New York Law Review

Tag: depositary bank

  • Getty Petroleum Corp. v. American Express Travel Related Services Co., 67 N.Y.2d 619 (1986): Drawer’s Lack of Direct Action Against Depositary Bank for Improperly Endorsed Checks

    Getty Petroleum Corp. v. American Express Travel Related Services Co., 67 N.Y.2d 619 (1986)

    A drawer of a check generally does not have a direct cause of action against a depositary bank for collecting an improperly endorsed check.

    Summary

    Getty Petroleum Corp., as the drawer of certain checks, sued Citibank, the depositary bank, for improperly collecting the checks without the named payee’s endorsement. Citibank moved to dismiss, arguing it owed no direct duty to the drawer. The trial court denied the motion, but the Appellate Division reversed, dismissing the complaint. The New York Court of Appeals affirmed, holding that a drawer generally lacks a direct cause of action against a depositary bank for collecting improperly endorsed checks, unless certain limited exceptions apply, which were not present here. The court emphasized that this rule applies to any ineffective endorsement, not just forged endorsements, and that UCC 4-207(1) does not extend warranty benefits to drawers.

    Facts

    Getty Petroleum Corp. issued checks to payees. Citibank, acting as the depositary bank, collected these checks without the proper endorsement of the named payees. Getty Petroleum Corp., as the drawer of the checks, then sued Citibank for improper collection. The checks were ultimately paid without proper endorsement.

    Procedural History

    Getty Petroleum Corp. sued Citibank in the trial court. Citibank’s motion to dismiss was initially denied. The Appellate Division reversed the trial court’s decision and dismissed the complaint. Getty Petroleum Corp. appealed to the New York Court of Appeals. The Court of Appeals affirmed the Appellate Division’s decision, dismissing the case against Citibank.

    Issue(s)

    1. Whether a drawer of a check has a direct cause of action against a depositary bank for collecting a check with an ineffective endorsement.

    2. Whether the rationale prohibiting a direct cause of action by a drawer against a depositary bank is limited to situations where the payee’s name is forged.

    3. Whether UCC 4-207(1) provides a drawer with a cause of action against a depositary bank for breach of transfer and presentment warranties.

    Holding

    1. No, because a drawer generally does not have a direct cause of action against a depositary bank for collecting an improperly endorsed check.

    2. No, because the rationale applies whenever a check is ineffectively endorsed, not just in cases of forgery.

    3. No, because drawers do not constitute “other payors” within the meaning of UCC 4-207(1) and therefore cannot claim the benefit of its warranties.

    Court’s Reasoning

    The Court of Appeals relied on the general rule established in previous cases like Prudential-Bache Sec. v Citibank, Spielman v Manufacturers Hanover Trust Co., and Underpinning & Found. Constructors v Chase Manhattan Bank, which holds that a drawer lacks a direct cause of action against a depositary bank for collecting an improperly endorsed check. The court explicitly stated that “This case falls squarely within the general rule that a drawer does not have a direct cause of action against a depositary bank for collecting an improperly indorsed check.”

    The court rejected the argument that this rule only applies to forged endorsements, clarifying that it extends to any ineffective endorsement. The court stated: “Contrary to plaintiffs’ contention, the rationale underlying this rule is not limited to situations where the payee’s name is forged, but instead applies whenever a check is ineffectively indorsed.”

    The court also dismissed the plaintiff’s reliance on UCC 4-207(1), which establishes warranties for transfer and presentment. The court reasoned that drawers are not “other payors” as intended by the statute. As the court referenced: “Since plaintiffs, as drawers, do not constitute ‘other payors’ within the intendment of that statute, they cannot claim the benefit of its warranties.” The court cited Leonard Smith, Inc. v Merrill Lynch, Pierce, Fenner & Smith and White & Summers, Uniform Commercial Code to support this interpretation.

    The court distinguished Costello v Oneida Natl. Bank & Trust Co., noting that it involved a payee’s direct action under UCC 3-419, a provision not applicable to drawers. The court emphasized that no provision of the UCC grants a similar right to drawers.