author: KEVIN THOMAS DUFFY, District Judge:

text:
    GREAT NORTHERN INSURANCE COMPANY, Plaintiff, v. DAYCO CORPORATION, Defendant.
    No. 83 Civ. 8102 (KTD).
    United States District Court, S.D. New York.
    Oct. 4, 1985.

      Salon, Marrow, Dyckman & Trager, New York City, for plaintiff; Leslie Trager, of counsel.
    Dickstein, Shapiro & Morin, New York City for defendant; Leonard Garment, Sidney Dickstein, Roslyn A. Mazer, R. Bruce Holcomb, Sheryl L. Sklorman, of counsel.
   MEMORANDUM & ORDER AMENDED

KEVIN THOMAS DUFFY, District Judge:

Plaintiff, Great Northern Insurance Company (“Great Northern”), commenced this action against defendant, Dayco Corporation (“Dayco”), seeking a declaratory judgment that it is not liable under the insurance policy issued to Dayco which provided “All Risk, Excess and Difference in Conditions Property Damage coverage on all real and personal property of the insured.” Great Northern moves pursuant to Fed.R.Civ.P. 56 for summary judgment on the issue of coverage and for dismissal of defendant’s counterclaim for $6,188,343. Dayco moves for summary judgment on the seventh claim in Great Northern’s complaint which alleges that Great Northern’s liability, if any, is limited to $1,000,000 as Dayco’s loss is a single, not multiple, loss. Finally, Dayco moves for an order striking certain portions of Great Northern’s affidavit in support of its motion for summary judgment as well as Exhibits F, G, and H attached to the affidavit, for failure to comply with Fed.R.Civ.P. 56(e).

FACTS

Dayco, a Michigan corporation with its principal place of business in Ohio, is engaged in the manufacture and sale of rubber and plastic belts and hose used in automobiles, trucks and tractors. Apparently, when the Soviet Union purchases non-domestic goods from companies such as Dayco, it does so through government purchasing agents called Foreign Trade Organizations (“FTOs”) which then distribute the goods to various Soviet industries. See Dayco Exh. 55. (Affidavit of Richard O. Christian 114.). From 1976 through January of 1979, Dayco sold between $1 and $1.5 million worth of “Y-Belts” per year to an FTO called Tractoroexport. See id.

During the spring and summer of 1979, Dayco began talking to Edith Reich about the possibility of having her companies, Foreign Transactions Corporation (“FTC”) and Trachem Co. Ltd., become involved in the sale of Dayco products to the FTOs. In the fall of 1979, Reich made several trips to the Soviet Union. In November, Dayco was informed by Reich that another FTO, Raznoimport, had placed an order for Dayco’s “Super Blue Ribbon V-Belts” to-talling $1,656,680. See Dayco Exh. 26.

Under the arrangement between Dayco and FTC, FTC entered into agreements with the FTOs. Dayco would receive a letter from FTC stating that a particular contract had been procured and Dayco would manufacture the goods described in the letter. For such sales and prior to the delivery of the goods, FTC received a commission, ranging from 10 percent to 15 percent of the gross selling price.

During the years 1980 and 1981, FTC placed orders with Dayco totalling over $100 million and received commissions of approximately $14 million. In January of 1980, Reich confirmed to Dayco the receipt of a large contract for Y-belts with Tracto-roexport which, after amendment, totalled $11,087,255. See Dayco Exhs. 6 (Contract No. 61-09/0295 and addenda); 27 (letter confirming order). In June of 1980, Dayco received a second Tractoroexport contract for “SPC type V-belts” and other industrial belts totalling $2,027,860. See Dayco Exh. 29 (Contract No. 61-09/0509). Both orders were to be sent to Bremen, West Germany. In April of 1980, Reich confirmed to Dayco the procurement of six orders by Raznoim-port for hydraulic hose totalling $17,088,-555. See Dayco Exh. 28. In July of 1980, Reich wrote to Jeanette Curry of Dayco that Reich received two orders for automotive belts for another FTO, Avtopromim-port, totalling $10,146,500. See Dayco Exh. 30. In September of 1980, Dayco received a letter from Reich acknowledging the receipt of two large orders by Tracto-roexport and Raznoimport totalling $46,-298,500 and $25,221,750, respectively. See Dayco Exhs. 9 (Contract No. 81-09/087981) & 32.

Between July 2, 1980 and September 15, 1980, Dayco received seven payments from Tractoroexport totalling $2,494,505. See Dayco Exh. 31. In the fall of 1980, Dayco began to express concern over the delays by the Soviets in picking up the goods in Bremen and in December of 1980, suspended the payment of commissions to FTC to prompt FTC to have the Soviets pick up the goods. In January, however, the payment of commissions resumed immediately followed by a pickup in Bremen. See Dayco Exhs. 13, 37.

In mid-February of 1981, Reich transmitted another order for Tractoroexport for $883,378 (Contract No. 61-09/1324) but Dayco and Reich had a dispute over the prepayment of commissions before other orders were picked up. Ultimately, on February 28, 1981,. Dayco asserts, the second shipment was picked up. See Dayco’s Rule 3(g) Statement 1111(b). During May and June of 1981, Reich and Dayco officials corresponded about payments and pick-ups by the FTOs, and Reich’s commissions. See, e.g., Dayco Exhs. 40, 41, 42, 43, 44, 45, 46, 47.

By mid-July 1981, Dayco had received wire transfers of approximately $4.1 million. See Dayco Exh. 31. Dayco claims that by the end of July, it paid Reich all of the commissions due her on the Tractoroex-port business as a result of Reich’s threats not to provide the “trans” numbers necessary for shipment. Dayco asserts that by November of 1981 all twelve of the shipments to Bremen were picked up. See infra n. 4.

As a result of questions raised by Day-co’s outside auditors, Ernst & Whinney, as to the accounting treatment of Dayco’s sales to the Soviet Union, Dayco retained the law firm of Pisar & Huhs. In response to Pisar & Huhs’ inquiry into the purported contracts procured by FTC, Tractoroexport and Raznoimport responded that they had no knowledge of the existence of many of the contracts. See Dayco Exhs. 53, 54.

On January 26-27, 1982, Dayco representatives met with Tractoroexport officials to discuss the status of certain contracts. Dayco was informed that only two contracts with Tractoroexport had been concluded through FTC, Contracts Nos. 61-09/0295 and 61-09/1324. Dayco’s position is that all the remaining contracts claimed by Reich to exist were fictitious and that Contract No. 61-09/1324 was for $446,000 rather than $883,000.

In May 1982, Dayco brought an action for fraud and breach of contract against Reich and her companies in the Southern District of New York. Dayco Corp. v. Foreign Transactions Corp., et al., 82 Civ. 3354 (S.D.N.Y.) (Lowe, J.) (“the Dayco/FTC action”). On October 12, 1984, a judgment for $19 million was entered against Reich and FTC. Dayco also filed twelve proofs of loss with Great Northern under an All Risks Policy issued to Dayco in 1976, and renewed each year including in 1981. See Answer and Counterclaims, Exhs. A (Policy) 1-12 (Claims). The policy provided:

Perils Insured Against: This policy covers against All Risks of Direct Physical Loss or damage to property insured including general average and salvage charges except as hereinafter excluded.

Dayco’s claims are premised on the argument that to the extent it did not receive full payment for the twelve shipments in 1981, the goods were lost and Dayco is entitled to reimbursement under the policy in the amount of $6,188,343. Paragraph 8 of Dayco’s Counterclaims alleges that Day-co suffered its loss when Edith Reich caused Dayco to manufacture and ship goods to and from its warehouse in Bremen by representing that certain contracts existed which did not in fact exist. Dayco claims that “FTC and Reich wrongfully appropriated the Dayco goods to their own use_” Thereafter, Great Northern instituted this declaratory judgment action asserting that it was not liable on the policy and the instant motions followed.

DISCUSSION

A. Dayco’s Motion to Strike

Dayco moves to strike portions of the affidavit of Leslie Trager and Exhibits F, G, and H attached thereto submitted by Great Northern on the grounds that “significant portions of the [affidavit and exhibits] are inadmissible under Fed.R.Civ.P. 56(e) because they (1) contain inadmissible contentions, conclusions or opinions, (2) contain hearsay statements and/or (3) lack of a foundation for authenticity and admissibility....” Dayco’s Memorandum In Support of Motion to Strike at 3.

To the extent that Trager, in his affidavit, states legal argument and conclusions, I will disregard it in ruling on the summary judgment motion; there is no necessity to formally strike those portions of the affidavit. Dayco also seeks the striking of Trager’s references to the findings of John Huhs, the investigator, as constituting impermissible hearsay. Trager’s statements about Huhs’ findings are apparently drawn from Huhs’ deposition testimony. The fact that Trager has no personal knowledge of Huhs’ findings is apparent and, as a practical matter, insignificant since Huhs’ report and affidavit in the action before Judge Lowe have been submitted in connection with the instant motions. On hearsay grounds, Dayco objects to the court’s consideration of Huhs’ testimony to prove that certain contracts for Dayco goods existed, that Dayco’s goods were delivered to Russia, that partial payment was made, and that additional quantities of goods, not called for in the existing contracts, were delivered to Russia. Dayco’s objection is overruled.

Fed.R.Evid. 801(d)(2) provides that “[a] statement is not hearsay if [it] is offered against a party and is ... (B) a statement of which he has manifested his adoption or belief in its truth, or ... (D) a statement by his agent or servant concerning a matter within the scope of his agency or employment, made during the existence of the relationship.... ” Based on Dayco’s own account of the events that transpired after Huhs’ investigation, it is apparent that Dayco adopted Huhs’ statements. Furthermore, it is obvious that Huhs was acting as an agent of Dayco’s and that his statements were made within the scope of his agency and during his relationship with Dayco. Furthermore, there exist in the record various documents which provide adequate foundation for the assertions made by Trager as to Huhs’ findings. I note also that the fact that the statements were made, as opposed to the truth of the contents of the statements, is relevant to the issue of what Dayco knew and when.

