Jacobs v. Citibank, N.A.

• Decision Date: 08 March 1983
• Citation: 92 A.D.2d 786,459 N.Y.S.2d 781
• Parties: Howard L. JACOBS, P.C., et al., Plaintiffs-Respondents, v. CITIBANK, N.A., Defendant-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 781

459 N.Y.S.2d 781

92 A.D.2d 786

Howard L. JACOBS, P.C., et al., Plaintiffs-Respondents, v. CITIBANK, N.A., Defendant-Appellant.

Supreme Court, Appellate Division First Department.

March 8, 1983.

L.L. Levy, New York City, for plaintiffs-respondents.

D.L. Cuneo, New York City, for defendant-appellant.

Before KUPFERMAN, J.P., and SULLIVAN, CARRO, SILVERMAN and BLOOM, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County, entered September 8, 1982, denying defendant's motion to dismiss plaintiffs' complaint pursuant toCPLR 3211 and for summary judgment pursuant to CPLR 3212, reversed, on the law, with costs and the motion for summary judgment granted.

Plaintiffs bring this uncertified class action on the theory that the charges imposed by the defendant bank for returning checks issued by them on their accounts for insufficient funds, and for returning third party checks deposited to their accounts which were dishonored by the drawee bank because of insufficient funds of the drawer are "grossly excessive" and hence, a penalty, in violation of § 1-106 of the UCC and are impermissible.

When the plaintiffs opened their accounts, each of them signed agreements authorizing the charges then prevailing for the specified and other services. The agreements further provided that the rates specified therein were subject to change upon notice. No claim is made that they were not notified of changes in the schedule of fees.

To support their position plaintiffs rely, in large part, on our decision in Clark v. Marine Midland Bank, Inc., 67 A.D.2d 846, 413 N.Y.S.2d 9 and § 108 subd. 8 of the Banking Law. We think that this reliance is misplaced. Clark was a case predicated upon the same theory as that here presented. However, that case came before us on a motion to dismiss the complaint. While both the majority and the dissenter agreed in the conclusion "that these charges were not in violation of section 1-106 and article 4 of the Uniform Commercial Code" (p. 846, 413 N.Y.S.2d 9) the majority noted "that plaintiffs allege violations of 'other applicable laws and regulations' " (p. 846, 413 N.Y.S.2d 9). Since, on a motion to dismiss we deal only with the facial allegations without inquiring into their substance, the majority concluded that the complaint stated a cause of action. Here, however, we are confronted with a motion for summary judgment. On such an application we look to the uncontroverted proof. Inasmuch as plaintiffs' proof does no more than try to establish a penalty, a conclusion rejected by us in Clark, plaintiffs can find no comfort in that case.

Moreover, in the classical sense, the fees charged cannot be a penalty for a penalty presupposes the breach of a contract with the payment of a fixed sum consequent upon the breach (Hamid Fair Booking, Inc. v. Wirth, 265 N.Y. 214, 192 N.E. 297). To constitute a penalty the stipulated sum must be disproportionate to the injury or the damages flowing from the breach must be readily ascertainable (Equitable Lumber Corp. v. IPA Land Development Corp., 38 N.Y.2d 516, 381 N.Y.S.2d 459, 344 N.E.2d 391; Mosler Safe Co. v. Maiden Lane Safe Deposit Co., 199 N.Y. 479, 93 N.E. 81). Absent a breach there is no compensable wrong. Hence, there can be no penalty. What is here involved is a fixed charge, stipulated to by plaintiffs for specified services to be rendered. This scarcely falls into the category of a penalty. Indeed, plaintiffs are in no different position from a purchaser of a commodity at a fixed price which is thereafter ascertained to be higher than the market price. Any endeavor by the purchaser to recoup the difference between the two prices on the theory that the excess of the agreed price over the market price is a penalty would clearly be without merit.

The second string to plaintiffs' bow is § 108, subsection 8 of the Banking Law. Subdivision (a) of that provision confers on the Banking Board the power to fix the maximum charge which may be imposed by a bank for returning a check for insufficient funds and the maximum charge for returning third party checks which are dishonored by the drawee bank. Subdivision (b) of subsection 8 limits the charges which may be imposed by a bank to those fixed by the Banking Board while subdivision (c) deals with the standards to be applied in determining maximum fees. It requires the Board to consider the cost of processing, the charge necessary to deter the pratices for which charges are permitted to be made and other economic factors.

It is conceded by defendant...