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DESPITE LOSS OF THE NOTE, THE BANK CAN DEMONSTRATE STANDING WITH A LOST NOTE AFFIDAVIT WHICH MEETS THE REQUIREMENTS OF UCC 3-803 (SECOND DEPT).

The Second Department determined plaintiff bank properly established standing in this foreclosure proceeding, despite the note having been lost, with a lost note affidavit which met the requirements of UCC 3-803:

… “[P]ursuant to UCC 3-804, the owner of a lost note may maintain an action upon due proof of [1] his [or her] ownership, [2] the facts which prevent his [or her] production of the instrument and [3] its terms'” … . Accordingly, we agree with the referee that, as long as the affidavit of lost note meets the requirements of UCC 3-804, a mortgagee may establish standing based on its possession of the note, even where the original note has been lost. Here, the parties stipulated that “the factual criteria for the application of § 3-804 ha[ve] been satisfied.” Moreover, while ownership of the note may be easier to establish where there is a valid assignment of the note and mortgage … , due proof of the plaintiff’s ownership may also be provided by an affidavit of lost note setting forth details such as who acquired possession of the note and “when the search for the note occurred, who conducted the search, the steps taken in the search for the note, or when or how the note was lost” … . Bank of N.Y. Mellon v Hardt, 2019 NY Slip Op 05100, Second Dept 6-27-29

 

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PLAINTIFF, WHICH PUT UP ITS EQUITY INTERESTS IN 11 PROPERTIES TO SECURE A $71 MILLION LOAN FROM DEFENDANT, SUED TO DECLARE VOID THE UCC NONJUDICIAL SALE OF THE PROPERTIES BY DEFENDANT, THAT ASPECT OF THE SUIT SHOULD HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Kapnick, determined defendant’s cause of action seeking to declare void the Uniform Commercial Code (UCC) sale of plaintiff’s property, which was put up as collateral for a loan made to plaintiff by defendant, should have been dismissed. Plaintiff, Atlas, put up its equity interest in 11 properties as collateral for a $71 million loan from defendant, Macquarie. Atlas and Macquarie were unable to agree on an extension of time for repayment of the loan. After a UCC nonjudicial sale held by Macquarie, at which Atlas submitted bids, another buyer outbid Atlas. Atlas sued to void the sale:

Article 9 of the Uniform Commercial Code (UCC) governs the enforcement of a creditor’s security interest. “The underlying purposes and policies of the [UCC] as a whole are to simplify, clarify, and modernize the law governing commercial transactions; to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties; and to make uniform the law among the various jurisdictions” … . Here, plaintiff … (Atlas), the debtor, is asking this Court to unwind a UCC sale of the equity interest in 11 commercial properties, which was collateral for Atlas’s $71 million mezzanine loan, borrowed from defendant … (Macquarie), the secured creditor. It is difficult to see how such an action would simplify the laws governing commercial transactions. Rather, if UCC sales could be unwound, it would only serve to muddy the waters surrounding nonjudicial sales conducted pursuant to article 9 of the UCC, and to deter potential buyers from bidding in nonjudicial sales, which would, in turn, harm the debtor and the secured party attempting to collect after a default. Moreover … Atlas’s argument does not have support in the plain reading of the UCC nor in existing case law. Atlas MF Mezzanine Borrower, LLC v Macquarie Tex. Loan Holder LLC, 2019 NY Slip Op 04495, First Dept 6-6-19

 

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LOST NOTE AFFIDAVIT INSUFFICIENT BECAUSE UCC REQUIREMENTS NOT MET, PROOF OF RPAPL 1304 NOTICE INSUFFICIENT, PROOF OF COMPLIANCE WITH NOTICE CONDITION OF THE MORTGAGE INSUFFICIENT, SUPREME COURT SHOULD NOT HAVE GRANTED THE BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS FORECLOSURE PROCEEDING (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that plaintiff’s motion for summary judgment in this foreclosure action should not have been granted for three reasons: (1) the lost note affidavit was insufficient pursuant to the requirements of the Uniform Commercial Code (UCC); (2) the proof of compliance with the notice requirements of Real Property Actions and Proceedings Law (RPAPL) 1304 was not sufficient; and (3) the plaintiff did not show it had complied the notice condition of the mortgage (a condition precedent ro foreclosure):

Pursuant to UCC 3-804, the owner of a lost note may maintain an action “upon due proof of [1] his [or her] ownership, [2] the facts which prevent his [or her] production of the instrument and [3] its terms” (UCC 3-804). The party seeking to enforce a lost instrument is required to “account for its absence” … .