Dayco seeks also to have stricken Exhibits F, G, and H, purportedly Contract No. 61-09/1246 and addenda, Contract No. 61-09/2244, and Contract No. 61-09/1324, respectively. Apparently such contracts were produced during discovery in the Dayco/FTC action. Dayco objects to Great Northern’s suggestion that Dayco has admitted in its answers to interrogatories that Exhibits F, G, and H represent valid contracts. Dayco asserts that its answer represented only its “current belief” and that it, in fact, has no way of knowing whether such contracts are authentic or were fabricated by Reich. Defendant’s position with respect to its answer is recognized but its motion to strike the exhibits is denied.

B. Great Northern’s Summary Judgment Motion

Great Northern seeks a judgment declaring that it is not liable to Dayco on the All-Risks insurance policy issued to Dayco on the grounds that:

1. The type of loss alleged by Dayco is not a direct physical loss and is therefore not covered under the policy.
2. Whatever loss occurred, occurred after the goods had ceased being Dayco’s goods and thus were not covered by the policy.
3. As a matter of indisputable fact, the goods in question were not lost, but were sent to Russia and received by them.
4. Dayco has ratified the transactions in question.

Great Northern’s Memorandum in Support of Motion for Summary Judgment, at 9.

On a motion for summary judgment, the movant must “show that there is no genuine issue as to any material fact and that [he] is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). The facts “must be viewed in the light most favorable to the opposing party.” Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970).

1. Direct Physical Loss

The policy provides that it “covers, to an amount for any loss at any location not exceeding $1,000,000 on all Real and Personal Property subject to all provisions of this policy including endorsements.” See Plaintiff’s Exh. C (Policy ¶ 1(a)). Clause 8 of the policy provides that “[t]his policy covers against All Risks of Direct Physical loss or damage to property insured including general average and salvage charges_” Id. (emphasis supplied).

Great Northern attempts to limit its liability on the policy by arguing that because the policy covers “direct physical loss ... to property,” and Dayco’s loss was in the nature of a credit loss due to theft, Dayco’s loss is not covered. Great Northern states, however, that if the policy provided coverage for “any loss to property” or “theft” the alleged loss would be covered. Citing Katze v. Randolf & Scott Mutual Fire Insurance Co., 116 Wis.2d 206, 341 N.W.2d 689 (1984), plaintiff argues that the loss suffered by Dayco was the money it expected to receive from the sale of its products to Russia, not the actual products. Katze, however, is inapposite because Katze involved an insurance policy that specifically covered theft as opposed to “all risks.”

Great Northern’s argument totally ignores the nature and plain meaning of an “all risks” policy which creates “a special type of coverage extending to risks not usually covered under other insur-ance_” C.H. Leavell & Co. v. Fireman’s Fund Insurance Co., 372 F.2d 784, 787 (9th Cir.1967). “[Recovery under an ‘all risk’ policy will be allowed for all fortuitous losses not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding the loss from coverage. Id. In an action on an all risk policy, the insured has the burden of proving the existence of the all risks policy and the loss of the covered property. See Pan American World Airways, Inc. v. Aetna Casualty & Surety Co., 505 F.2d 989, 999 (2d Cir.1974). Because all risks coverage is procured to protect the insured against unexplained losses, once the insured shows that a loss occurred, to avoid liability, the insurer must show that the claimed loss is excluded from coverage. See id.

Great Northern’s suggestion that loss due to theft is not embraced by the all risks policy is rejected. First, Dayco physically lost the goods in that it no longer has control over them and has received no compensation for them. Its loss is not merely a credit loss, which might, under the “physical loss” language of the policy, be excluded. Second, generally an insured “who takes out an ‘all risk’ policy which does not exclude theft has a right to assume he has purchased coverage for loss by theft.” See Tuchman v. Public Service Mutual Insurance Co., 88 Misc.2d 336, 387 N.Y.S.2d 803, 805 (N.Y.Civ.Ct.1976) (policy insured for “[a]ll risks of physical loss”). Dayco asserts that the theft occurred when it was induced to part with its goods by a fraudulent scheme or false pretense. Absent an express exclusion in the policy, a theft by trick or false pretense would be covered. See Camera Mart, Inc. v. Lumbermens Mutual Casualty Co., 58 Misc.2d 448, 294 N.Y.S.2d 941, 943, 946 (N.Y.Civ.Ct.1968) (all risks policy covered loss resulting from bad check given by purchaser of camera equipment who stated that he was a representative of “Candid Camera,” a frequent buyer of equipment), aff'd, 64 Misc.2d 860, 316 N.Y.S.2d 421 (1st Dep’t 1969); U.S. Fidelity and Guaranty Co. v. J.D. Johnson Co., 438 So.2d 917, 919 (Fla.App.1983) (loss due to theft not covered where policy specifically excluded theft by “fraudulent scheme, trick, device or false pretense”).

Thus, assuming Dayco can demonstrate the existence of a loss by false pretenses, it would be able to recover under the terms of the policy. In order for defendant to show it sustained a loss due to a theft by false pretenses, it must show, among other things, its reliance on the false representations of Reich and FTC. Great Northern asserts that documents have been produced in this matter as well as in the Dayco/FTC action that indicate officials of Dayco knew about Reich’s scheme and in fact received part of the commissions generated by and paid pursuant to the allegedly fictitious contracts procured by Reich. See Great Northern’s Memorandum in Opposition to Dayco’s Motion for Partial Summary Judgment, at 4. Such a fact could serve to preclude a finding of theft by false pretenses, and any recovery under the policy. However, on the record before me, I cannot say that there are no outstanding material issues of fact. Thus, summary judgment would be inappropriate.

2. Transfer of Title of Dayco’s Goods

The policy provides for “[a]ll risk, excess and difference in conditions property damage coverage on all real and personal property of the insured.” (Emphasis supplied). Great Northern argues that Dayco’s loss, if any, is not covered by the policy because it occurred after Dayco transferred title to the goods. The purported contracts apparently provided for delivery either “free on truck ex works Dayco Stuttgard BRD” or “free on truck storehouse Dayco Bremen.” Once Dayco’s goods were placed on board a Russian ship or truck, Great Northern asserts, title to the goods passed from Dayco to the buyer. See New York Uniform Commercial Code (U.C.C.) § 2-401(2) (McKinney 1964); U.C.C. § 2-501(2) (McKinney 1964) (seller has insurable interest “so long as title to or any security interest in the goods remains in him_”).

The logical extension of Great Northern’s argument would be that a theft by false pretenses loss can never be covered by an all risks policy because in such a case, the loss is established when the policyholder voluntarily parts with title to the property as a result of false pretense or trick. Thus, because I have already held that, assuming the defendant establishes its loss, it may recover under the policy under a theft by false pretenses theory, defendant is not precluded from recovery on the second ground suggested by Great Northern. The relinquishment of control over and title to the goods is the very loss complained of by Dayco.

3. Location of Goods

Great Northern argues that there is no “loss” because Dayco’s goods are not lost, they are in Russia, yet Dayco never attempted to recover the goods. The record, however, is simply not clear as to whether Dayco’s goods, which were picked up from the Bremen warehouse, are in Russia or were “fenced” to others by FTC and Edith Reich. Apparently, at meetings attended by Huhs, Tractoroexport officials acknowledged receipt of only part of the shipments made by Dayco. Thus, an issue of fact remains as to whether Dayco is indeed ignorant of the whereabouts of its goods or cannot recover them by ordinary diligent search. I note, however, that Great Northern’s statement that Dayco never attempted to effectuate the return of its goods is totally unsupported as Dayco retained Huhs who then travelled to the Soviet Union with Dayco officials for the purpose of investigating the existence or nonexistence of the contracts purportedly procured by Reich. In any event, it is clear that Great Northern is not entitled to summary judgment precluding Dayco’s recovery under the policy on the ground that Dayco has suffered no loss because its goods are recoverable in Russia.

4. Ratification

The final basis asserted by plaintiff in support of its summary judgment motion is that Dayco ratified the delivery of the goods to Russia by instructing Tractoroex-port in March of 1982, after it learned of FTC’s fraudulent activities, to pay FTC for the goods erroneously delivered to Tracto-roexport but which were accepted by the latter at a lower price than Dayco believed was originally negotiated. In a telex on February 19, 1982, Dayco asked that Trac-toroexport not remit payment to FTC for the “4000 mm belts” not ordered by Tracto-roexport until Dayco settled its “problem” with FTC. See Dayco’s Opposition Exh. 5. Thereafter, on March 22, 1982, Dayco telexed Tractoroexport that it had settled its dispute with FTC and that payment “is to be made to [FTC].” Dayco’s Opposition Exh. 6.

Dayco’s actions do not constitute a ratification. Ratification requires knowledge of all the material facts. See Julien J. Studley, Inc. v. Gulf Oil Cory., 282 F.Supp. 748, 752 (S.D.N.Y.1968), rev’d on other grounds, 407 F.2d 521 (2d Cir.1969). It appears that as of March of 1982, Dayco did not have complete knowledge as to the extent of the fraud. After discovering the fraud, it attempted merely to mitigate its losses through settlement with Reich and discussions with Tractoroexport concerning goods already received in Russia. On the record before me, I cannot say that there is either circumstantial or direct evidence of an affirmative election by Dayco indicating an intention to adopt the fraudulent activities of Reich. See Julien J. Studley, Inc., 282 F.Supp. at 752.

Accordingly, Great Northern’s motion for summary judgment is denied.

C. Dayco’s Partial Summary Judgment Motion

Great Northern, in the Seventh Claim of its complaint, alleges that “[tjhe loss which Dayco claims [in its proofs of loss] is a single loss rather than a multiple loss,” see Complaint ¶ 56, and therefore seeks an order limiting Dayco’s recovery, if any, to $1,000,000, see id. II 57. Dayco had filed twelve proofs of loss, one for each shipment from Bremen, West Germany from January 10, 1981 through November 10, 1981, claiming a total of $6,188,348 in losses.

Dayco argues that with each of the twelve shipments of belts of different sizes and applications, it suffered a separate loss. Great Northern asserts that Dayco’s loss, if any, resulted from Edith Reich’s scheme which Dayco knew about and which upper level Dayco officials participated in. Great Northern’s argument that there are several outstanding issues of fact, including whether Dayco did, in fact, rely on the alleged fraud of FTC or whether Dayco was a participant in the fraud, are not material issues of fact to the narrow question of whether there was a single loss or multiple losses. See Securities Exchange Commission v. Research Automation Corp., 585 F.2d 31, 35 (2d Cir.1978).

