Hughes v. Marine Midland Bank, N.A.

• Decision Date: 15 January 1985
• Parties: , 40 UCC Rep.Serv. 998 Frederick D. HUGHES, M.D., and Josephine A. Hughes, Plaintiffs, v. MARINE MIDLAND BANK, N.A., Defendant.
• Court: New York City Court

Page 1000

484 N.Y.S.2d 1000

127 Misc.2d 209, 40 UCC Rep.Serv. 998

Frederick D. HUGHES, M.D., and Josephine A. Hughes, Plaintiffs, v. MARINE MIDLAND BANK, N.A., Defendant.

City Court of Rochester, Civil Branch Monroe County.

Jan. 15, 1985.

Hiscock & Barclay, Syracuse, for plaintiffs.

John E. Nagurney, Buffalo, for defendant.

DECISION

JOHN MANNING REGAN, Judge.

There are no controverted questions of fact between the parties to this action in respect to any material issue. Accordingly, this motion for summary judgment presents solely a question of law, and this Court should, and will, proceed to judgment. C.P.L.R. § 3212(b). ¹

Plaintiffs, Dr. and Mrs. Frederick Hughes are depositors in the defendant, Marine Midland's bank. They have transacted banking with the defendant at its office on East Avenue in Rochester, New York, for some years.

In February, 1983, the plaintiffs were on vacation in Sarasota, Florida. In Sarasota, they leased a resort cottage from Diane Barth, a real estate agent. Ms. Barth insisted, prior to granting possession of the cottage, that the plaintiffs pay the full month's rental of the property in the sum of $1,470.00. Mrs. Hughes tendered her personal check, dated February 1, 1983, for the sum of $1,470.00 to Ms. Barth in compliance with her preconditions. The check was drawn on defendant bank's East Avenue, Rochester, New York, office from the Hughes' personal joint account. Ms. Barth deposited the check in the First Presidential Savings & Loan of Sarasota the very next day, February 2, 1983, for collection.

On February 4, 1983, a Friday, Dr. Hughes telephoned the defendant bank and spoke with Gail Stevens, a bank employee whose duties as an operations supervisor included the processing of telephoned stop payment orders. ² Dr. Hughes told Ms. Stevens the correct account number, the correct name of the payee, the correct date of the check, and the correct amount of money for which the check was drawn. He did not give her the correct check number however, describing the number as 292 instead of 280.

Moreover, Dr. Hughes amplified his stop payment telephone call with his reasons for stopping payment. He advised that the payee, Ms. Barth, had misrepresented the quality of the accommodations for which the check had been delivered to her, whereupon Ms. Stevens duly recorded "misrepresentation" as the reason for the stop order.

This telephone call was placed at 8:55 a.m. on Friday, the 4th day of February, 1983. On Monday, February 7, 1983, the Barth check was posted as a debit to the Hughes' account, and the full sum of $1,470.00 was deducted.

In reliance on the conversation with Ms. Stevens, Dr. Hughes notified Ms. Barth that he and his wife were leaving the premises. After contentious arguments had ended, the Hughes paid Ms. Barth the sum of $350.00 later that same Friday afternoon, February 4, 1983, in full settlement of all claims between them.

The bank sent the Hughes a form for written confirmation of the stop-payment order and Dr. Hughes returned it, duly signed, to the bank on February 18, 1983. On February 22, 1983, the bank mailed the plaintiffs their monthly statement which showed the $1,470.00 deduction for the Barth check on February 7, 1983. When they received the statement some three days later, they learned, for the first time, that the bank had not honored their stop-payment order.

The Hughes' cause of action asserts that the bank is liable to them for this loss of $1,470.00 under the provisions of Article 4, Section 4-403 of the Uniform Commercial Code, which reads as follows:

"(1) A customer may by order to his bank stop payment of any item payable for his account but the order must be received at such time and in such manner as to afford the bank a reasonable opportunity to act on it prior to any action by the bank with respect to the item described in Section 4-303.

(2) An oral order is binding upon the bank only for fourteen calendar days unless confirmed in writing within that period. A written order is effective for only six months unless renewed in writing.

(3) The burden of establishing the fact and amount of loss resulting from the payment of an item contrary to a binding stop payment order is on the customer."

The bank's Answer does not contain a general denial. It selects certain allegations in the Complaint for specific denials upon information and belief. However, the affidavits and documentary proof have convincingly established the above facts.

In addition, the Answer pleads four affirmative defenses--failure to state a cause of action, contributory negligence, a defense labeled "the complaint is subject to rebuttal by documentary evidence", and forum non conveniens (C.P.L.R. § 327).

