N.Y. Court of Appeals Hears UCC Case Today

Today, the New York Court of Appeals will hear oralarguments in Regatos v. North Fork Bank, which involves two certifiedquestions concerning the Uniform Commercial Code.

Regatos, a citizen of Brazil,commenced an action in federal court against Commercial Bank of New York (CBNY) and itssuccessor, North Fork Bank, to recover $600,000 that was removed from his CBNY accountthrough two unauthorized wire transfers in March and April of 2001. Regatos had asked the bank to hold hisstatements, and he did not request a copy of a statement until August2001. After reviewing the statement,Regatos immediately informed CBNY that the transfers were unauthorized.

CBNY moved to dismiss the action, arguing that Regatosfailed to protest the transfers in a timely manner under the terms of hisaccount agreement. The agreementrequired the customer to “exercise reasonable care and promptness in examining”account statements and provided the customer with 15 calendar days to notifythe bank of any irregularities.  Additionally, when a customer requested that statements be held, the agreement applied the 15-dayrequirement as though the customer had received the statement on the date shown onthe statement.

Regatos argued that CBNY’s obligations were established underU.C.C. Article 4A, which requires a bank to refund its customer any payment madethrough an unauthorized electronic funds transfer if the customer objects tothe transfer within a year.  TheDistrict Court denied CBNY’s motion to dismiss, holding that (1) the one-yearnotice period under the U.C.C. could not be shortened by contractual agreementand (2) the U.C.C. requires actual notice to the customer of the impropertransfer. CBNY appealed to the U.S.Court of Appeals for the Second Circuit. The Second Circuit, in turn, certified the following questions to theNew York Court of Appeals:

1.  Can the one-year statute of repose established by New York U.C.C.Article 4A-505 be varied by agreement?  If so, are there any limits on thevariation thereof (such as “reasonable time”) that estop CBNY fromdenying Regatos recovery in this case?

2.  In the absence of agreement does New York U.C.C. Article 4A requireactual notice, rather than constructive notice?  If so, can thisrequirement be altered by agreement of the parties and was such achieved here?

[Meredith R. Miller]