The policy refers to “any loss at any location.” Great Northern argues that because Dayco alleges that the loss occurred at the Bremen warehouse as the result of one fraudulent scheme orchestrated by one individual, it suffered one loss.

An insurance policy is a contract which must be interpreted to effectuate the parties’ intent. See American Home Products Corp. v. Liberty Mutual Insurance Co., 565 F.Supp. 1485, 1493 (S.D.N.Y.1983), modified, 748 F.2d 760 (2d Cir.1984). To the extent that terms used in an insurance policy are clear and unambiguous, they must be given their plain and ordinary meaning. See The National State Bank v. American Home Assurance Co., 492 F.Supp. 393, 396 (S.D.N.Y.1980). The “policy must be enforced as written, and the Court is not free to modify its terms by judicial construction.” Id. (citations omitted). Great Northern’s policy insures for “any loss at any location not exceeding $1,000,000.” As already stated, an all risks policy should be interpreted broadly in favor of the insured.

[I]t is not sufficient for the all risk insurers’ case for them to offer a reasonable interpretation under which the loss is excluded; they must demonstrate that an interpretation favoring them is the only reasonable reading of at least one of the relevant terms of exclusion.

Pan American World Airways, Inc., 505 F.2d at 1000. In the event that Great Northern intended to limit its liability on an “occurrence” or “accident” basis, it could have done so. Id. Furthermore, to the extent that any ambiguities exist in the language used in the policy, it is to be resolved in favor of the insured. American Home Products Corp., 565 F.Supp. at 1491.

Thus, based on the plain language utilized in the policy and the fact that Day-co suffered a loss each time it shipped its goods of varying specifications over eleven months pursuant to separate shipping instructions, I conclude that Great Northern’s suggested interpretation must be rejected. See General Casualty Co. v. Gunion, 99 A.2d 643, 646 (D.C.App.1953) (five separate losses found where on five separate occasions over several months, the insured gave money to individual who falsely represented that the money would be used to help the insured’s aunt to flee Romania); Stater v. United States Fidelity and Guaranty Co., 379 Mass. 801, 400 N.E.2d 1256, 1261 (1980) (separate losses under all risks policy found where there were several acts of embezzlement by employee over a 5-month period of time).

Plaintiff asserts that “any loss at any location” should be read as “per occurrence.” There is some support for the proposition that “ ‘an occurrence is determined by the cause or causes of the resulting injury.’ ” Appalachian Insurance Co. v. Liberty Mutual Insurance Co., 676 F.2d 56, 61 (3d Cir.1982); see also Michigan Chemical Corp. v. American Home Assurance Co., 728 F.2d 374, 379 (6th Cir.1984); Business Interiors, Inc. v. Aetna Casualty & Surety Co., 751 F.2d 361, 363 (10th Cir.1984) (plaintiff’s loss of $53,000, the result of embezzlement as to forty checks by one employee, constituted a single occurrence). The rule in the Second Circuit appears to be in accord with the above cases. See Champion International Corp. v. Continental Casualty Co., 546 F.2d 502, 504 (2d Cir.1976) (defective paneling used by 26 different manufacturers constitutes one “occurrence”), cert. denied, 434 U.S. 819, 98 S.Ct. 59, 54 L.Ed.2d 75 (1977).

The cases relied on by plaintiff are, however, readily distinguishable. The insurance policy in the instant case differs from the policies in the cases in which an occurrence is determined by the cause in that Great Northern specifically insured defendant for any loss at any location. See, e.g., Business Interiors, Inc., 751 F.2d at 362 (employee dishonesty clause contained no express limitation); Appalachian Insurance Co., 676 F.2d at 61 (policy covered damages for personal injuries “caused by or arising out of each occurrence”); Champion International Corp., 546 F.2d at 504 (policy insured for products hazards in amount of $100,000 per “occurrence,” had a deductible of $5,000 per “occurrence” and provided excess coverage on an “occurrence” basis). Accordingly, Dayco’s motion for partial summary judgment is granted. Great Northern’s Seventh Claim is dismissed.

In sum, Dayco’s motion to strike is denied. Great Northern’s summary judgment motion is denied. Dayco’s motion for partial summary judgment is granted in that Great Northern’s Seventh Claim is dismissed.

SO ORDERED.

      . In addition to issues of fact concerning Day-co’s knowledge of and acquiescence to Reich’s scheme, it is unclear how many contracts were fictitious. Great Northern argues that Dayco has not come forth with any admissible evidence of fictitious contracts and claims that correspondence between Dayco and Tractoroex-port indicating that contracts, not the subject of this action, did not exist is irrelevant in this action. I disagree. They are relevant to show that there were some fictitious contracts and there may be more. Furthermore, apparently Edith Reich testified that she caused Dayco to receive fictitious contracts in her examination before trial in the Dayco/FTC action and Day-co, in its answers to interrogatories indicated that it believed certain contracts to be nonexistent based, in part, on Edith Reich’s deposition.

      . Great Northern’s argument that the passage of title left Dayco with an “account receivable," which is excluded under the policy, is rejected. The nature of Dayco’s claimed loss derives from its reliance on fictitious contracts. Thus, on such contracts, there can be no tangible "account” which would be recognized by the Russians.

      .Huhs stated, in an affidavit executed in connection with the Dayco/FTC action that the purpose of the visit to Moscow was "to determine the status of thirteen contracts totalling approximately $117,102,528 which defendants had previously represented were concluded on behalf of Dayco Corporation by [FTC] with three Soviet foreign trade organizations...." Dayco’s Opposition Exh. 1 (Affidavit of John I. Huhs ¶ 5). Huhs also stated that an "additional purpose of the visit was to determine the facts surrounding approximately $18,473,484 worth of Dayco products which had been delivered to the U.S.S.R. in connection with the purported contracts with Tractoroexport, and the status of approximately $11,844,210 in outstanding accounts receivable connected therewith." Id.

      . Dayco asserts that the figure of $6,188,343 was arrived at by taking total of the individual shipments' invoice price up to a maximum of $1,000,000 and reducing it by the $4.1 million received in 1981 and applying the $10,000 deductible for each loss.
      The twelve shipments occurred on the following dates: January 10, 1981, February 28, 1981, April 2, 1981, June 19, 1981, July 10, 1981, July 23, 1981, July 30, 1981 (two shipments for $96,-328 and $101,872, respectively), August 7, 1981, September 17, 1981, September 25, 1981 and November 10, 1981. Dayco’s Statement Pursuant to Rule 3(g) ¶ 11. Plaintiff objects to Day-co’s statement regarding the twelve shipments on the grounds that Dayco has not produced competent and admissible evidence of the shipments because the bills of lading, submitted by Dayco as exhibits 13 through 24, are only photocopies. Apparently, the duplicate bills of lading had been produced during discovery and used during depositions without objection by Great Northern. On this summary judgment motion, it is inadequate for Great Northern to rest on such a conclusory denial without more. See 6 J. Moore, W. Taggart & J. Wicker, Moore’s Federal Practice f 56.24, at 56-1432 (2d ed. 1985).


source: Caselaw Access Project

author: CAHILL, District Judge.

license: Public Domain

text:
    Agnes HILL, et al., Plaintiffs, v. GROUP THREE HOUSING DEVELOPMENT CORPORATION, et al., Defendants.
    No. 84-1534C(4).
    United States District Court, E.D. Missouri.
    Oct. 4, 1985.
    Ann B. Lever, Mark J. Cardosi, Stan Platke, Legal Services of Eastern Missouri, Inc., St. Louis, Mo., for plaintiffs.
    Ellen J. Sazzman, Trial Atty., Dept, of Justice, Civil Div., Washington, D.C., Edwin B. Brzezinski, Asst. U.S. Atty., St. Louis, Mo., Sheila Lieber, Stephanie Lach-man Golden, Dept, of Justice, Fed. Programs Branch, Civil Div., U.S. Dept, of Justice, Patricia Sharin Flagg, U.S. Dept. of Housing & Urban Development, Washington, D.C., for Federal defendants.
    Charles A. Seigel, Harvey Harris, Peter Sadowski, Stolar, Heitzmann, Eder, Seigel & Harris, St. Louis, Mo., for Missouri Housing & Wayne Milsap.
    Huseh, Eppenberger, Donohue, Elson & Cornfeld, Gregory R. Smith, St. Louis, Mo., for Group Three Housing Dev., Joseph Shepherd, William A. Franke and Richard C. Mange.
    Peper, Martin, Jensen, Maichel and Het-lage, Michael David Hart, St. Louis, Mo., for First Murphy Blair Redevelopment Corp. and Consol. Neighborhood Service, Inc.
   MEMORANDUM

CAHILL, District Judge.

This matter comes before the Court on defendants’ motion to dismiss and for judgment on the pleadings.

The plaintiffs in this case are seven women who are low income residents of the state of Missouri. Plaintiffs allege that they were denied Section 8 New Construction Public Housing benefits, in spite of the fact that they met the income level requirements of the program. Plaintiffs allege that the denial of benefits was arbitrary, without good cause, and without prompt and meaningful opportunity to appeal the decision. Plaintiffs allege that the defendants’ actions violated their constitutional rights, and they seek to certify as a class all present, past, and future individuals eligible under federal law for Section 8 housing who have applied or will apply for federally subsidized Section 8 new construction housing in Missouri.

In support of their motion to dismiss and for judgment on the pleadings, the defendants argue that the plaintiffs have failed to establish a property interest upon which to base a procedural due process claim. The defendants further argue that the plaintiffs have no standing to file suit under 42 U.S.C. § 1437. To resolve this matter, the Court must first make a determination as to whether plaintiffs have a protectable property interest. The controlling case on this issue is Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972), wherein the Supreme Court explained when a statutory benefit constitutes a property interest subject to due process protection. “To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.” Roth, 408 U.S. at 577, 92 S.Ct. at 2709. To date, only two circuits have applied the Roth decision to the factual situation now before the Court, and each has reached a different conclusion.

