of Entry.