Valley National Bank v. Hudson United Bank

2002 WL 32068153 (2002)

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Valley National Bank v. Hudson United Bank

New Jersey Superior Court, Appellate Division
2002 WL 32068153 (2002)

Facts

On August 29, 2001, Valley National Bank (Valley) (plaintiff) received five checks totaling almost $500,000 from a depositor, for which Valley promptly provided the depositor with provisional credit. The checks were drawn on the depositor’s account with Hudson United Bank (Hudson) (defendant). On Thursday, August 30, Valley presented the checks to Hudson for payment; Hudson quickly determined that there was not enough money in the depositor’s account to pay them. (The depositor was a check kiter who absconded with the money he received from Valley.) At 1:13 p.m. on September 4 (September 3 was a bank holiday), Hudson provided Valley with a notice of return via the Electronic Advance Return Item Notification System (EARNS). At 10:00 p.m. on September 4, Hudson sent the unpaid checks by courier to the Federal Reserve Bank’s East Rutherford Operations Center (EROC). Although EROC was open 24 hours per day, EROC’s policy was that returned checks that arrived after 2:00 p.m. were treated as having been received the next day. Valley received the returned checks from EROC on September 5; also on September 5, Valley first saw Hudson’s EARNS notice. Valley sued Hudson, claiming that Hudson was responsible for the amount of the returned checks because Hudson failed to return the unpaid checks by midnight of the next banking day after Hudson received the checks, as required by Uniform Commercial Code (UCC) § 4-301. Hudson responded that (1) Federal Reserve Regulation CC (codified at 12 CFR § 229) sufficiently extended Hudson’s return deadline and (2) Hudson’s compliance with 12 CFR § 229.33’s notice requirement excused any noncompliance with the UCC. Valley moved for summary judgment.

Rule of Law

Issue

Holding and Reasoning (D’Italia, J.)

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