In Ressler v. Pierce, 692 F.2d 1212, 1215 (9th Cir.1982), the Ninth Circuit interpreted 42 U.S.C. § 1437f(d)(1)(A) and 24 C.F.R. § 886.117(a)(b) as creating a property interest that is sufficient to support a due process claim. The Ninth Circuit reasoned that the plaintiffs in that case were members of a class of individuals who were intended to be benefited by the Section 8 program. See Ressler, 692 F.2d at 1215. Taking an opposite position, the Seventh Circuit applied Roth to a similar factual situation, and found that a sufficient property interest did not exist so as to invoke procedural due process protections. See Eidson v. Pierce, 745 F.2d 453 (7th Cir.1984). The court concluded that a property interest could only be created “when the statutes or regulations in question establish a framework of actual conditions delimiting entitlements which are capable of being explored at a due process hearing.” Id. at 459-60; citing Geneva Towers Tenants Organization v. Federated Mortgage Investors, 504 F.2d 483, 494-95 (9th Cir.1974) (Hufstedler, J., dissenting). Consequently, the two persuasive authorities are diametrically opposed in regard to the issues now before the Court.

The Eighth Circuit has yet to pass upon the issues that have been presented to this Court. Although there does not appear to be a definitive statement with regard to possible procedural due process rights in the Section 8 housing program, there are other cases within this circuit that delineate what constitutes a protectable property interest.

The defendants have directed the Court’s attention to the case of Vruno v. Schwarzwalder, 600 F.2d 124 (8th Cir.1979), which defendants contend supports their argument that plaintiffs have failed to establish a protectable property interest. Vruno involved a Minnesota statute that prescribed definitive standards and procedures to be followed when a criminal offender sought public employment. The plaintiff in Vruno had applied for a position as a firefighter for the City of St. Paul. After qualifying, plaintiff was placed on the list of eligible candidates. Plaintiff was subsequently removed from the list, and was denied an opportunity to be heard. The Eighth Circuit rejected Vruno’s claim to a constitutionally protected property interest. The court analogized the plaintiffs claims to those asserted by the untenured professor in Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 540 (1972). Just as the plaintiff in Roth was not entitled to tenure under the Wisconsin statute the court held that the Minnesota statute did not entitle Vruno to public employment. Although the statute in Vruno provided that certain procedures and guidelines be followed, the procedures, in and of themselves did not entitle the plaintiff to employment. Thus the court held that the statute did not create a protectable property interest.

In view of the Vruno decision, it is the opinion of this Court that plaintiffs’ claims must necessarily fail because plaintiffs have heretofore failed to establish a property interest that would entitle them to the protections of procedural- due process. Section 8 housing subsidies were created “for the purpose of aiding lower-income families in obtaining a decent place to live and [to] promote economically mixed housing.” See 42 U.S.C. § 1437f (1982). Under the program, assistance payments are authorized to be made to private owners who make housing available to lower-income families. The responsibility for management, operation, and the selection of tenants is left largely to the discretion of the property owner. See 42 U.S.C. § 1437f(d)(l)(A) (1982). The only restriction that is placed upon the property owner is the obligation to give preferential consideration to families living in substandard housing; families that pay more than 50% of their income for rent; and/or families that have been involuntarily displaced at the time they apply for Section 8 housing. See 42 U.S.C. § 1437f(d)(l)(A) (1982). The HUD Handbook (Handbook Transmittal No. 4350.3) sets forth the following screening criteria that should be used when determining eligibility: (1) the applicant’s ability to pay rent and make timely payments, (2) comments from previous landlords, (3) credit references of the applicant, and (4) the applicant’s housekeeping habits. If eligibility is determined, the applicant is placed upon a list when there are no housing units available. If the applicant is found ineligible, notice and the reasons for rejection must be given. The owner must also notify the applicant that he or she has the opportunity to meet with the owner or managing agent of the housing unit. See 24 C.F.R. Subsection 1, 2, and 3, Part 880.603(b).

Both the statute and regulations pertaining to the Section 8 program evidence plaintiffs’ inability to point to a specific property interest. It is true that HUD’s regulations require that certain procedures be followed by the owner in the tenant selection process. However, “... procedural protection(s) alone, absent an underlying substantive entitlement [do] not constitute [a] substantive, protected interest.” See Lyon v. Farrier, 727 F.2d 766, 768 (8th Cir.1984). In the case at bar, even if a particular applicant met all of the criteria as set forth by HUD, his or her application could still be legitimately rejected by the property owner. Thus, the statute does not create a legitimate claim of entitlement to housing, and for that reason judgment must be entered in favor of the defendants.

Plaintiffs equal protection arguments can be summarily dismissed by this Court because applicants for Section 8 housing and applicants for conventional housing are not similarly situated individuals. As the defendants correctly point out, the two programs are entirely different. A conventional housing project is funded by the federal government and normally administered by a state agency. Section 8 housing, on the other hand, is owned and operated by private individuals. The goal behind the Section 8 program is to encourage private property owners to provide housing for low-income families. Thus, not only are the applicants for the two programs not similarly situated, the differences within the programs are rationally related to a legitimate governmental purpose.

The Court need not reach the other issues raised by plaintiffs’ complaint. The Court’s ruling with respect to plaintiffs’ property interest claim is dispositive. Accordingly,

IT IS HEREBY ORDERED that plaintiffs’ complaint be and is DISMISSED WITHOUT PREJUDICE.


author: JOHN B. JONES, District Judge.

text:
    UNITED STATES of America, Plaintiff, v. The MID-STATES EXCHANGE; Robert Hawley and Audrey Hawley, Defendants.
    Civ. No. 85-4214.
    United States District Court, D. South Dakota, S.D.
    Oct. 4, 1985.
   MEMORANDUM OPINION and ORDER

JOHN B. JONES, District Judge.

Defendants herein have moved under F.R.Crim.Pro. 41(e) for return of property seized by various state and federal law enforcement officials, pursuant to warrant, during the course of a federal investigation into alleged tax evasion. Defendants support their motion with allegations of various violations of the Fourth Amendment proscriptions against unreasonable search and seizure.

Inasmuch as no indictment has, as of yet, been filed against defendants pursuant to this investigation, their motion must be construed as a civil action in equity to recover property. Marshall v. Central Mine Equipment, 608 F.2d 719, 721 (8th Cir.1979). Nevertheless, should an indictment subsequently issue in this matter, regardless of the venue, this Court’s determination of the constitutionality of the warrant, search and seizure challenged herein would constitute the law of the case, and would, therefore, be binding upon the trial court in a subsequent criminal prosecution. See United States v. Montos, 421 F.2d 215 (8th Cir.), cert. denied 397 U.S. 1022, 90 S.Ct. 1262, 25 L.Ed.2d 532 (1970). Since suppression of evidence is implicit in the return of property under Rule 41(e), see C. Wright, 3 Fed.Prac. & Proc. § 673, at 762 and cases cited therein, my ruling on the merits of defendants’ motion must comprehend within its analysis the ultimate ramifications of the exclusionary rule, and concomitantly, the “good faith” exception to that rule created in United States v. Leon, 468 U.S. —, 104 S.Ct. 3405, 82 L.Ed.2d 677 (1984).

The 1972 Advisory Committee notes clearly indicate that the policy of Rule 41(e) is to “require the motion to suppress evidence to be made in the trial court rather than in the district in which the evidence was seized.” That policy is not furthered when a Rule 41(e) motion is entertained during the course of a grand jury investigation of the moving parties. Moreover, should this Court consider the merits of defendants’ motion, the current grand jury investigation of defendants’ financial activities would necessarily be delayed and perhaps stymied. The United States Supreme Court in United States v. Calandra, 414 U.S. 338, 94 S.Ct. 613, 38 L.Ed.2d 561 (1974), in holding that the exclusionary rule does not apply to grand jury proceedings, made clear that grand jury investigations must not be impeded by minitrials and preliminary hearings on Fourth Amendment questions. Id. at 414 U.S. 349-52, 94 S.Ct. 620-22; see also Truchinski v. United States, 393 F.2d 627 (8th Cir.1968). Accordingly, this Court simply does not have the power to suppress or return evidence which is the subject of a current grand jury investigation.

In view of the foregoing, it is the Court’s view that defendants’ motion is premature. A ruling at this time on the issues implicit in defendants’ motion would not only thwart the clear policy of Rule 41(e) in requiring motions to suppress evidence to be made in the trial court; it would also impermissibly impede the grand jury in its investigation of individuals suspected of tax evasion. Accordingly, defendants should renew their motion upon conclusion of the current grand jury investigation. Should an indictment ultimately issue, defendants should move the trial court to suppress improper evidence under Rule 41(f). If the grand jury is dissolved without handing down an indictment against defendants, their proper remedy would be to renew their Rule 41(e) motion to this Court.

ORDER

Now, therefore,

IT IS ORDERED that defendants’ Motion to Suppress Evidence and for Return of Property is denied, but without prejudice to be renewed in a manner consistent with this opinion.


author: GUNN, District Judge.

text:
    Thomas PILLOW, Plaintiff, v. Vincent SCHOEMEHL, Mayor of the City of St. Louis, et al., Defendants.
    No. 83-2449C(6).
    United States District Court, E.D. Missouri, E.D.
    Oct. 7, 1985.
    Doris Gregory Black, St. Louis, Mo., for plaintiff.
    James J. Wilson, City Counselor, Judith A. Ronzio, Associate City Counselor, St. Louis, Mo., for defendants.
   ORDER AND MEMORANDUM

GUNN, District Judge.

IT IS HEREBY ORDERED that defendants’ motion for summary judgment is granted on the basis of res judicata.

Plaintiff, a black male, brought this action under 42 U.S.C. § 1981 against members of the St. Louis Board of Police Commissioners (Board) in their official capacities, alleging racially discriminatory discharge from his position of police officer. Plaintiff commenced employment with the St. Louis Metropolitan Police Department in December 1975. On September 16, 1981, plaintiff was charged by the Board with nine violations of rules of the Police Manual. In brief, it was alleged that on September 13, 1985, plaintiff, while off duty, was intoxicated and fired three or four shots from a non-issued or approved revolver directly into a crowd of persons without cause or justification; that plaintiff was arrested for said incident and was abusive and insubordinate to superior officers while in custody. Following an evidentiary hearing at which plaintiff was present and represented by counsel, the Board found plaintiff guilty and discharged him.

