UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
October 1, 1982
THE FIRST JERSEY NATIONAL BANK, Plaintiff, against NATIONAL BANK OF NORTH AMERICA, Defendant.
The opinion of the court was delivered by: SWEET
Defendant National Bank of North America ("NBNA") moves pursuant to Fed.R.Civ.P. 12(b) to dismiss Count II of plaintiff First Jersey National Bank's ("First Jersey") complaint for failure to state a claim upon which relief can be granted. For the reasons stated below, the motion is denied.
In September 1981, M.S. Wien & Co. ("Wien") issued three checks to its own order drawn on its account at NBNA. Wien deposited these checks in another account it maintained at First Jersey, who presented them via the check clearing system to NBNA for payment. NBNA dishonored the checks and returned them to First Jersey. This lawsuit resulted.
First Jersey's complaint contains two counts. In Count I, not at issue here, First Jersey contends that the items were finally paid by NBNA, within the meaning of N.Y.U.C.C. § 4-213 (McKinney 1964) (hereinafter "U.C.C."),
and that therefore NBNA's dishonor of the checks was wrongful.
Count II alleges that the checks were dishonored for insufficient funds due to a setoff exercised by NBNA against Wien's account. First Jersey claims that the setoff came too late in the check handling process, and that NBNA became obligated to pay the items under U.C.C. § 4-303(a).
In support of its motion to dismiss Count II, NBNA contends that the propriety of NBNA's setoff against Wien's account is irrelevant. Rather, it says, the only relevant question is whether the checks were returned to First Jersey on a "timely basis." NBNA's argument virtually ignores, however, U.C.C. 4-303, which squarely applies to the facts of this case.
Section 4-303 is designed to settle priority disputes between the holder of a check who demands payment and a party who claims funds in the account through one of the "four legals."
Pittsburgh Nat'l Bank v. United States, 657 F.2d 36, 39 (3d Cir. 1981); J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code § 17-7 at 693 (2d ed. 1980); U.C.C. § 4-303 comment 1. This lawsuit is a priority dispute between the holder, First Jersey, and a party claiming funds in the account, NBNA. Therefore, resolution of the dispute is governed by Section 4-303.See Pittsburgh Nat'l Bank, supra; Raymer v. Bay State Nat'l Bank, 384 Mass. 310, 424 N.E.2d 515, 519-520 (Mass. 1981).
There has been some controversy among the commentators over the interplay of sections 4-213 and 4-303, particularly over whether section 4-303 states an independent basis for the payor bank's liability to the holder. See J. White & R. Summers, supra, § 17-7 at 700-03; compare Malcolm, Reflections on West Side Bank: A Draftsman's View, 18 Cath. U.L.Rev. 23, 24-31 (1968) with Leary & Tarlow, Reflections on Articles 3 and 4 for a Review Committee, 48 Temple L.Q. 919, 929-33 (1975). I conclude that it does.
First, if section 4-303 were not meant to state a rule of liability independent of section 4-213, it would be superfluous. Section 4-303 was included in the Code, however, and was therefore meant to serve a purpose. The fact that section 4-303 contains language not present in section 4-213,
indicates that, in the case of the "four legals," a special rule of liability was meant to be imposed in addition to the final payment rule of section 4-213 and the late return rule of section 4-302.
This conclusion is in accord with the "legislative history" of section 4-303, as discussed by the drafter of the final version of the section in Malcolm, Reflections on West Side Bank, supra, at 26-31. Indeed, the drafter himself has stated that section 4-303
was designed to state rules as to "who wins" as between a check in the process of payment and each of the "four .legals." . . . [U]nder the second clause of Section 4-303(1) (d) a check "might win" as against one of the "four legals" but still have not progressed far enough to reach final payment and the accountability stage under Section 4-213.
Id. at 31. In addition, this decision has the added virtue of providing a certain rule in cases of this type, See J. White & R. Summers, supra, § 17-7 at 702.
For the foregoing reasons, NBNA's motion to dismiss Count II is denied.
IT IS SO ORDERED.