New York Law Review

Tag: Bankers Trust Co. v. State

  • Matter of Bankers Trust Co. v. State, 449 N.Y.S.2d 813 (1982): Good Faith Purchaser Status Under Lien Law and UCC

    449 N.Y.S.2d 813 (1982)

    The adoption of the Uniform Commercial Code (UCC) changed the standard for determining good faith purchaser status from an objective “duty of inquiry” standard to a subjective standard, amending the Lien Law accordingly.

    Summary

    This case addresses whether Bankers Trust qualified as a “purchaser in good faith for value” under the Lien Law concerning trust assets. The plaintiffs argued that Bankers Trust had notice of facts sufficient to create a duty of inquiry, which should bar it from claiming good faith purchaser status. The court held that the adoption of the Uniform Commercial Code (UCC) replaced the objective “duty of inquiry” standard with a subjective standard for determining good faith. Therefore, absent reliance on the “duty of inquiry” concept, the plaintiff’s claim was meritless. The order of the Appellate Division was affirmed.

    Facts

    The core dispute revolves around whether Bankers Trust should be considered a “purchaser in good faith for value” concerning certain trust assets under New York’s Lien Law. The plaintiffs contended that Bankers Trust had sufficient notice that should have triggered a duty of inquiry, thus disqualifying it from claiming good faith purchaser status. This notice, they argued, stemmed from facts known to Bankers Trust at the time of the transaction.

    Procedural History

    The lower court’s decision was appealed to the Appellate Division, which ruled in favor of Bankers Trust. The plaintiffs then appealed to the New York Court of Appeals.

    Issue(s)

    Whether the legislative history of Article 3-A of the Lien Law requires incorporating a “duty of inquiry” limitation for determining “purchaser in good faith” status, based on the 1958 Law Revision Commission report and prior case law.

    Holding

    No, because the adoption of the Uniform Commercial Code (UCC) effectively amended the Lien Law by changing the standard for determining good faith purchaser status from an objective “duty of inquiry” standard to a subjective standard.

    Court’s Reasoning

    The Court of Appeals held that while the legislative history of Article 3-A of the Lien Law might suggest an intent to incorporate a “duty of inquiry” limitation, the actual wording of the statute indicates a purpose to align with negotiable instruments rules. More importantly, the court emphasized that the subsequent adoption of the UCC, specifically regarding notice requirements under Articles 3 and 4, fundamentally changed the legal landscape. The UCC replaced the objective “duty of inquiry” standard with a subjective standard for determining good faith. As the court noted, “With the adoption, effective September 27, 1964, of the Uniform Commercial Code, the concept of notice under article 3 (and by analogy under article 4 as well, cf. Uniform Commercial Code, § 4-209) has, as we have held in Chemical Bank of Rochester v Haskell, been changed from an objective to a subjective standard, and that change must be deemed to have amended the Lien Law as well.” The court referenced statutory interpretation principles (1 McKinney’s Cons Laws of NY, Book 1, Statutes, §§ 197, 370) to support the view that the UCC amendments implicitly modified the Lien Law. Because the plaintiffs’ claim relied on the “duty of inquiry” concept, which was no longer valid after the UCC’s adoption, the court found their argument without merit. The court also cited UCC § 4-208(1)(a) and § 4-208(2) to support the Appellate Division’s reasoning.