Plaintiff filed a petition for review in the Circuit Court of the City of St. Louis raising eleven grounds for vacating the Board’s decision and seeking reinstatement and damages. The court upheld the Board’s decision. On appeal, the Missouri Court of Appeals affirmed the judgment of the circuit court. In the case now before this Court, plaintiff alleges racial discrimination in that similarly situated white police officers were not discharged for similar offenses.

In Brown v. St. Louis Police Dept., 691 F.2d 393 (8th Cir.1982), the Eighth Circuit held that a discharged police officer who had previously challenged in state court the Board of Police Commissioners’ decision to discharge him, was barred by res judiciata, as applied in Missouri, from subsequently maintaining a federal civil rights action for discriminatory discharge. “This issue [of discrimination] could and should have been raised in the state proceedings under Mo.Ann.Stat. § 84.040 (Vernon 1982).” Id. at 396.

Accordingly, summary judgment on the basis of res judicata is granted to defendants.


author: HAIGHT, District Judge:

text:
    UNITED STATES FIDELITY AND GUARANTY COMPANY and Union Trust Company of Maryland, Plaintiffs, v. The FEDERAL RESERVE BANK OF NEW YORK, Defendant and Third-Party Plaintiff, v. STATE BANK OF ALBANY, Philadelphia National Bank and First Pennsylvania Bank, Third-Party Defendants. UNITED STATES FIDELITY AND GUARANTY COMPANY and Union Trust Company of Maryland, Plaintiffs, v. The PHILADELPHIA NATIONAL BANK and First Pennsylvania Bank, Defendants.
    Nos. 83 Civ. 3310-CSH, 84 Civ. 6950-CSH.
    United States District Court, S.D. New York.
    Oct. 8, 1985.

      Duer & Taylor, New York City, Stradley, Ronon, Stevens & Young, Philadelphia, Pa., for plaintiffs; Frank C. McLaughlin, Jr., New York City, Daniel Mungall, Jr., David C. Franeeski, Jr., Philadelphia, Pa., of counsel.
    James H. Oltman, Gen. Counsel, New York City, for defendant and third-party plaintiff Federal Reserve Bank of New York; Thomas C. Baxter, Jr., Asst. Counsel, Ernest T. Patrikis, Deputy Gen. Counsel, Don N. Ringsmuth, Asst. Gen. Counsel, Elizabeth A. Glenn, Ashby G. Hilsman, of counsel.
    Donovan, Leisure, Newton & Irvine, Louis C. Lustenberger, Joseph L. Ciasen, III, New York City, for third-party defendant State Bank of Albany; McNamee, Lo-chner, Titus & Williams, P.C., Albany, N.Y., of counsel.
    Morgan, Lewis & Bockius, Philadelphia, Pa., for defendant and third-party defendant The Philadelphia Nat. Bank; Gregory M. Harvey, Philadelphia, Pa., James W. Harbison, Jr., New York City, of counsel.
    Saul, Ewing, Remick & Saul, Philadelphia, Pa., for defendant and third-party defendant First Pennsylvania Bank; Miles H. Shore, J. Dennis Faucher, Clarence D. Armbrister, William Charles Dixon, of counsel.
   HAIGHT, District Judge:

Plaintiff Union Trust Company of Maryland (“Union Trust”) and its insurer, United States Fidelity and Guaranty Company, brought this action to recover damages caused by a clever check fraud perpetrated upon Union Trust by a nonparty. Following denial of its motion to dismiss, in an opinion reported at 590 F.Supp. 486 (hereafter cited as “USF & G /”), defendant Federal Reserve Bank of New York (“New York Fed”) impleaded third-party defendants State Bank of Albany (“Albany State”), Philadelphia National Bank (“PNB”), and First Pennsylvania Bank (“First Penn”). Soon after filing of the third-party complaint, plaintiffs amended their complaint to assert claims against Albany State. It was unnecessary for them to assert claims against the remaining third-party defendants because the Court accepted for transfer and consolidation a suit which plaintiffs had previously-filed against those two Pennsylvania banks in the Eastern District of Pennsylvania, United States Fidelity and Guaranty Co. v. Philadelphia National Bank, No. 83-1304 (E.D.Pa.). That action was redesigna-ted civil action no. 84 Civ. 6950 (CSH) following the transfer.

Since decision of the motion to dismiss, all parties have engaged in extensive and revealing discovery. Following the completion of discovery, defendant New York Fed initiated the current round of motions by moving for summary judgment on plaintiffs' claims. Albany State filed a similar motion soon after. Plaintiffs opposed both motions and moved to amend their complaint against New York Fed. See note 9, infra. Also before the Court are three motions for summary judgment which were pending in Pennsylvania district court at the time of transfer of the related case. These are cross-motions by plaintiffs and First Penn and a motion on plaintiffs’ claims by PNB. Because the facts are for the most part undisputed, these motions together present most of the legal issues which would be encountered at trial, if the complaints survive the present motions. I begin with a review of the facts revealed by discovery.

I.

As described more fully in USF & G I, 590 F.Supp. at 489-91, Union Trust was fraudulently induced to permit a depositor to withdraw funds against a worthless check. In April 1980, a man who called himself Marvin Goldstein established a checking account with Union Trust. Soon after, he deposited a check for over $880,-000 in the account. The account upon which the check purported to be drawn did not exist, but a clever manipulation of the numerals on the face of the check caused it to be routed among a number of New York and Pennsylvania banks before being returned to Union Trust as uncollectible. In the meantime, Union Trust had permitted Goldstein to withdraw a substantial amount of cash from his account, having assumed from the lapse of time that the check had been paid. The foregoing information was pleaded in the original complaint, and discovery has confirmed its accuracy. The interesting details unearthed in discovery primarily concern not the behavior of the defendant banks in routing the bogus check but that of Union Trust’s employees in accepting it and releasing fundá against it. A summary of that new information follows.

On April 16, 1980, Goldstein walked into a Baltimore branch of Union Trust. He told the branch manager, John Gemmill, that he and his father were precious metals dealers and that he planned to establish a Baltimore office of his father’s New York business, Goldstein Precious Metals and Stones. In preparation, he sought to open a checking account with Union Trust in the name of the business. In opening the account, Goldstein produced one piece of personal identification, a New Jersey driver’s license, and a New York certificate of business proprietorship, and supplied a New York bank reference. Gemmill recorded this and other information on a “New Account Information Form.” Goldstein opened the new account with a cash deposit of $15,000.

Gemmill then turned the new account form over to assistant branch manager John Clement with instructions to prepare two signature cards. Clement did so, but he unaccountably neglected to transcribe the bank reference from the new account form to the signature cards. The form and one card were then sent to central Union Trust files, while one card was retained at the local branch.

One week later, Goldstein returned to the branch and withdrew $14,000 from his account, reducing his balance to $1,000. Little was heard from him until May 6, when he deposited a check for $880,000 at a second Union Trust branch located a few blocks from the branch with which he had opened the account. Deposit of such a large check ordinarily triggers self-protective internal alerts at a bank, and Union Trust was no exception. Tellers who received for deposit checks over $100,000 were supposed to notify the branch manager, according to written Union Trust procedural guidelines. The manager was then to decide whether a “hold” should be placed on the check — that is, whether the depositor should be denied access to the deposited funds for an extended period of time in order to permit the bank to confirm the collectibility of the check. In the absence of such a hold, funds ordinarily become available to the depositor within one to two days of deposit of the check. The teller who accepted Goldstein’s check, however, neither notified bank officers of the large deposit nor placed a hold on it.

The teller, however, was merely the bank’s first line of defense against fraud. During the next few days, Gemmill, the branch manager, was reviewing a document known as a “balance fluctuation report,” designed to alert bank officers to unusually large balance changes in the accounts under their supervision. The leap in the Goldstein Precious Metals account balance from one thousand to nearly a million dollars naturally caught his attention, and he decided to investigate. Gemmill first requested, or had Clement request, credit reports on the Goldstein business from two national credit reporting services. Both services reported that they had no record of Goldstein Precious Metals and Stones. Upon receiving this information, Gemmill had Clement retrieve the Goldstein signature card in order to pursue the credit references which would ordinarily be listed on it. Because Clement had neglected to transfer the reference from the account form, however, the signature card was no help, and neither bank employee pursued this further.

Wisely, Gemmill instructed Clement to look into the $880,000 check. The check was drawn on an account at First Penn of a company called Metropolitan Investment Corporation. On instructions from Clement, an employee of Union Trust’s credit department called officials at First Penn and was told that no such account existed. First Penn had no banking relationship with Metropolitan Investment Corporation. This information was relayed to Clement, who told Gemmill. All of the foregoing occurred on or before Friday, May 9, within four days of the check’s May 6 deposit.

According to his deposition testimony, Gemmill, who was leaving for vacation on May 9, told Clement to report to senior bank officers any activity in the Goldstein account, perhaps recognizing that the First Penn report made it unlikely that the Gold-stein check would be honored. Clement remembers no such instructions. Either way, no other action was taken at that time to prevent Goldstein from withdrawing funds against the check.

On Monday, May 12, Gemmill was temporarily replaced by another bank officer. The next day, Goldstein telephoned Clement to ask instructions for making a “wire transfer” of funds, that is, for arranging the automatic transfer of funds from his account to an account in another bank. When Goldstein arrived at the branch to arrange for the transfer, he presented Clement with a bottle of expensive champagne. They discussed arrangements for the transfer, and Clement told him that the bank could only wire “collected” balances, that is, could only wire funds from the check after a sufficient time had passed to permit the bank to conclude that the check had been paid. Apparently Goldstein was willing to wait, No further action was taken on Tuesday.

Two days later, on Thursday, May 15, seven business days after deposit of the check, Goldstein returned and sought both to effect a wire transfer of $660,000 and to withdraw $95,000 in cash. The wire transfer was to be made to the account of a Maryland coin dealer. Apparently concluding that sufficient time had passed, Clement undertook to make the wire transfer. His first step was to check the Union Trust computer to find out whether sufficient funds were available in Goldstein’s account to satisfy the transfer request. Because this act was crucial to the success of the fraud, it must be examined in some detail.

