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CHASE v. MORGAN GUAR. TRUST CO.

August 13, 1984

ANTHONY CHASE, Plaintiff, against MORGAN GUARANTEE TRUST CO., Defendant.


The opinion of the court was delivered by: EDELSTEIN

MEMORANDUM OPINION AND ORDER

EDELSTEIN, District Judge:

 The plaintiff, Anthony Chase ("Chase") was a partner in the now dissolved firm of Tufo, Johnson, Zuccotti & Chase ("the firm"), which had an attorney's escrow account with the defendant, Morgan Guaranty Trust Company ("the Morgan bank"). This action arises from a bad check that Chase deposited in this account. He withdrew against it provisionally, and when the check bounced, the Morgan bank charged it back against the account. Chase has sued the bank to recover funds allegedly converted, and the bank has moved for summary judgment pursuant to Fed. R. Civ. P. 56 and for dismissal pursuant to Fed. R. Civ. P. 12.

 FACTS

 On December 7, 1979 Chase received a $100,000 check ("the check") for one of his clients, but payable to him. The check was drawn by Galaxy Records Ltd. on The Bank of Nova Scotia ("Scotiabank"), Grand Cayman Island branch. Chase endorsed the check to the firm and had the check deposited in the firm's attorney's escrow account maintained at the Morgan bank.

 For ten days thereafter, Chase had either his New York Office manager, Julian Dragowetz ("Dragowetz") or an associate attorney in his Washington office, Chester Shields ("Shields"), call the Morgan bank daily to inquire whether the check had cleared. On each occaision the caller was informed that the bank did not know if the check had cleared.

 On December 17 Chase had the funds transferred to First Los Angeles Bank, Los Angeles, California for the account of A. M. Sarkissian.

 On Devember 28, 1979 Scotiabank dishonored the check and returned it to the Morgan bank. Dragowetz was immediately notified. *fn1"

 On January 18, 1980 the Morgan bank debited the firm's account for the $100,000 on the check that was uncollected. Chase went to California and recovered $50,000 of the funds transferred to his client, A. M. Sarkissian. At that point $100,000 had been deposited, $100,000 had been transferred, $100,000 had been charged back and only $50,000 had been returned leaving the firm with a shortfall of $50,000 in its account.Thereafter Chase personally reimbursed the firm's escrow account for this $50,000 shortfall.

 Chase is now suing the Morgan bank to recover the $50,000 that he put up to reimburse the firm's attorney's escrow account. Chase alleges that the Morgan bank's vice president, John Halpin, negligently misled him into believing that the check would clear. Chase argues that this is a ground for holding the Morgan bank liable for the funds charged back to the firm's account.

 DISCUSSION

 Defendant has moved for summary judgment pursuant to Fed. R. Civ. P. 56 and has filed the requisite Rule 3(g) statement pursuant to the Civil Rules of the Local Rules of the Southern District of New York. A judgment sought pursuant to Rule 56 "shall be rendered . . . if the pleadings, depositions . . . together with the affidavits . . . show that there is no genuine issue as to any material fact. . . ." A brief review of the governing law is necessary to determine whether there is any issue of material fact.

 Under the Uniform Commercial Code ("UCC") § 4-201, prior to final settlement, the collecting bank is merely the agent for collection of the check deposited by the owner and any settlement is provisional. A final settlement can be effected in the ways set out in UCC § 4-213. Hence, if the collecting bank has credited a customer's account for an item and even allowed the customer to make a provisional withdrawal, but fails to receive a final settlement for that item, it may charge back the customer's account. UCC § 4-212.

 Chase's claim rests upon UCC § 4-212(4), which provides, "The right of charge-back is not affected by . . . failure by any bank to exercise ordinary care with respect to the item but any bank so failing remains liable." This provision clearly makes a collecting bank liable up to the amount of charge-back if it has failed to exercise ordinary care "with respect to the item." Chase contends that the Morgan bank's employees' statements and omissions, which misled Chase to believe that the check was going to clear, constituted failure to ...


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