Here, although the plaintiff came forward with evidence establishing that the note was assigned to it and establishing the note’s terms, the affidavit of lost note submitted in support of its motion failed establish the facts that prevent the production of the original note … . …

… [T]he affidavit of a representative of its loan servicer was insufficient to establish that the notice was sent to the defendant in the manner required by RPAPL 1304, as the representative did not provide proof of a standard office mailing procedure and provided no independent proof of the actual mailing … . …

… [T]the plaintiff failed to establish, prima facie, that it complied with the condition precedent contained in the mortgage requiring it to give notice of default prior to demanding payment in full … . The affidavit of a representative of the plaintiff’s loan servicer claiming that notice of default was sent to the defendant …  was conclusory and unsubstantiated and … was insufficient to prove that the notice was sent in accordance with the terms of the mortgage … . U.S. Bank N.A. v Cope, 2018 NY Slip Op 08709, Second Dept 12-19-18

 

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A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Chambers, reversing Supreme Court, determined that a Cash Account Agreement memorializing a reverse mortgage was not a negotiable instrument within the meaning of the Uniform Commercial Code and plaintiff, therefore, did not have standing to foreclose after the borrower’s death:

… [T]o qualify as a negotiable instrument under the UCC, a document must “(a) be signed by the maker or drawer; and (b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article; and (c) be payable on demand or at a definite time; and (d) be payable to order or to bearer” (UCC 3-104[1] …). * * *

… [T]he Cash Account Agreement is signed by the borrower and contains an unconditional promise to pay. In addition to this … the Cash Account Agreement also contains provisions that go well beyond what is permitted under the UCC. Most significantly, the Cash Account Agreement creates an open-end (i.e., revolving) line of credit upon which the borrower could draw a maximum of $806,152. Since the initial advance in this case was only $366,152, the borrower potentially could have drawn down as much as $440,000 more from the lender. Consistent with these terms, the borrower promised to pay when due “all amounts advanced” under the Cash Account Agreement. Although the plaintiff contends that such an agreement constitutes a negotiable instrument, we have found no New York case …directly on point. In other jurisdictions, however, similar line of credit agreements have been held to be distinct from an agreement to pay a sum certain … . …

Beyond this … the Cash Account Agreement also provides for the periodic adjustment of the advance limit, and allows the lender, inter alia, to suspend, terminate, or reduce the borrower’s right to obtain future advances under certain circumstances. …

On its face, the Cash Account Agreement does much more than memorialize the borrower’s unconditional promise to pay a sum of money. It creates a banking relationship between the lender and the borrower, provides terms and conditions under which the borrower may, from time to time, obtain additional cash advances from the lender, and even contains an arbitration clause. Although the Cash Account Agreement appears to have been signed only by the borrower, section 17.2 specifically acknowledges that it imposes obligations on both the borrower and the lender. The specific language of several provisions of the Cash Account Agreement, read in context of the agreement as a whole, provides compelling evidence that the Cash Account Agreement is not, and was never intended to be, a negotiable instrument … .

Therefore, the plaintiff cannot establish its standing merely by showing that it possessed the original Cash Account Agreement, indorsed in blank, on the date this action was commenced, and the plaintiff’s motion for summary judgment on the complaint should have been denied. OneWest Bank, N.A. v FMCDH Realty, Inc., 2018 NY Slip Op 06101, Second Dept 9-19-18

FORECLOSURE (REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/REVERSE MORTGAGE (A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/STANDING (FORECLOSURE, REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/UNIFORM COMMERCIAL CODE (FORECLOSURE, REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))/NEGOTIABLE INSTRUMENT (FORECLOSURE, REVERSE MORTGAGE, A CASH ACCOUNT AGREEMENT WHICH MEMORIALIZED A REVERSE MORTGAGE WAS NOT A NEGOTIABLE INSTRUMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE, THEREFORE THE HOLDER OF THE CASH ACCOUNT AGREEMENT DID NOT HAVE STANDING TO FORECLOSE (SECOND DEPT))

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PURPORTED ORAL AGREEMENT TO PURCHASE ART WORKS BY PLAINTIFF PETER BEARD BARRED BY THE STATUTE OF FRAUDS, PAYMENTS ALLEGEDLY MADE TO PLAINTIFF WERE NOT UNEQUIVOCALLY REFERABLE TO THE ALLEGED CONTRACT (FIRST DEPT).