As explained in note 4, supra, banks are never notified when checks deposited with them are paid by the payor bank. The large volume of checks in the banking system would make any such notification system expensive and unwieldy. If payment is refused, however, the payor bank must notify the depositary bank of the refusal within roughly twenty-four hours of its receipt of the check. See N.Y.U.C.C. § 4-802. In order to protect themselves against uncollectible checks, banks commonly guess at the amount of time the check is likely to spend in the collection system before reaching the payor bank and place a hold on the deposited check for at least that amount of time. Union Trust’s computer was charged with keeping track of such holds.

The Union Trust computer apparently registered two types of holds. When a check was deposited into a checking account such as Goldstein’s, the Union Trust computer automatically placed a one- or two-day hold on the deposited check. These holds were keyed to the Federal Reserve clearing system. Member banks of the Federal Reserve system keep accounts with their local Federal Reserve bank. See USF & G I, 590 F.Supp. at 490 n. 7. One of the functions of these accounts is to permit the Reserve bank to credit and debit member banks for checks cleared through the Reserve bank. Banks are ordinarily not given immediate credit for or access to the funds represented by checks such as that deposited with Union Trust by Goldstein. In other words, regardless of whether a depository bank gives its depositor immediate access to the funds represented by a deposited check, the Federal Reserve will not, in most instances, give the bank immediate credit for the check in the account which the bank maintains with the Reserve bank. Instead, the Reserve bank credits the check to a one-or two-day deferred account, equivalent to placing a hold on the check, with the length of the deferral depending primarily upon the distance the check must travel to reach the payor bank. Once the deferral period elapses, the Reserve bank grants the depositary bank a provisional credit for the amount of the check.

In reality, however, checks frequently do not clear in the one- or two-day time period allotted for this purpose by the Federal Reserve. The provisional status of the credit given by the Reserve bank signifies that although a credit has been given to the account of the depositary bank, no corresponding debit has been made in the account of the payor bank. Once the payor bank receives the check, it must notify the Reserve bank within twenty-four hours whether it will honor the check. If the Reserve bank is notified that the check has been honored, it debits the account of the payor bank and removes the provisional status of the credit given the depositary bank.

The Union Trust computer automatically placed the equivalent of a hold on all deposited checks corresponding to the length of the deferral imposed by the Federal Reserve. The duration of Reserve system deferrals were never intended, however, to estimate or correspond precisely to the actual clearing time of a check. On the contrary, they intentionally underestimate this time. For that reason, as suggested above, banks frequently place their own extended hold on checks which are not likely to clear within one or two days. This prevents the depositor from withdrawing funds until the bank has satisfied itself that no word of dishonor has arrived or, in theory, will arrive. Such holds could also be recorded on the Union Trust computer, but they were not imposed automatically.

As noted above, no such hold was placed on the Goldstein check. The only hold in the Union Trust computer was a two-day Federal Reserve hold, which expired several days before May 15. Therefore, when Clement checked, he found no hold on the Goldstein funds. This, of course, did not indicate that the Goldstein check had been paid. It simply indicated that whatever precautions Union Trust had taken against premature withdrawal had expired, and the check had not been returned. Clement called the bookkeeping department of the bank, which confirmed that no hold was in effect — in other words, that, according to the bank’s computer, the funds from the check were available for withdrawal.

Apparently misunderstanding the nature of the information supplied by the computer, Clement, according to his deposition testimony, concluded from his computerized inquiry not only that all holds had expired but that the check had actually cleared. Although he was aware of the First Penn report that no account existed against which the check could possibly have been drawn, he concluded that the report must have been incorrect. Without checking once again with First Penn, he authorized the wire transfer and the cash withdrawal.

Goldstein picked up the cash in person on May 15. The wire transfer was made to the bank of the Maryland coin dealer the same day. The dealer, however, had insufficient coins on hand to satisfy Goldstein’s order. The dealer gave Goldstein the coins available on May 15; the remainder were delivered to him in mid-afternoon the following day. Goldstein thereafter disappeared with the cash and coins.

At about the same time Goldstein was receiving his coins on May 16, a Union Trust Vice President was informed that First Penn was returning the $880,000 check. Only later was it discovered that the Goldstein check was a fraud. The numbers printed in magnetic ink at the bottom of the check and the routing number, printed in ordinary ink in the top right hand corner, did not match, a circumstance which caused the check to be routed to several banks over several days before arriving at First Penn. It is now possible to describe the circumstances surrounding the routing of the check in more detail.

Union Trust’s central check processing facility attempted to computer-process the check on May 6, the day of deposit. This machine rejected the check because the magnetic ink character recognition number (“MICR number”) was not printed in magnetic ink and was the wrong size, necessitating hand processing. At that time all of Union Trust’s non-local checks which required hand processing were sent to PNB for processing and collection. The Goldstein check was accordingly dispatched to PNB in the early morning of May 7; because of its great value, it was sent by courier.

Based on the check’s routing number, it was sent by PNB to a New York Fed processing center in Utica, New York, for forwarding to Albany State. Albany State received the check on the morning of May 9 and returned it to the Utica center of New York Fed, stamped “Sent in Error,” on May 12. The next day the Utica center sent the check to New York Fed’s New York City office.

Despite irregularities in the check described as “glaring” by a New York Fed chief of operations, that office failed to detect the fraudulent nature of the check. Instead, on May 14, New York Fed sent the check to the Federal Reserve Bank of Philadelphia. A document accompanying the cheek indicated that New York Fed intended the check to be presented for collection to First Penn rather than returned to PNB as an unpaid item. The Philadelphia Reserve bank presented the check to First Penn at 9:00 a.m. on the same day it received it, May 14. At this time, it must be remembered, Goldstein had not yet been permitted to withdraw any funds against the check by Union Trust.

If First Penn was going to dishonor the Goldstein check, it was required by the U.C.C. to notify PNB of this fact by midnight of May 15. It did not. Instead, processing of the check was not completed until 9:45 a.m. on the morning of May 16, when First Penn finally notified PNB of the dishonor. At this point it was still not too late to recover the fraudulently gained funds, for the second shipment of gold coins had not yet been made to Goldstein. Quick action might have caught him. Quick action, however, was not forthcoming. PNB did not pass word of the dishon- or to Union Trust until mid-afternoon of May 16, too late to prevent Goldstein from slipping away. He has never been located.

II.

Albany State and the three defendant banks all move for summary judgment on plaintiffs’ claims. Each is in a somewhat different factual posture, and each accordingly raises somewhat different legal issues. Overhanging all of the arguments, however, is the issue of the effect of Union Trust’s behavior in its dealings with Gold-stein. It cannot be contended that Union Trust’s behavior was anything but reckless. Gemmill opened an account with a man who presented only one form of personal identification, an out-of-state driver’s license. Whether or not this alone was poor commercial practice, it placed particular importance on the bank reference which he provided, for the reference was Union Trust’s only independent means of confirming Goldstein’s identity. Yet Clement left the reference off the signature card, and neither man made an effort to track it down when it was needed. In addition, the teller who accepted the check for deposit did so without presenting it to a branch manager, in breach of bank regulations. This failure was particularly serious, for it deprived the banking system of its one opportunity for the check to be examined by an experienced professional who was unhurried by time pressures and simultaneously had access to information about the depositor. The most astounding act of carelessness, however, was the bank’s release of funds against a check which it had been told was drawn on a non-existent account. Such an act was more than mere negligence, for it entailed acting in the face of a known and obvious risk. Viewed in its entirety, Union Trust’s conduct was breathtakingly foolhardy; nay, commercially suicidal.

New York Fed argues, with backing from Albany State, that such almost incomprehensible conduct should act as a bar to any recovery based on the dramatically lesser negligence of other banks in the check’s chain of collection.

A.

In understanding this claim, it is helpful to review the basis of New York Fed’s alleged liability. Section 4-202(1) of the U.C.C. imposes upon all banks which handle checks sent for collection a duty of ordinary care both in forwarding checks for collection and in returning checks deemed uncollectible. Care must be exercised both in the promptness of action and in the choice of action. Timing is handled by the “midnight deadline” rule; banks exercise care in the timing of an action by responding, generally, before midnight of the business day following the day on which the check is received. N.Y.U.C.C. §§ 4-104 and 4-202(2). The proper choice of action cannot be so easily codified and is governed by a general rule of reasonableness borrowed from tort law. USF & G I, 590 F.Supp. at 491-92. This is the duty New York Fed is accused of failing to satisfy.

At the time of USF & G I, the lack of discovery made it impossible to define precisely New York Fed’s alleged breach of care, since its exact actions were then unknown. It now appears that plaintiffs' claim is twofold: that New York Fed should have, in the exercise of ordinary care, either 1) recognized the risk of fraud inherent in the check and sent it for return to PNB rather than collection from First Penn or 2) recognized that the routing of the check to Albany State caused a significant risk that Union Trust would release funds before the check cleared and sent wire notice to Union Trust or PNB that the check had taken the long route to First Penn. See USF & G I, 590 F.Supp. at 494-99. Union Trust argues that these actions would have permitted it either to prevent the fraud or to catch Goldstein before he absconded with the cash and coins.

It is by no means a foregone conclusion that New York Fed’s failure to take these actions, given the realities of modern check processing, was negligent. USF & G I, 590 F.Supp. at 499. On the other hand, as discussed above, Union Trust’s recklessness was gross and obvious. New York Fed argues, on several grounds, that the tenuous nature of its alleged negligence should not serve as a basis for recovery in the face of Union Trust’s conduct.

The primary difficulty with defendant’s theory is that it is not expressly sanctioned by the UCC. Plaintiffs’ suit is for violation of a duty imposed in the first instance by the UCC, and it is to that body of law which resort must first be had to determine the rights and liabilities of the parties. Although the UCC in some specific circumstances apportions liability on the basis of relative fault—most notably in the law of forged signatures and endorsements, see, generally, Five Towns College v. Citibank, N.A., 108 A.D.2d 420, 489 N.Y.S.2d 338, 342-43 (1985), it incorporates no general rule of comparative or contributory negligence. In the area with which we are concerned, check collection, the Code imposes upon collecting banks a duty of due care and subjects them to “but for” liability for violations of the duty. N.Y.U.C.C. §§ 4-103(5) and 4-202(1); Northpark National Bank v. Bankers Trust Co., 572 F.Supp. 524, 531 (S.D.N.Y.1983) (hereafter “Northpark”). There is no express requirement that the plaintiff demonstrate its own due care as a prerequisite to recovery, nor is there any mention of comparative negligence. There is simply no mention of the effect, if any, of a plaintiff’s negligence on its recovery under § 4-202(1).

