Court Opinion

ID: 3696676
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:37:02.005521+00
Date Added: 2024-06-11T14:09:48.160202
License: Public Domain

NCB is strictly liable for the amount of the item (the check) which it should have paid, but did not. R.C. 1304.19 (UCC 4-213) and R.C. 1304.22 (UCC 4-302). SOS Oil Corp. v. Norstar Bank ofLong Island (1989), 152 App.Div.2d 223, 548 N.Y.S.2d 308.
NCB attempts to avoid this strict liability as to Bank One by claiming that the Rules and Regulations of the Cleveland Clearing House Association constitute an agreement which varies its otherwise strict liability. I cannot agree.
The clearing house rules do not so provide. There is simply nothing in those rules which shifts liability to the bank which misencodes a check. Such a shift in liability would be dramatic and far-reaching. If the drafters of the rule had so intended, it would have been no great task to so provide. They did not. I do not believe that such a profound alteration of the UCC should be accomplished by inference from a set of rules which are, at best, ambiguous on the subject. *Page 98 
NCB, for its own business reasons, has determined it will not pay the amount of an item presented to it, but rather will rely on a third party's marking on the item. The risk NCB runs is apparent from the facts in this case. It is not difficult to hypothesize other situations in which NCB will expose itself to liability for failing to pay the amount of the item presented.
This does not mean that NCB is without a possible remedy for the negligence of Bank One. In fact, NCB in this very case filed a counterclaim against Bank One claiming that if NCB was liable on the check then Bank One was liable to NCB for Bank One's negligence. Neither the trial court or this court reached that question.
The problems relating to misencoded checks are primarily of concern to banks. These problems can be intricate and complex. It is best if the banking community has a major voice in the change of established laws. Steps are being taken in that direction. We are told that the proposed ALI/NCCUSL revisions to Article 4 (specifically, revised UCC 4-207) would explicitly provide that an encoding bank warrants the accuracy of encoded amounts, and is liable for any resulting loss. See First Natl.Bank of Boston v. Fidelity Bank, N.A. (E.D.Pa.1989),724 F. Supp. 1168, 1172. Until such time as new directions are established, we should apply the traditional law, i.e., the payor bank is strictly liable for the amount of the item. We should not create new warranties where none now exist.
I also note that Section Seven of the Constitution of the Cleveland Clearing House Association provides that it will hear complaints by its members involving disputes over clearing house rules. Why this expert forum was not utilized is unexplained.
I would hold that NCB is strictly liable for the amount of the item which it failed to pay. I would remand for a consideration of NCB's counterclaim. This would include considerations of comparative fault and proximate cause. *Page 99