The First Department, over a detailed, comprehensive two-justice dissent, determined that a purported oral agreement to sell works of art by Peter Beard was barred by the statute of frauds. Plaintiffs’ motion for summary judgment on the causes of action for declaration, conversion and replevin was properly granted. Plaintiff Peter Beard was properly declared to be the sole owner of the art works. The dissent includes a detailed rendition of the facts which is not summarized here:

The motion court correctly found that the works of art at issue were goods, and thus that the purported oral agreement to sell them was barred by the statute of frauds (see UCC 2-201…). Defendants’ wire transfers to a third party, who then purportedly remitted the funds to plaintiffs, were not unequivocally referable to the agreement alleged, such as to deem the agreement partially completed and outside the statute of frauds … . Alternative explanations, including that the funds were for financing other projects involving the third party, defeat such claims … . Beard v Chase, 2018 NY Slip Op 04636, First Dept 6-21-18

​CONTRACT LAW (STATUTE OF FRAUDS, PURPORTED ORAL AGREEMENT TO PURCHASE ART WORKS BY PLAINTIFF PETER BEARD BARRED BY THE STATUTE OF FRAUDS, PAYMENTS ALLEGEDLY MADE TO PLAINTIFF WERE NOT UNEQUIVOCALLY REFERABLE TO THE ALLEGED CONTRACT (FIRST DEPT))/ORAL CONTRACTS (STATUTE OF FRAUDS, PURPORTED ORAL AGREEMENT TO PURCHASE ART WORKS BY PLAINTIFF PETER BEARD BARRED BY THE STATUTE OF FRAUDS, PAYMENTS ALLEGEDLY MADE TO PLAINTIFF WERE NOT UNEQUIVOCALLY REFERABLE TO THE ALLEGED CONTRACT (FIRST DEPT))/STATUTE OF FRAUDS (ORAL CONTRACT, PURPORTED ORAL AGREEMENT TO PURCHASE ART WORKS BY PLAINTIFF PETER BEARD BARRED BY THE STATUTE OF FRAUDS, PAYMENTS ALLEGEDLY MADE TO PLAINTIFF WERE NOT UNEQUIVOCALLY REFERABLE TO THE ALLEGED CONTRACT (FIRST DEPT))/ART WORKS (STATUTE OF FRAUDS, PURPORTED ORAL AGREEMENT TO PURCHASE ART WORKS BY PLAINTIFF PETER BEARD BARRED BY THE STATUTE OF FRAUDS, PAYMENTS ALLEGEDLY MADE TO PLAINTIFF WERE NOT UNEQUIVOCALLY REFERABLE TO THE ALLEGED CONTRACT (FIRST DEPT))/UNIFORM COMMERCIAL CODE (STATUTE OF FRAUDS, PURPORTED ORAL AGREEMENT TO PURCHASE ART WORKS BY PLAINTIFF PETER BEARD BARRED BY THE STATUTE OF FRAUDS, PAYMENTS ALLEGEDLY MADE TO PLAINTIFF WERE NOT UNEQUIVOCALLY REFERABLE TO THE ALLEGED CONTRACT (FIRST DEPT))/UCC  (STATUTE OF FRAUDS, PURPORTED ORAL AGREEMENT TO PURCHASE ART WORKS BY PLAINTIFF PETER BEARD BARRED BY THE STATUTE OF FRAUDS, PAYMENTS ALLEGEDLY MADE TO PLAINTIFF WERE NOT UNEQUIVOCALLY REFERABLE TO THE ALLEGED CONTRACT (FIRST DEPT))

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BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT),