The question cannot be permitted to end there, however. Article 4 of the Code, governing check collection, was developed in the 1950s, prior to the advent of large scale fraud upon the check collection system. See Northpark, 572 F.Supp. at 533. The rules of liability which govern the allocation of losses arising from check transit were not—could not have been—designed with such fraud in mind. In these circumstances, to adhere blindly to the limitations imposed by those rules, if to do so would violate the policies which the UCC otherwise seeks to promote, would be unwise and unjust. Nor does the Code demand such adherence. As Judge Knapp noted in his seminal Northpark decision, “the history of the UCC makes it abundantly clear that, especially in the context of those provisions which impose a duty of care, the Code’s watchword is ‘flexibility.’ ” 572 F.Supp. at 533. I do not, therefore, find the lack of a rule of contributory or comparative negligence in Article 4 to be an insuperable barrier to defendants’ claim that such a rule should be imposed. Rather, the decision turns upon whether to do so would, on the one hand, be consistent with the aims of § 4-202(1) and Article 4 as a whole and, on the other, would promote the policies which animate the rules of liability found elsewhere in the Code.

B.

In making its claim, New York Fed argues primarily by analogy to tort law. Because, the argument goes, the ordinary care standard of § 4-202(1) is borrowed from tort law, tort principles of comparative or contributory negligence should apply. As plaintiffs point out, however, this is not a tort case. The standard of care, though reliant on a concept borrowed from tort law, is imposed by the UCC. In allegedly violating § 4-202(1), defendants did not breach a duty imposed by tort law; they breached a duty imposed by statute, the UCC. It is the policies served by the UCC, therefore, rather than those served by tort law, which must determine whether plaintiff’s negligence should affect its recovery under § 4-202(1). Because, as discussed below, the aims of tort law are not identical with those of the UCC, I decline to borrow the tort rule.

Tort law is designed primarily to apportion loss. Because it is typically imposed upon lay parties with little or no appreciation of its finer points, only secondarily can it hope to guide behavior so as to minimize harm. Rather, it most often becomes relevant only after the fact; the courts are asked to decide who must bear or respond for a loss previously incurred, and to what degree. As such, its guiding principle is fairness. In tort law courts have equated fairness with fault. The rule of comparative negligence is a perfect expression of this principle.

The UCC, however, was designed to facilitate commerce primarily by guiding and making predictable the consequences of behavior. It is imposed primarily upon a comparatively sophisticated group, businessmen and bankers, who look to its provisions to direct their business transactions. This is not to overlook its loss allocation function. Rules designed to guide behavior are inevitably turned against those who fail to follow them, and even the most carefully planned transactions may end in dispute. This function, however, is secondary to the creation of a system of rules to bring order and predictability to commercial transactions.

Interestingly, this fact is forcefully demonstrated by a series of provisions in the Code which were designed, unlike the bulk of the Code, to distribute loss. Several provisions of Article 3 determine which party must bear loss which results from the use of a forged signature or endorsement on a negotiable instrument. Tort law would ordinarily distribute such a loss on the basis of fault: that party or parties whose carelessness resulted in the forgery would bear the consequences of it. The UCC, however, for the most part does not look at actual fault. Instead, it places responsibility on the party which ordinarily would be in the best position to prevent the loss. See Northpark, supra, 572 F.Supp. at 535 and n. 26; Underpinning & Foundation Constructors, Inc. v. Chase Manhattan Bank, N.A., 46 N.Y.2d 459, 468, 414 N.Y.S.2d 298, 302, 386 N.E.2d 1319 (1979). Such a result accomplishes two purposes: first, it increases the efficiency and fraud-resistance of the banking system by placing upon those best able to guard against it the responsibility for preventing fraud, and, second, it speeds the resolution of disputes by establishing clear rules of liability which do not depend heavily upon the specific facts of individual instances of fraud. See Perini Corp. v. First National Bank, 553 F.2d 398, 405-06 (5th Cir.1977) (describing this policy as promoting “finality”). Therefore, while the purpose of these rules is, as with tort law, to apportion loss, they are guided not by the policy which guides tort loss apportionment — fairness in the circumstances — but by the policies which shape the UCC — the promotion of efficient and predictable commerce.

Because tort law and the UCC are designed to serve different ends, I find it inappropriate to borrow a rule of comparative or contributory negligence from tort law for use in the UCC. Nevertheless, the question remains open whether such a rule should be implied from within the UCC itself.

C.

The policies which underlie the UCC were explored above. As relevant here, they were usefully summed up by Judge Knapp in Northpark: “[i]f there is a policy implicit in the UCC’s rules for the allocation of losses due to fraud, it is surely that the loss be placed on the party in the best position to prevent it.” 572 F.Supp. at 535. See similarly, Leigh Co. v. Bank of New York, 617 F.Supp. 147 (S.D.N.Y.1985), at 151. These rules are most elaborately developed in connection with the law of forged endorsements and signatures. Liabilities for forgeries are assigned in the first instance without regard to fault. Instead, as noted above, the drafters placed liability upon the party which they determined would typically be best situated to prevent a particular type of forgery.

Creation of this type of rule is essentially a legislative task, outside the scope of the proper exercise of judicial power. Even assuming that courts are competent to determine which party most commonly can prevent a particular type of forgery, the decision whether to assign liability to that party in all circumstances, without regard to fault, is best left to the legislature. This is particularly true where, as here, the legislature has already undertaken to create a complex network of laws in the area. For that reason, I rejected in USF & G I New York Fed’s request that I create such a rule, on grounds of public policy, assigning strict liability for MICR fraud to depositary banks. 590 F.Supp. at 500 and n. 23.

Nor is it particularly clear that depositary banks are best situated in all, or even most, cases to detect MICR fraud. If such fraud is carried out with more sophistication than demonstrated by Goldstein, the deposit and collection of funds may escape the notice of even a careful bank. In such cases, the bank best situated to detect the fraud might be the first bank to refuse payment, Albany State in this case. That bank would be the first with concrete knowledge that the check is flawed. On the other hand, the fraud could not be confirmed until the check has been examined by the purported payor. Which of these banks should be assigned liability under all circumstances, if any of them should, is a choice I declined and decline to make.

If such legislative assignments of strict liability comprised the whole of the UCC’s system for distributing loss due to forgeries, it might properly be concluded that the concept of contributory or comparative negligence had no role to play within the UCC. However, all rules governing liability for forged signatures are subject to the following provision, which incorporate what is, in effect, a rule of contributory negligence:

Any person who by his negligence substantially contributes to a material alteration of the instrument or to the making of an unauthorized signature is precluded from asserting the alteration or lack of authority against a holder in due course or against a drawee or other pay- or who pays the instrument in good faith and in accordance with the reasonable commercial standards of the drawee’s or payor’s business.

N.Y.U.C.C. § 3-406.

Section 3-406 is consistent with the remainder of the Code. It places a burden of due care on a person well situated to prevent a forgery: the drawer of the check. Drawers are forced to draw their checks so as to prevent alterations and to safeguard their blank checks so as to prevent their falling into unauthorized hands.

While § 3-406 does not directly apply to the case at bar, I am persuaded that it is appropriate to apply its spirit by analogy to apportionment of loss due to MICR fraud. The depositary bank, like the drawer of the check, is well situated to protect the system against MICR fraud. The depositary bank has an opportunity to examine the check free of the time pressures which prevent collecting banks from giving checks more than a cursory glance. Perhaps more important, the depositary bank is in the unique position of being able to examine both the depositor and the check. No other bank in the collecting chain can examine the depositor, a crucial disadvantage given the seeming difficulty of detecting this type of fraud.

In many cases examination of the depositor and check might well reveal nothing unusual or alarming, in which event the collecting banks will be obliged, to avoid liability, to demonstrate their compliance with § 4-202. As this case proves, however, a careful examination of either depositor or check, or both, might well reveal the fraud and protect the banking system. Because the depositary bank is uniquely situated to perform such an examination, it is entirely consistent with the policies served by the UCC to place upon it the duty to do so. Conversely, to refuse to imply such a duty would be equally inconsistent with those policies. It would permit the individual or entity in the best position, at least in those circumstances, to prevent the fraud to evade any duty to do so. Not only would such an approach be inefficient, it could well be, as this case demonstrates, entirely unjust.

Moreover, because only the depositary bank possesses this ability to examine both the depositor and the check, it is appropriate to place upon it the initial burden of care. In the banking system, the depositary bank is the first line of defense against MICR fraud, and the most efficient point at which to take precautions against it. It may properly be prevented from holding other banks liable if it has not adequately fulfilled this role.

I hold that a depositary bank which is a victim of MIOR fraud may be precluded from recovering damages from collecting banks under UCO § 4-202(1) if those banks can demonstrate that the negligence of the depositary bank played a substantial role in the success of the fraud. I have no hesitation in holding that, for the reasons stated previously, it has been demonstrated as a matter of law that the recklessness of Union Trust played a substantial-nay, indispensable-role in the success of this fraud. I grant summary judgment in favor of defendants Albany State, New York Fed, and PNB.

III.

First Penn stands on a somewhat different footing, since it is alleged to be liable not under § 4-202(1) but § 4-302. Section 4-302 makes a payor bank which fails to return a dishonored check within its midnight deadline liable for resulting damages. It has been repeatedly recognized, however, that § 4-302 does not shift the burden of loss to a payor bank which misses its deadline if the payee was already aware when presenting the check that it would not be accepted or paid except by mistake. See N.Y.U.C.C. § 3-511(2)(b); Bank Leumi Trust Co. v. Bally's Park Place, 528 F.Supp. 349 (S.D.N.Y.1981); Leaderbrand v. Central State Bank of Wichita, 202 Kan. 450, 450 P.2d 1, 9 (1969); cf. Continental National Bank v. Sanders, 581 S.W.2d 293, 296 (Tex.Civ.App.1979). Although Union Trust did not know that the Goldstein check would not be paid when it forwarded the check for collection, it learned long before releasing funds to Goldstein that First Penn had no account from which to pay the check. The same policy reasons which preclude recovery under § 4-302 by those who forward checks which they have reason to know are uncol-lectible also argue in favor of precluding Union Trust from recovering. It had reason to know of the uncollectibility of Gold-stein's check. Therefore, it can and should be estopped from claiming that at the time it suffered the loss it was not aware that First Penn would refuse the check.

