MRF RESOURCES LTD., PLAINTIFF, v. THE MERCHANT'S BANK OF NEW YORK,
THIRD-PARTY RESPONDENT, v. GALIT DIAMOND, INC., THIRD-PARTY APPELLANT.
89 N.Y.2d 244, 674 N.E.2d 1366, 652 N.Y.S.2d 601(1996)
December 18, 1996
1 No. 264 (1996 NY Int. 239)
Decided December 18, 1996
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This opinion is uncorrected and subject to revision before publication
in the New York Reports.
Joan C. Waters, for Appellant.
Stephen F. Ellman, for Respondent.
SIMONS, J.:
Galit Diamond, Inc., the third-party defendant in this action, has
asserted a counterclaim against defendant The Merchants Bank of New
York seeking to recover damages allegedly sustained when the bank
delayed execution of a funds transfer to Galit's diamond supplier in
Israel. The delay occurred when Merchants wrongfully placed a hold on
Galit's bank account. Galit does not claim that it suffered any direct
damages, only consequential damages due to the supplier's subsequent
refusal to conduct further business with it because of the delay.
Supreme Court considered the bank's conduct under Articles 3 and 4 of
the Uniform Commercial Code and found Merchants liable under UCC
4-402. It granted Galit judgment for $531,168.00. The Appellate
Division reversed, holding that the matter was governed solely by UCC
Article 4-A which regulates funds transfers and that section
4-A-305(3) does not authorize consequential damages absent an express
agreement between the parties. We granted Galit leave to appeal so
that we could review the dismissal of its counterclaim.
Before this Court, Galit contends that the Appellate Division erred
because it did not acknowledge that the events involved more than just
a funds transfer transaction. It maintains that Article 4-A does not
control this case because the delay in executing the funds transfer
was caused by the wrongfully placed hold on Galit's account and that
it was the hold which precipitated the delay in the funds transfer and
caused damage. Under these circumstances, Galit contends the
provisions of Article 4 of the UCC may be applied and consequential
damages awarded. Stated another way, Galit claims that because the
Bank's wrongful conduct did not occur within the scope of a funds
transfer, Article 4-A does not exclusively govern the parties' rights
SNIPPETS:
THE MERCHANT'S BANK OF NEW YORK, THIRD-PARTY RESPONDENT, v. GALIT DIAMOND, INC., THIRD-PARTY
This opinion is uncorrected and subject to revision before publication in the New York
Galit Diamond, Inc., the third-party defendant in this action, has asserted a counterclaim
Galit does not claim that it suffered any direct damages, only consequential damages due to
Supreme Court considered the bank's conduct under Articles 3 and 4 of the Uniform Commercial
The Appellate Division reversed, holding that the matter was governed solely by UCC Article
Galit contends that the Appellate Division erred because it did not acknowledge that the
It maintains that Article 4-A does not control this case because the delay in executing the
Stated another way, Galit claims that because the Bank's wrongful conduct did not occur
l Bank of North Carolina, 64 F3d
Plaintiff MRF Resources Limited maintained a checking account at that office, as did Galit
The application directed a credit to the Israeli bank account of Ilan Gertler, the supplier
Galit alleged that Merchants Bank was liable in damages for "wrongfulfreezing" its account
Specifically, it argues that Articles 3 and 4 of the Uniform Commercial Code govern
"payor bank is liable to its customer for damages proximately caused by the wrongful dishonor
Galit contends that since it is a customer of Merchants Bank, UCC 4-402 entitles it to
Assuming the payee of a check is a customer within the meaning of UCC 4-402, UCC 4-402 does
Accordingly, to be entitled to damages under that section Galit must establish that Merchants
Galit contends that the hold placed on its account was an attempt to decertify or dishonor
Chief Judge Kaye and Judges Titone, Bellacosa, Smith, Levine and Ciparick concur.
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