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City Check Cashing, Inc. v. Jul-Ame Construction Company

December 14, 1999

CITY CHECK CASHING, INC., PLAINTIFF-APPELLANT,
v.
JUL-AME CONSTRUCTION COMPANY, A/K/A JULE-AME CONSTRUCTION, INC.; MISIR KOCI; NIMBUS ENTERPRISES INC.; MELVIN GREEN, MANUFACTURERS HANOVER TRUST COMPANY; CHEMICAL BANK; CHEMICAL BANK, AS SUCCESSOR IN INTEREST TO MANUFACTURERS HANOVER TRUST COMPANY; DEFENDANTS, AND MANUFACTURERS HANOVER TRUST COMPANY, CHEMICAL BANK, CHEMICAL BANK, AS SUCCESSOR IN INTEREST TO MANUFACTURERS HANOVER TRUST COMPANY, THE CHASE MANHATTAN BANK, AS SUCCESSOR IN INTEREST TO CHEMICAL BANK, DEFENDANT/THIRD-PARTY PLAINTIFF-RESPONDENT,
v.
JUL-AME CONSTRUCTION COMPANY, A/K/A JULE-AME CONSTRUCTION COMPANY, INC.; MISIR KOCI, THIRD-PARTY DEFENDANTS.



Before Judges Kleiner, Levy and Lefelt.

The opinion of the court was delivered by: Lefelt, J.S.C., (temporarily assigned).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 4, 1999

On appeal from the Superior Court of New Jersey, Law Division, Hudson County.

Plaintiff City Check Cashing Service, a New Jersey check cashing business, was asked by a customer to cash a $290,000 check, apparently certified by Manufacturers Hanover Trust Company ("Manufacturers"). Because the date on the check had been altered, plaintiff called Chemical Bank ("Chemical"), the successor to the rights and liabilities of Manufacturers. Chemical requested that plaintiff send a facsimile ("fax") of the check to it. Over two hours later, after not hearing from Chemical, plaintiff cashed the check. Five days later, Chemical returned the check unpaid to plaintiff's bank because the check was counterfeit.

Plaintiff sued the maker and presenter of the check, as well as Chemical, Manufacturers, and Chase Manhattan Bank ("Chase"), as successor in interest to Chemical. Chase moved for summary judgment and plaintiff cross-moved for summary judgment. The motion judge granted Chase's motion and denied plaintiff's motion after finding Chemical owed plaintiff no duty and the bank had complied with all applicable rules concerning the timely return of the check. Later, plaintiff obtained a default judgment against the check maker because the maker failed to appear for trial.

Plaintiff now appeals the grant of summary judgment to Chase, Chemical and Manufacturers that dismissed its ten count complaint and the denial of its own summary judgment motion. We conclude that the motion judge erred when he found that Chemical owed no duty to plaintiff and, therefore, we reverse and remand for trial on the negligence count. We affirm dismissal of all other counts in plaintiff's complaint.

I.

Plaintiff was a licensed New Jersey check casher operating in Jersey City since 1985. Its manager, Robert Santoro, had the right to determine whether a check should be cashed. Plaintiff's practice was not to ask its customers why they wished to incur a check cashing fee instead of cashing the check in a bank.

In June 1992, Chemical succeeded Manufacturers. Manufacturers' branches took Chemical's name, and beginning in April 1993, the branches used Chemical's certification stamps to certify checks and were not permitted to use Manufacturers' certification stamps. When Manufacturers certified checks, they were given numbers that started with an "I." After Chemical took over, however, the certification numbers began with numbers and not the letter "I."

On July 14, 1994, plaintiff received a $290,000 check drawn by Nimbus Enterprises Inc., and signed by its agent Melvin Green for Nimbus. Nimbus had opened a business checking account at Chemical's 55 West 125th Street branch. The check was drawn on Manufacturers; stamped certified by Manufacturers on July 13, 1994; made payable to Misir Koci, as a representative of Jul-Ame Construction Co.; and was endorsed by Koci.

Santoro and Peggy D'Anna Slansky, an employee of plaintiff, examined the check on July 14, the day after it had purportedly been certified. Santoro believed the check was authentic, properly completed, and not forged. The date on the check appeared to have been changed from August 8, 1994, to July 7, 1994, but Santoro did not believe this invalidated the check. Santoro was aware that Manufacturers had been taken over by Chemical, but did not know that Manufacturers' stamps were no longer being used to certify checks. Because the check amount was substantial, Slansky called Chemical's customer service line and spoke with Anne MacLellan, a service line representative, and Slansky told MacLellan that she wanted to "verify [the] authenticity of the certification." MacLellan asked questions about the check, including the serial number on the certification stamp, the check amount, and the date of the check. After Slansky gave MacLellan the certified check number, MacLellan told her that Chemical's certification serial numbers did not start with "I." Slansky, however, was not certain whether it was an "I" or a "T" and MacLellan did not tell her that if the certification number began with a letter, the check was invalid.

