SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-4781-97T1
ROBERT J. TRIFFIN,
Plaintiff-Appellant,
v.
FIRST UNION BANK, N.A. (Successor
in Interest to First Fidelity Bank),
Defendant-Respondent,
and
KAMANI B. SMITH,
AND
TARJA A. BARR,
AND
INTEGRATED PAYMENT SYSTEMS, INC.;
(Successor in Interest to American
Express Travel Related Services, Co.,
Inc.)
and
CHERYL GARDNER.
__________________________________________
Argued: February 18, 1999 - Decided: March 9,
1999
Before Judges King, Newman and Fall.
On appeal from the Superior Court of New
Jersey, Law Division, Essex County.
Robert J. Triffin, appellant, argued the cause
pro se.
John D. North argued the cause for respondent
(Greenbaum, Rowe, Smith, Ravin, Davis &
Himmel, attorneys; Jonathan W. Philipp and
Jodi S. Eligberg, on the brief).
The opinion of the court was delivered by
KING, P.J.A.D.
This is an appeal from a summary judgment in favor of defendant First Union Bank, a successor to First Fidelity Bank. Judge Mochary granted summary judgment against plaintiff Triffin, a commercial discounter and purchaser of dishonored instruments, in an action he brought as assignee of a negotiable instrument. See Triffin v. Cigna Ins. Co., 297 N.J. Super. 199 (App. Div. 1997); Triffin v. Dillabough, 716 A.2d 605 (Pa. 1998). We affirm the decision in the Law Division which was based on the efficacy of a "risk-shifting" agreement between plaintiff's assignor and defendant's predecessor, First Fidelity Bank.
On October 6, 1995 First Fidelity and American Express Travel Related Services Company, Inc. jointly issued a $929.15 Holiday Club check to Cheryl Gardner. Later in October 1995, Cheryl Gardner, or someone purporting to be her, cashed this Holiday Club check at D&S Check Cashing (D&S) in Newark, New Jersey. Plaintiff alleges that when D&S cashed the check, it had no knowledge of any defenses or claims by any party to the check. At oral argument speculation arose that the check was lost or stolen and the payee Gardner's endorsement was forged before presentation at this inner-city check-cashing agency housed in a liquor store, but no one really knew the operative facts surrounding the negotiation or reason for stop-payment on the instrument.
Sometime after Gardner, or someone else, cashed the check at D&S, payment was stopped on the check. The record is unclear why payment was stopped but again the parties speculated at argument that the check might have been reported to the bank as lost or stolen. There is no claim in this action that First Fidelity was at fault or acted in bad faith in connection with the stop payment.
Since March 7, 1994 D&S and First Fidelity had operated pursuant to a written Cash Management Services Agreement. The parties refer to the Agreement as an "exculpatory" clause or agreement. We prefer to characterize it as a "risk-shifting" agreement, at least in respect to this context and this suit.
Paragraph four of the Agreement states:
4. WARRANTY. Although Bank [First Fidelity]
shall provide the Services in accordance with
the prevailing reasonable commercial standards
of the banking industry, Bank shall not be
responsible for any loss sustained by Customer
[D&S Check Cashing] unless and to the extent
that such loss was caused by Bank's gross
negligence or willful misconduct. Except as
may be expressly set forth in this Agreement
or the Service Schedules, Bank makes no
representations or warranties, express or
implied, with respect to the Services or this
Agreement or the Service Schedules.
NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IN
NO EVENT SHALL BANK BE LIABLE TO CUSTOMER,
REGARDLESS OF WHETHER ANY CLAIM IS BASED ON
CONTRACT OR TORT, FOR ANY SPECIAL,
CONSEQUENTIAL, OR INDIRECT DAMAGES, WHETHER OR
NOT THE LIKELIHOOD OF SUCH DAMAGES WAS KNOWN
TO BANK IN ADVANCE. [emphasis supplied.]
Paragraph eleven states the Agreement is to be construed in
accordance with and governed by New York law.
On April 10, 1997 plaintiff purchased by assignment D&S's
$929.15 claim on the instrument against First Union and then filed
this suit. On November 7, 1997 after the motion judge denied
plaintiff’s initial summary judgment motion, the judge executed a
consent order between plaintiff and defendant First Union in which
the parties stipulated to certain material facts. The parties
stipulated that D&S assigned all its rights in the check to
plaintiff as alleged in the complaint. The parties stipulated that
D&S had the legal status of a holder in due course of the check.
The parties stipulated that D&S had an agreement with First Union
"that provided for the exculpation of all manner of liability by
First Union to D&S." The parties stipulated that First Fidelity
issued the check and that all signatures "appearing thereon" were
authentic and authorized. Finally, the parties stipulated that
"the only issue for the court to resolve in this litigation . . .
is the scope and enforceability of the referenced exculpatory
clause" in the Agreement.
On January 15, 1998 plaintiff filed a renewed motion for
summary judgment and defendant cross-moved. Judge Mochary granted
defendant's cross-motion for summary judgment, holding that under
New York law the risk-shifting clause in the Agreement was
enforceable against plaintiff, as successor to D&S.
