This is an action to recover the sum of $5,000.00 arising from the alleged negligent misrepresentation by the defendant, Commerce Bank, that a deposited out of state check had cleared. The trial of this matter was held on February 15, 2007.

Plaintiffs, husband and wife, testified that they deposited at defendant's Oceanside branch a cashier's or bank check (defendant's exhibit B reflects a cashier's check) in the total sum of $6,470.00 on September 7, 2005. At the time of the deposit, in response to their initial inquiry, plaintiffs allege that the bank teller advised that the check would clear two or three days later. Upon their return to the bank on September 9, 2005, plaintiffs contend that they were assured that the deposit would clear on September 10, 2005.

On September 10, 2005, plaintiffs again spoke to a bank teller and received the assurance that the deposit had cleared. Plaintiffs assert that they sought this confirmation because they had withdrawn $5,050.00 from their account the day before but did not intend to use said sum unless and until the deposit had cleared.

Seeking yet additional confirmation, the plaintiffs returned to the bank again on September 10, 2005 and spoke with customer service representative, Nupa Sinha. After reviewing a computer screen with the bank manager, Ms. Sinha allegedly gave plaintiffs their final confirmation that the deposited check had cleared.

Plaintiffs contend that, in reliance upon the multiple representations made by bank personnel that the deposit had cleared, they forwarded, via a money gram, the aforesaid sums to a third-party outside the United States. [*2]

It was not until September 12, 2005, two days after the money gram was sent, that plaintiffs were advised that their deposit was a high risk return check. The check was dishonored and defendant withdraw funds from plaintiffs' account to cover its advance.

In its defense, defendant produced three witnesses. The branch manager testified that a local check takes three days to clear while an out of state check requires five to seven days to clear. She further stated that, as a courtesy to its customers, the defendant generally makes deposits available the next business day unless the check is deemed high risk. A deposit is subject to collection and the customer bears the risk if the check is dishonored. The distinction between funds being "available" and a check being "cleared" was explained.

The assistant branch manager testified that at the end of each business day all checks are run through a system called PPF, which "tracks the messages of checks if they come back as stop payment or high risk of return or closed account." The PPF reflected a high risk of return on the plaintiffs' cashier's check. Consequently, the witness placed an extended hold ticket on the subject depository instrument, effectively denying next day availability. The customers were then notified of the extended hold by ordinary mail.

Defendant's third witness, Nupa Sinha, testified that she did not recall speaking with the plaintiffs. This testimony is irrelevant to the Court's determination.

Uniform Commercial Code §4-201 (hereinafter cited as UCC) establishes an agency relationship between the depository bank and its customer. The purpose of this statute is to avoid litigation over the status of collecting banks. It also operates to keep the risk of loss upon the owner of the item deposited rather than upon the bank. Further, it was not intended to impair the depositary bank's rights as a holder in due course to the extent it allows withdrawal on the item (see, Long Island National Bank v. Zawada, 34 AD2d 1016, 312 NYS2d 947 [2nd Dept 1970]). Until final settlement is made, i.e., until the check is finally paid by the payor bank, the risk of non-collection remained with the customer and any settlement made on the check paid by the bank is provisional only (see, Call v. Ellenville National Bank, 5 AD3d 521, 774 NYS2d 76 [2nd Dept 2004]).

Defendant relied upon UCC §4-212(1) to recover funds advanced to its customer based upon a check which was dishonored by the payor bank. The relevant portion of the statute provides that:

If a collecting bank has made a 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.

This Court concludes that defendant-bank has complied with the condition imposed under [*3]this statute for the charge-back remedy by notifying its customer by mail of the extended hold on the deposited item.

Plaintiffs argue that the alleged negligent misrepresentations made by employees of the defendant-bank, relied upon to their detriment, entitle them to a recovery notwithstanding the provisions of the UCC. This Court disagrees.

This Court looks to the clear provisions and intent of UCC §4-201 as stated above. Further, risk of loss continued in the customer, not the bank, until settlement of the foreign check became final. The customers could not shift the risk of loss to the bank by relying upon statements of the teller that the check had "cleared" nor could they rely upon the fact that they were permitted to withdraw funds from their account (see, Allen v. Carver Federal Savings and Loan Association, 123 Misc 2d 704, 477 NYS2d 537 [1st Dept 1984]).

Accordingly, plaintiffs' claim is dismissed.

So Ordered:

Edmund M. Dane

District Court Judge

Dated: May 1, 2007

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