The Second Department determined defendant bank’s (Capital One’s) motion for summary judgment in this forged-check negligence action was properly denied (without the need to consider the opposing papers). One of plaintiff corporation’s employees forged company checks made out to herself amounting to over $84,000. Plaintiff sued the bank for negligence pursuant to Uniform Commercial Code (UCC) article 4:

Under article 4 of the UCC, with regard to repeated forgeries by the same wrongdoer, the customer’s failure to exercise reasonable care and promptness in examining its bank statements and to timely notify the bank of the forgeries in accordance with UCC 4-406(2)(b) generally will result in the customer being precluded from asserting claims against the bank in connection with the loss associated with any such forgeries … . However, the loss of repeated forgeries may be shifted back to the bank in the circumstance where the bank failed to use ordinary care in paying the forged checks … . With regard to the issue of ordinary care, UCC 4-103(3) provides that “in the absence of special instructions, action or non-action consistent with clearing house rules and the like or with a general banking usage not disapproved by this Article, prima facie constitutes the exercise of ordinary care.” Thus, under this “safe harbor” provision, a bank can ensure that its conduct at least prima facie meets an ordinary care standard, by showing that it acted in accordance with general banking rules or practices … . However, it is the bank, as the party that benefits from the “safe harbor” provision, that bears the burden of proving general clearing house rules or general banking usage in order to establish ordinary care … . …

Capital One did not meet its burden of showing that it acted in accordance with general banking rules or general clearing house rules, and therefore, it failed to demonstrate prima facie that it exercised ordinary care in paying the forged checks … .Capital One’s submissions failed to provide any evidentiary basis that its processing of the forged checks comported with general banking usage. Redgrave Elec. Maintenance, Inc. v Capital One, N.A., 2018 NY Slip Op 0316, Second Dept 5-2-18

​BANKING LAW (BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/UNIFORM COMMERCIAL CODE (FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/EVIDENCE (BANKING LAW, UNIFORM COMMERCIAL CODE, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/NEGLIGENCE (BANKING LAW, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/CHECKS (BANKING LAW, UNIFORM COMMERCIAL CODE, FORGED CHECKS, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))/FORGED CHECKS (BANKING LAW, UNIFORM COMMERCIAL CODE, BANK DID NOT DEMONSTRATE IT ACTED IN ACCORDANCE WITH GENERAL BANKING RULES OR PRACTICES WHEN IT CASHED FORGED CHECKS, BANK’S MOTION FOR SUMMARY JUDGMENT IN THIS NEGLIGENCE ACTION PROPERLY DENIED (SECOND DEPT))

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DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Renwick, over a comprehensive dissenting opinion, determined plaintiff could foreclose on a mortgage despite the initial fraudulent transfer of the property and the absence of the note:

…[P]laintiff Peter Weiss seeks, among other things, a foreclosure and sale based on a Mortgage and Note Extension and Modification Agreement (CEMA) executed by defendant Edward Phillips. Plaintiff lent $500,000 to borrowers who purported to own the real estate property they sought to mortgage. The borrowers signed a note, in which they promised to pay the loan, and a mortgage, in which they gave the plaintiff/lender a security interest in the property they purported to own. The borrowers, however, acquired the property by fraudulent means. After the rightful owner, Phillips, reacquired the property, he executed the CEMA with the individual lender, Weiss. Pursuant to the CEMA, Phillips acknowledged Weiss’s rights under the note and mortgage; and, Weiss agreed to forbear from foreclosing on the subject property for a year, presumably to permit Phillips to obtain refinancing.

… [W]e find that Weiss’s interest in the property as a mortgagee was not rendered null and void because his borrowers, the mortgagors, had acquired the property by fraudulent means. In addition, we find that Weiss met his burden for summary judgment, on his claim for foreclosure and sale, by submitting the Mortgage and CEMA, along with undisputed evidence establishing both the existence of the note, which obviated the need to submit the note as proof that Weiss had the right to foreclose, and the nonpayment. * * *

UCC 3-804 allows one to maintain an action as a “holder” on a promissory note even though the instrument has been lost or destroyed. The section does not apply here where it is established that plaintiff has the right to sue on the note as the undisputed “holder” of the note. * * *