From what we can tell in the record, the parties agreed that New York law applied, as the Agreement recited. We conclude that choice of law is of no real moment because under either New York or New Jersey law, the Agreement is enforceable as written and bars plaintiff's claim.
We reject plaintiff's argument that this clause in the Agreement:
Although Bank [First Fidelity] shall provide
the Services in accordance with the prevailing
reasonable commercial standards of the banking
industry, Bank shall not be responsible for
any loss sustained by Customer [D&S Check
Cashing] unless and to the extent that such
loss was caused by Bank's gross negligence or
willful misconduct.
covers only contract or tort claims and not statutory claims under
the UCC. The clause clearly shifts the risk of "any loss sustained
by Customer" to D&S without limitation or characterization relevant
to this case. The gross negligence or willful misconduct condition
or limitation does not apply here .... the bank is not accused of any
kind of fault or bad faith. Nor is the argument that the
"exculpatory" clause should be either narrowly construed or ignored
as violative of public policy persuasive. The bank is not seeking
exculpation for fault or other wrongdoing but rather is seeking
enforcement of a commercial risk-shifting clause, one desired by
the bank in this high-risk type of relationship with a check
cashing business.
The agreement was reached by commercial parties .... a bank and
a check-cashing agency, which apparently handles a high volume of
transactions. Shifting the risk of loss is generally permitted by
New York's UCC:
The effect of provisions of this Act may be
varied by agreement, except as otherwise
provided in this Act and except that the
obligations of good faith, diligence,
reasonableness and care prescribed by this Act
may not be disclaimed by agreement....
[N.Y.U.C.C. § 1-102(3) (McKinney 1962,
emphasis added).]
Comment two to § 1-102(3) states, "freedom of contract is a
principle of the code," and "an agreement can change the legal
consequences which would otherwise flow from the provisions of the
Act." N.Y.U.C.C. § 1-102(3), comment 2. In addition, Article Four
of N.Y.U.C.C., which governs bank deposits and collections, also
states that parties can generally shift the risk of loss by
agreement:
The effect of the provisions of this Article
may be varied by agreement except that no
agreement can disclaim a bank's responsibility
for its own lack of good faith or failure to
exercise ordinary care or can limit the
measure of damages for such lack or failure;
but the parties may by agreement determine the
standards by which such responsibility is to
be measured if such standards are not
manifestly unreasonable.
[N.Y.U.C.C. § 4-103(1) (McKinney 1962,
emphasis added).]
"In the absence of a showing that the standards manifestly are
unreasonable, the agreement controls." N.Y.U.C.C. § 4-103(1),
comment 2.
The Annotation to N.Y.U.C.C. § 4-103(1) states the section is
"[g]enerally in accord with present law in permitting variation by
agreement," "but contra to the [older] case law rule permitting
banks to limit their liability for lack of ordinary care where the
limitation is explicit." The provisions of N.Y.U.C.C. § 4-103(1)
do not allow a bank to disclaim liability for its failure to
exercise ordinary care, a circumstance not before us in the present
case. See Broadway National Bank v. Barton-Russell Corp.,
585 N.Y.S.2d 933, 939 (Sup. Ct. 1992) ("an agreement may not eliminate
the Code's duty of reasonable care"); Levy v. Chemical Bank,
475 N.Y.S.2d 771, 772 (District Court, Small Claims 1984) ("No
agreement between the bank and its depositors can disclaim a bank's
responsibility for its own lack of good faith or failure to
exercise ordinary care").
The OFFICIAL COMMENT to N.Y.U.C.C. § 4-103(1) states:
2. Subsection (1) confers blanket power to
vary all provisions of the Article by
agreements of the ordinary kind. The
agreements may not disclaim a bank's
responsibility for its own lack of good faith
or failure to exercise ordinary care and may
not limit the measure of damages for such lack
or failure, but this subsection like Section
1-102(3) approves the practice of parties
determining by agreement the standards by
which such responsibility is to be measured.
In the absence of a showing that the standards
manifestly are unreasonable, the agreement
controls. Owners of items and other
interested parties are not affected by
agreements under this subsection unless they
are parties to the agreement or are bound by
adoption, ratification, estoppel or the like.
See also New Jersey's similar Study Comment. N.J.S.A. 12A:4-103;
Hy-Grade Oil Co. v. New Jersey Bank,
138 N.J. Super. 112, 119 (App.
Div. 1975), certif. denied,
70 N.J. 518 (1976); Best v. Dreyfus
Liquid Assets, Inc.,
215 N.J. Super. 76, 80 (App. Div. 1987); White
& Summers, Uniform Commercial Code § 21-2 at 353-54 (4th ed. 1995).
We conclude that paragraph four of the Agreement is enforceable and
effectively shifted the risk of loss to the customer D&S. We
enforce it as written against plaintiff as assignee of D&S because
in this context the Agreement is not invoked to exonerate the bank
from its own fault or lack of good faith.
Affirmed.
Rutgers School of Law - Camden.