Slansky told MacLellan that the check was drawn on the New York City West 125th Street branch. Slansky asked to be connected to that branch, but MacLellan told Slansky to fax the check to her. Slansky faxed the check at 11:20 a.m., and included her name and phone number. The fax said: "We just need to verify with the branch that the date of this check was changed prior to the certification. Please call . . . as soon as possible . . . ." Slansky verified that Chemical received the fax. For purposes of this motion, Chase concedes that MacLellan never returned Slansky's telephone call.

Slansky called Green, the maker of the check, and he confirmed that the check date had been changed, before Chemical's certification, to correct a clerical error. Santoro, aware that Koci was in the construction business, believed that the $290,000 check represented two installments on a construction job.

At 2:00 p.m. on July 14, after no word from Chemical, Santoro, believing the check was authentic, cashed it and paid $290,000, less a one and a half percent fee, to Koci.

Before 3:00 p.m. on July 14, the check was deposited into a New Jersey branch of plaintiff's bank, the Bank of New York. The check was then sent to Chemical for payment through the New York Clearing House. Chemical "captured" the check at 11:31 p.m. on July 14. On Tuesday, July 19, 1994, Chemical returned the check unpaid and marked "counterfeit" to the Bank of New York through the New Jersey Clearing House's 8:00 a.m. exchange. On the same date, the Bank of New York canceled its endorsement on the check.

Chemical dishonored the check because it was certified with an obsolete stamp, the check was drawn on a closed account, and the check did not have the punched holes that Chemical uses when certifying a customer's check. Later, Chemical determined that the check was not listed on the 125th Street branch's certified check log, and the certification signature was not from anyone employed at the bank.

Upon learning of the dishonored check, Santoro contacted Koci. Koci believed that Green used a phony stamp to certify the check. Koci told Santoro that the "people with the money" were in England, but Koci would give $10,000 to Santoro as a show of good faith. Santoro told Koci that if he did not pay, Santoro would have Koci "picked up and brought over here, passport and all . . . if you're not here by 12:00 tomorrow." Santoro told Koci, "[d]on't fuck with me because believe me, the $290,000, a lot of things happen, don't fuck with me, pal. You got my money, don't make me come there now." Koci has not been seen since.

Plaintiff filed a ten count complaint against each of the defendants. The first count alleged that plaintiff was a holder in due course and thus entitled to payment on the $290,000 check it had cashed; the second count alleged that Chemical was negligent in its dealings with plaintiff; the third count alleged violations of N.J.S.A. 12A:3-401, 12A:3-404, 12A:3-301, 12A:4-402, and 12A:4-302 of the Uniform Commercial Code ("UCC") as adopted in New Jersey; the fourth count alleged that Chemical must honor the check because it was certified; the fifth count alleged that Chemical committed fraud when it certified the check; the sixth count alleged that Chemical ratified the certification; the seventh count alleged that Chemical's actions amounted to a conversion of plaintiff's funds; the eight count alleged that Chemical should be estopped from denying the check's validity; the ninth count alleged that Chemical breached its duty to act fairly, in good faith and in accordance with reasonable commercial standards; and the tenth count alleged that Chemical remained liable to plaintiff because it waived any rights it had to refuse payment.

In this appeal, plaintiff claims that the motion judge erred when he granted Chemical summary judgment because Chemical was negligent and, therefore, liable to plaintiff; plaintiff was a holder in due course; Chemical failed to return the check by the "midnight deadline"; Chemical committed fraud, waived any defenses and should be estopped from denying responsibility; and Chemical ratified the check.

II.

Both parties agree that New York law controls. U.C.C. § 4-102(b) provides that the law of the state where a bank is located governs its liability for action or non-action with respect to a check. Accordingly, because Manufacturers, Chemical and Chase were based in New York, the parties briefed New York law and we shall apply New York law to resolve this matter, though we doubt any difference exists between New York and New Jersey law on the relevant points.

Chase claims that due to various legitimate extensions, Chemical's return of the dishonored check on July 19 was timely and, therefore, the judge correctly denied plaintiff's cross-motion for summary judgment on that issue. We agree with this argument.

N.Y.U.C.C. Law § 4-301(1) (McKinney 1999) states:

Where an authorized settlement for a demand item (other than a documentary draft) received by a payor bank otherwise than for immediate payment over the counter has been made before midnight of the banking day of receipt the payor bank may revoke the settlement and recover any payment if before it has made final payment (subsection (1) of Section 4-213) and before its midnight deadline it

(a) returns the item; or

(b) sends written notice of dishonor or nonpayment if the item is held for protest or is otherwise unavailable for return. N.Y.U.C.C. Law ยง 4-302 (McKinney 1999) imposes a penalty ...


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