Forged deeds and/or encumbrances are those executed under false pretenses, and are void ab initio … . The interests of subsequent bona fide purchasers or encumbrancers for value are thus not protected under Real Property Law § 266 when their title is derived from a forged deed or one that is the product of false pretenses … . In contrast, a fraudulently induced deed is merely voidable, not void … . Weiss v Phillips, 2017 NY Slip Op 08209, First Dept 11-21-17

FORECLOSURE (DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/REAL PROPERTY LAW (DEEDS, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/UNIFORM COMMERCIAL CODE (FORECLOSURE, HOLDER OF THE NOTE, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/HOLDER (NOTE, UNIFORM COMMERCIAL CODE, FORECLOSURE, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))/DEEDS (VOIDABLE, DESPITE THE INITIAL FRAUDULENT TRANSFER OF THE MORTGAGED PROPERTY AND THE ABSENCE OF THE NOTE, PLAINTIFF LENDER COULD FORECLOSE AS THE UNDISPUTED HOLDER OF THE NOTE, THE INITIAL FRAUDULENTLY INDUCED DEED WAS VOIDABLE, NOT VOID (FIRST DEPT))

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INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER.

The First Department, in a full-fledged opinion by Justice Friedman, reversing Supreme Court, dismissed the lawsuit by the intended beneficiary of an electronic funds transfer (EFT) against an intermediary bank which complied with a government order to freeze the transfer. The court held the intermediary bank owed no duty to the intended beneficiary and properly returned the funds to the originator’s bank when the government order was lifted. An intermediary bank simply facilitates the transfer from the originator’s bank to the beneficiary’s bank:

…[B]ased on the allegations of [the beneficiary’s] complaint, … the originator’s bank — rather than … the intended beneficiary of the failed EFT — was plainly “the entity that passed the EFT on to … the [intermediary] bank where it . . . rest[ed]” … until the federal block was released. It follows that [the originator’s bank] was “the only entity with a property interest in the stopped EFT …” and that, upon the release of the block, [the intermediary bank] properly refunded [the originator’s bank’s] payment for the EFT pursuant to UCC 4-A-402(4), given that the EFT had long since been cancelled by operation of law under UCC 4-A-211(4). It also follows that, pursuant to UCC 4-A-212, [the beneficiary] has no claim against [the intermediary bank] with respect to this transaction. [The intermediary bank] “owed nothing to … the beneficiary since an intermediary bank has no legal obligation to the beneficiary” … . Receivers of Sabena SA v Deutsche Bank A.G., 2016 NY Slip Op 05546, 1st Dept 7-14-16

 

BANKING LAW (INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER)/UNIFORM COMMERCIAL CODE (INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER)/UCC (INTERMEDIARY BANK OWES NO DUTY TO BENEFICIARY OF AN ELECTRONIC FUNDS TRANSFER WHICH WAS BLOCKED BY A GOVERNMENT ORDER)

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BAILEE CANNOT, PURSUANT TO THE UCC, CONTRACT AWAY LIABILITY FOR LACK OF CARE IN STORING GOODS, PURPORTED WAIVER OF SUBROGATION UNENFORCEABLE.

The First Department determined the relationship between the fine art dealer (Chowalski) and the defendant warehouse was that of bailor/bailee with respect to stored artworks.  Under the UCC the bailee (warehouse) cannot contract away liability for damage caused by lack of due care. Therefore, the waiver of subrogation in the bailment agreement was not enforceable. There was a question of fact whether the failure to move the stored artworks as Hurricane Sandy approached constituted a failure to exercise the level of care mandated by the UCC:

UCC 7-204(a) provides that a “warehouse is liable for damages for loss of or injury to the goods caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances” and “is not liable for damages that could not have been avoided by the exercise of that care.” UCC 7-204(b) provides that “[d]amages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage beyond which the warehouse is not liable.” However, such limitations on liability are limited by UCC 7-202(c), which provides that such terms must not “impair its . . . duty of care under Section 7-204. Any contrary provision is ineffective.”