To hold otherwise would be inequitable to First Penn. First Penn informed Union Trust that it had no account relationship with the purported drawer of the check. It should not now be held liable because Union Trust chose to ignore that information and subsequently release funds against the check.

Also relevant is National Savings and Trust Co. v. Park Corp., 722 F.2d 1303, 1304 (6th Cir.1983), cert. denied, 466 U.S. 939, 104 5.Ct. 1916, 80 L.Ed.2d 464 (1984), in which it was held that a bank may recover funds paid by mistake on a bad check unless the plaintiff has changed its position in reliance on the payment. Because Union Trust had been informed before allowing Goldstein to withdraw funds that First Penn would not pay the check, Union Trust may be estopped from claiming that it permitted withdrawal in reliance on First Penn's deemed payment at the expiration of its midnight deadline. Under both lines of authority, First Penn is entitled to summary judgment on plaintiffs' claims.

VI.

For the reasons stated above, all defendants are entitled to summary judgment on plaintiffs' claims. The third-party claims are therefore moot. The Clerk is directed to dismiss both complaints with prejudice.

It is SO ORDERED.

      . Since the occurrence of the events which form the basis of this lawsuit, Albany State has changed its name to Norstar Bank of Upstate New York. I will continue to refer to it by its prior name, as do the parties.

      . As explained in USF & G I, 590 F.Supp. at 489, familiarity with which is assumed throughout this decision, this would ordinarily have been an entirely legitimate assumption; indeed, it is an assumption made thousands of times daily by every bank in the nation without adverse consequences.

      . According to an affidavit filed by New York Fed, the New York bank reference, if contacted, would have reported no history of dealings with the Goldstein company.

      . As explained in USF & G I, 590 F.Supp. at 489, banks are never actually notified when a check which has been deposited with them is paid by, or “clears," the payor bank. Instead, they are only told if it fails to clear. Therefore, before releasing funds against a suspect check, banks commonly hold the check for the number of days which experience has taught them will be required for the check to reach the payor bank and for that bank to inform them if the check is uncollectable. If no word arrives in this time, it is assumed that the check has been paid.

      . There are a few exceptions to this rule of delayed availability — checks drawn on the United States Treasury, for example, are immediately credited to the depositary bank — but they are not relevant here.

      . The foregoing simplified description of the operation of this aspect of the Federal Reserve system is derived primarily from Eric N. Compton, Principles of Banking, 154-56 (2d Ed.1983).

      . For a fuller explanation of the operation of the fraud, see USF & G I, 590 F.Supp. at 490.

      . It is interesting to note that Goldstein's technique of printing an improper MICR number has been used in other types of fraud. According to published reports, the scheme which resulted in the well-publicized May, 1985, conviction for fraud of the brokerage firm of E.F. Hutton & Co. also used improperly printed checks. Hutton had checks printed with incorrect MICR numbers to foil its banks’ computer-aided check-processing machines, thereby lengthening the time needed for processing the checks and increasing Hutton’s "float,’’ or amount of funds on deposit by checks which have not yet been collected from the payor bank. Hutton deposited the flawed checks drawn on its own accounts at various banks in its accounts at other banks. Until the checks were paid by the former banks, Hutton received payment for use of the funds by both banks at once. The longer the time required to process the check, the greater the “double” payments Hutton received. This was where the incorrect MICR numbers came in handy. See Bleakley, How Hutton Scheme Worked, N.Y. Times, May 17, 1985, at D4, cols. 2-4.

      .In USF & G I one issue was whether New York Fed had a regulatory duty to "wire advice" to Union Trust of this return. 590 F.Supp. at 492-94. I concluded that New York Fed had no duty to originate such advice but only to forward wire advice given to it. 590 F.Supp. at 493-94. Albany State now claims that it did wire advice. On the basis of this allegation, which New York Fed denies, plaintiffs move to amend to assert New York Fed’s failure to forward the advice. See USF & G I, 590 F.Supp. at 494.
      I deny the motion. Plaintiffs have adduced no evidence in support of their claim that Albany State wired advice. There is only the bank’s bare allegation. Therefore, the condition set out for amendment in USF & G I, 590 F.Supp. at 494, that “discovery [has] reveal[ed] that New York Fed did indeed receive wire advice” has not been fulfilled. Discovery revealed no evidence one way or the other as to wire advice.

      . Because both PNB, to which the check would have been returned, and First Penn, to which it was sent for collection, are in the same Federal Reserve district, it was impossible to determine on the facts pleaded in the complaint whether New York Fed had returned the check or sent it for collection. See USF & G I, 590 F.Supp. at 497. It now seems clear, based on discovered materials, that New York Fed did not return the item but sent it for collection.

      . On this point, the statement of facts in USF & GI is in error, since the initial pleadings seemed to indicate that each bank in the chain met its midnight deadline. 590 F.Supp. at 490.

      . In retrospect, the teller’s failure to place a hold on the check, while poor practice, was of less consequence. Union Trust’s standard, and apparently proper, hold for a check drawn on a Pennsylvania bank was five to six days. Since Goldstein withdrew funds on the seventh day, the hold would not have prevented execution of his scheme.

      . This is not the whole of the bank’s carelessness. First, discovery revealed that after being rejected by the automatic sorting machinery the check was examined by a Union Trust supervisor, but this supervisor failed to detect the "glaring” facial irregularities in the check and instead forwarded it to PNB. Second, Clement’s wire transfer of $660,000 exceeded the amount of money he was authorized by bank regulations to transfer. Third, several of Goldstein’s actions known to Clement labelled him as "shady,” including his transparent attempt at a bribe and his request that the money be wired to a coin dealer, who presumably would convert the funds into highly liquid assets.

      . The latter is not surprising. The UCC predated the widespread acceptance of comparative negligence of the 1970s. More important, the concept of comparative negligence is anathema to a code which had as a primary aim the fostering of swift resolution of disputes through the clear delineation of commercial liabilities. See Perini Corp. v. First National Bank of Habersham County, 553 F.2d 398, 405 (5th Cir.1977).

      . The exception, discussed infra, is UCC § 3-406.

      . In most cases, loss falls on the forger's immediate transferee. N.Y.U.C.C. §§ 3-417(2)(a), 4-207(2)(a), 3-414(1), and 4-212(1). However, when a check is paid over a forged signature, loss is placed upon the drawee bank, which in theory could have checked its client’s signature. N.Y.U.C.C. § 3-417, comment 3. See generally, Northpark, supra, 572 F.Supp. at 535 n. 26.

      . Because such parties are generally commercial banks, they are presumed to be aware of the UCC’s rules of liability and to take precautions to guard against forgeries. The rule of absolute liability regardless of fault would, one would think, tend to increase their efforts at protecting against forgeries, since to avoid liability they would be forced to guard against not only their own carelessness but the carelessness and deviousness of others. In theory, by placing this burden upon the shoulders of those best able to guard against fraud the UCC achieves such fraud resistance in the most efficient manner.

      . It appears that the first banks in the collection chain, Union Trust, PNB, and New York Fed here, would not automatically be suspicious of a check bearing a routing number inconsistent with its listed name of the payor bank. According to the deposition testimony of a Union Trust employee, such checks may be intentionally and properly circulated. They are used, when one bank maintains an account at a second bank. Union Trust, in fact, participated in such an arrangement. On these checks, Union Trust's routing number appeared in the upper right corner of the checks, and the checks were drawn on an account held by Union Trust, but the name of a second bank, Union Trust's customer bank which maintained the account at Union Trust, appeared where one would otherwise have expected Union Trust’s name. The employee called such checks “due-from” checks. The Goldstein check, of course, had other irregularities which might have attracted attention: the MICR numbers were neither in magnetic ink nor of the proper size and style, and they were nonsensical. The discrepancy between the Albany State and First Penn designations alone, however, would not automatically have suggested fraud to a collecting bank.

      . A more complex and specific provision, N.Y. U.C.C. § 4-406, establishes non-exclusive circumstances which constitute per se negligence by checking account customers who are victims of forged signatures.

      . According to the Code, “[t]he most obvious case is that of the drawer who makes use of a signature stamp or other automatic signing device and is negligent in looking after it.” N.Y.U. C.C. § 3-406, comment 7. Again, this shows the commercial orientation of the Code; businessmen are warned to watch those with access to signing machines.

      . See note 18, supra.

      . To this extent, this imposed rule differs from § 3-406, which requires an otherwise liable bank seeking to evade liability to demonstrate not only the drawer’s lack of due care but its own exercise of due care. The rules of liability of which § 3-406 is a part are quite different, however, from § 4-202. "Otherwise liable” banks are not liable, as is the case with banks liable under § 4-202, because of their negligence. They are strictly liable. It is arguably appropriate to require them to demonstrate their own exercise of care before evading the severe standard of strict liability. Further, drawers, who may be made liable under § 3-406, stand on a much different footing than the banks which would be liable. They are generally individuals and corporations, and the forgeries are presumably carried out without their awareness. Because of this, they do not possess the tools to protect against fraud — for example, the chance to ask a customer for identification or to check a signature card — which the strictly liable banks do. Indeed, it is these tools to protect against forgery which the UCC uses to justify holding those particular banks liable. See Northpark, supra, 572 F.Supp. at n. 26.
      By contrast, depositary banks under § 4-202(1) differ from the collecting banks in their ability not only to examine the check but the depositor. They thus have advantage over the collecting banks. It is therefore appropriate to place liability on their shoulders should they fail to exercise due care, even if the collecting banks have also failed to do so.

      . It might be contended that application of comparative negligence would be more fair. The UCC, however, contains no provision for comparative negligence. See Northpark, supra, 572 F.Supp. at n. 28. Even in New York the legislature has left the UCC's all-or-nothing rules alone while statutorily adopting comparative negligence in other areas. See N.Y.Civ.P.L.R. § 1411. Contributory negligence serves the UCC's aims of efficiency and finality by definitively assigning liability. See note 14, infra. It would be improper to impose the more tort-oriented comparative negligence in the absence of legislative approval of such a step.