Rapp v. Dime Sav. Bank of New York, 48 N.Y.2d 658 (1979)
Parties can agree on what constitutes a reasonable time for a bank to grant a customer access to deposited funds, as long as the agreed-upon timeframe is not manifestly unreasonable.
Summary
This case addresses the enforceability of a bank’s collection policy that restricts a customer’s ability to draw against deposited checks before a certain time. The New York Court of Appeals held that banks and their customers are free to define a “reasonable time” for allowing access to deposited funds via agreement, provided that the agreed-upon time is not manifestly unreasonable. The plaintiffs failed to provide sufficient evidence to challenge the validity of the agreement or demonstrate the unreasonableness of the timeframes, and thus, the court affirmed the grant of summary judgment in favor of the bank.
Facts
The Dime Savings Bank of New York had a collection policy that governed when customers could draw against deposited checks. The bank argued that its customers had agreed to specific time frames as part of a collection agreement. Customers (plaintiffs) brought suit, presumably arguing that the bank’s hold policy was unlawful.
Procedural History
The lower court granted summary judgment to the bank. The Appellate Division affirmed. The New York Court of Appeals affirmed the Appellate Division’s order.
Issue(s)
Whether a bank and its customers can, by agreement, define what constitutes a “reasonable time” under UCC § 4-213(4)(a) for allowing a customer to draw against a deposited check.
Holding
Yes, because the Uniform Commercial Code allows parties to agree on the definition of “reasonable time” as long as the agreed-upon time is not manifestly unreasonable.
Court’s Reasoning
The court relied on Uniform Commercial Code (UCC) § 4-213(4)(a), which generally dictates that a bank cannot prohibit a customer from drawing against a check after a reasonable time has passed following the receipt of a provisional settlement. However, the court also cited UCC § 1-204, which permits parties to formulate their own definition of “reasonable time” by agreement, subject to the condition that the fixed time is not manifestly unreasonable.
The court stated that the bank had demonstrated, prima facie, that its customers had agreed to a collection agreement containing specific time frames. Because the plaintiffs failed to present sufficient evidence to challenge the validity of the contract or the manifest unreasonableness of the time fixed, summary judgment was appropriately granted to the bank.
The court emphasized the importance of upholding contractual agreements unless they are clearly unreasonable or invalid. The court held that absent sufficient evidence to the contrary, the bank’s collection policy, as agreed upon by its customers, should be enforced. The court referenced Connell v St. Mary’s Hosp. of Troy, 45 NY2d 944, 946 and Indig v Finkelstein, 23 NY2d 728 to support the concept that failure to raise factual questions leads to consequences of summary judgment.
“Defendant, as a depository or collecting bank, generally may not prohibit a customer from drawing against a check deposited in his account after a reasonable time has elapsed from receipt of a provisional settlement for that item (Uniform Commercial Code, § 4-213, subd 4, par [a]). But the parties are free to formulate their own definition of ‘reasonable time’ by agreement, so long as the time fixed is not manifestly unreasonable (Uniform Commercial Code, § 1-204).”