Here there is a question of fact concerning whether defendant, in failing to move Chowaiki's goods to either another floor, or to a location above ground level on the floor they were on, was reasonable under the circumstances. If the trier of fact finds that defendant did not act reasonably, then defendant may be liable for damages to Chowaiki's goods .

… [T]he court erred in finding that the waiver of subrogation contained in the agreement's loss/damage waiver is enforceable and bars this action.

Provisions purporting to exempt the bailee from liability for damage to stored goods from perils against which the bailor had secured insurance, even when caused by the bailee's negligence have been held to run afoul of the statutory scheme of UCC Article 7. XL Specialty Ins. Co. v Christie's Fine Art Stor. Servs., Inc., 2016 NY Slip Op 01901, 1st Dept 3-17-16

INSURANCE LAW (BAILEE CANNOT, UNDER THE UCC, CONTRACT AWAY LIABILITY FOR LACK OF CARE IN STORING GOODS, WAIVER OF SUBROGATION UNENFORCEABLE)/UCC (BAILEE CANNOT, UNDER THE UCC, CONTRACT AWAY LIABILITY FOR LACK OF CARE IN STORING GOODS, WAIVER OF SUBROGATION UNENFORCEABLE)/CONTRACT LAW (BAILEE CANNOT, UNDER THE UCC, CONTRACT AWAY LIABILITY FOR LACK OF CARE IN STORING GOODS, WAIVER OF SUBROGATION UNENFORCEABLE)/BAILMENT   (BAILEE CANNOT, UNDER THE UCC, CONTRACT AWAY LIABILITY FOR LACK OF CARE IN STORING GOODS, WAIVER OF SUBROGATION UNENFORCEABLE)/SUBROGATION  (BAILEE CANNOT, UNDER THE UCC, CONTRACT AWAY LIABILITY FOR LACK OF CARE IN STORING GOODS, WAIVER OF SUBROGATION UNENFORCEABLE)

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COMPLAINTS ALLEGING THE DELIVERY OF FUEL OIL MIXED WITH WASTE OIL SHOULD NOT HAVE BEEN DISMISSED, THE COMPLAINTS STATED BREACH OF CONTRACT AND BREACH OF WARRANTY CAUSES OF ACTION.

The First Department, in a full-fledged opinion by Justice Saxe, determined two class action complaints alleging defendants supplied heating oil of lesser quality than that called for by the contracts should not have been dismissed. The complaints alleged waste oil had been mixed with the No. 4 and No. 6 fuel oil which was ordered. Certain detrimental effects of burning the mixed fuel were alleged. The First Department held that the “no injury” products liability cases relied upon by the motion court did not apply. Rather the case presented breach of contract/warranty issues:

Plaintiffs essentially allege that, consistent with the ASTM specifications, as well as common commercial usage, and pursuant to the UCC, customers purchasing goods described as No. 4 and No. 6 fuel oil are entitled to presume that they are receiving 100% fuel oil of the specified grade, and not a product consisting of a blend of No. 4 or No. 6 fuel oil with some other types of oil that do not meet the criteria of those ASTM specifications. * * *

Under UCC 2-714(2), the measure of damages for breach of warranty is the difference between the value of the goods delivered and the value of the goods warranted … . Since we must infer from the complaint that plaintiffs received nonconforming oil deliveries of lesser value than those they contracted and paid for, causes of action for breach of contract and breach of warranty — including plaintiffs' damages — are stated in each action. BMW Group, LLC v Castle Oil Corp., 2016 NY Slip Op 01790, 1st Dept 3-15-16

CONTRACT LAW (COMPLAINTS ALLEGING THE DELIVERY OF FUEL OIL MIXED WITH WASTE OIL STATED CAUSES OF ACTION FOR BREACH OF CONTRACT AND BREACH OF WARRANTY)/UCC (COMPLAINTS ALLEGING THE DELIVERY OF FUEL OIL MIXED WITH WASTE OIL STATED CAUSES OF ACTION FOR BREACH OF CONTRACT AND BREACH OF WARRANTY)/FUEL OIL  (COMPLAINTS ALLEGING THE DELIVERY OF FUEL OIL MIXED WITH WASTE OIL STATED CAUSES OF ACTION FOR BREACH OF CONTRACT AND BREACH OF WARRANTY)

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