The bank's principal defenses to plaintiffs' assertion of liability is that the bank's actions did not cause the loss, but, rather, the plaintiffs' error did, for when plaintiffs gave Ms. Stevens the wrong check number, the bank's computer correctly reported that check number 292 had not been negotiated, and thereafter payment of check number 292 was, in fact, stopped. But, of course, payment of check number 280 was not stopped.

The bank has also pleaded a novel procedural defense. They have urged this Court to forego jurisdiction under C.P.L.R. § 327, forum non conveniens, on the grounds that because this Court has no in personam jurisdiction over Diane Barth, a resident of Sarasota, Florida, the plaintiffs should be relegated to a Florida forum. Furthermore, the defendant points out that, under the Florida Uniform Commercial Code, Article 4, § 674.4, 4-403(1) requires stop-payment orders to describe the check "with certainty", and that supplying the wrong check number is fatal. Finally, they argue that this case has more significant contacts with Florida and involves interpretations of a Florida realty contract, questions as to which this New York forum has neither jurisdiction nor competence to decide.

I THE PLAINTIFFS' CAUSE OF ACTION UNDER UCC 4-403

Since Dr. Hughes and his wife are residents of New York, and they live in Monroe County, and since the defendant bank owns and operates a branch bank in Rochester, on East Avenue, and since the banking contract between these parties was made in Rochester, and the debtor-creditor relationship it created is to be performed in Rochester, New York law will govern the legal incidents of that debtor-creditor relationship and will determine whatever liability the bank may have. U.C.C. § 1-105(1); § 4-102(2); Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99 (1954).

Because the bank received the stop payment order in plenty of time to act on it, ³ the only flaw in the plaintiffs' case is the error they made in providing Ms. Stevens with an incorrect check number. Ms. Stevens' affidavit states that the bank's central computer in Syracuse, New York, "can be directed to identify: (1) a specific check by number; (2) all checks for a specific amount; (3) a specific check having a stated number and amount." Ms. Piper, a bank employee who actually works at the computer center in Syracuse, and whose affidavit states that the center processes almost a million items a day, reports that any stop payment order can be processed in any of three ways: "(1) by check number and dollar amount (2) by check number, or (3) by dollar amount."

From these circumstances, it is evident that the bank's intraoffice memorandum, which Ms. Stevens made from her conversation with Dr. Hughes over the telephone on February 4, 1983, contained enough information--the account number, and the amount of the check--to process the stop payment order at the computer center in Syracuse.

The legal question then becomes whether these facts meet the standards of legal sufficiency set out in U.C.C. § 4-403(1) which are that: "the order must be received at such time and in such manner as to afford the bank a reasonable opportunity to act." The case law is not easily reconciled. In Mitchell v. Security Bank, 85 Misc. 360, 147 N.Y.S. 470 (App.Term 1st Dept 1914) a wrong date, and a single digit error in the amount of the check was held insufficient. Yet in Thomas v. Marine Midland Tinkers Natl. Bank, 86 Misc.2d 284, 287, 381 N.Y.S.2d 797 (Civ.Ct.N.Y.Co.1976), a digit error in the check number was deemed "trivial and insignificant", and the check description held to be adequate.

In view of the Thomas decision in 1976, and recognizing the capabilities of modern computers to respond to programmed software, the Court concludes that New York banks have had ample time to design software to identify and stop payment on checks from a specific account simply by account number and dollar amount. In fact, Ms. Piper's affidavit admits that Marine's computers now have that capability. Accordingly, in the interests of commercial stability and predictability, and in furtherance of the doctrine of stare decisis, ⁴ this Court will follow the rule in Thomas and hold that the information provided met the statutory standards of reasonable accuracy, and did therefore provide a reasonable opportunity for the bank to act.

Subdivision (3) of § 4-403 of the U.C.C. puts the burden of establishing the fact and amount of loss occurring upon payment over a valid stop order on the customer. At first glance, most would infer that this loss would always be equal to the face amount of the check, and that deducting that face sum from the customer's account would establish that sum as "the amount of the loss". For example, the Complaint in this case makes that assumption and demands judgment for $1,470.00, the sum defendant deducted from the account.

Prior to enactment of the U.C.C., this was the law in New York. Unless a customer ratified, and adopted as correct, the bank's wrongful payment over a valid stop order, the bank was liable for the full sum deducted from a customer's account. Chase Natl. Bank v. Battat, 297 N.Y. 185, 78 N.E.2d 465 (1948). Moreover, the Court specifically held in Batta...