author: Simons, J.

text:
    [661 NE2d 683, 637 NYS2d 953]
    Thomas A. Hanna et al., Appellants-Respondents, v First National Bank of Rochester et al., RespondentsAppellants. A.K.S. Jewelry Manufacturing Corp., Respondent, v Doras Distributor, Inc., et al., Defendants, and Chase Manhattan Bank, N. A., Appellant.
    Argued October 26,1995;
    decided December 5, 1995
    Argued October 25,1995;
    decided December 5,1995

      POINTS OF COUNSEL

      Sean T. Hanna, Webster, for appellants-respondents in the first above-entitled action.
    I. Fleet Bank is strictly liable on all 18 checks for failing to settle them before midnight of the day of receipt. (SOS Oil Corp. v Norstar Bank, 76 NY2d 561; Utica Mut. Ins. Co. v Prudential Prop. & Cas. Ins. Co., 64 NY2d 1049; Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065; Zuckerman v City of New York, 49 NY2d 557; Nitto v Kalisiak, 107 AD2d 1066; Iselin & Co. v Man Judd Landau, 71 NY2d 420; Kaiser v State of New York, 55 Misc 2d 576, 30 AD2d 482; Gorman v Gorman, 88 AD2d 677; Matter of Sackler, 192 AD2d 536; Baldwin & Cornelius v Foreston Dev. Corp., 192 AD2d 568.) II. Fleet Bank became liable for the last five checks when it posted them to the drawer’s account. It was not allowed to subsequently revoke payment. III. Fleet Bank is strictly liable on the last five checks for failing to return them by midnight of the next banking day. (SOS Oil Corp. v Norstar Bank, 76 NY2d 561; Third Century Recycling v Bank of Baroda, 704 F Supp 417; Fromer Distribs. v Bankers Trust Co., 36 AD2d 840; Matter of United States v Loskocinski, 403 F Supp 75; United States Fid. & Guar. Co. v Federal Reserve Bank, 620 F Supp 361; Met Frozen Food Corp. v National Bank, 89 Misc 2d 1033; Manufacturers & Traders Trust Co. v County Trust Region, 59 AD2d 645; Capital Dist. Tel. Empls. Fed. Credit Union v Berthiaume, 105 Misc 2d 529; Sunshine v Bankers Trust Co., 34 NY2d 404; Ashford Bank v Capital Preservation Fund, 544 F Supp 26.) IV. Plaintiffs are holders in due course. (McCook County Natl. Bank v Compton, 558 F2d 871.) V. First National Bank’s cross motion is barred by the law of the case doctrine and the single motion rule. (Parker v McMahon, 53 AD2d 1034; Martin v City of Cohoes, 37 NY2d 162; Zdanok v Glidden Co., 327 F2d 944, 377 US 934; La Freniere v Capital Dist. Transp. Auth., 105 AD2d 517.) VI. First National Bank’s right to charge-back terminated when Fleet Bank became accountable for the 18 checks. (David Graubart, Inc. v Bank Leumi Trust Co., 48 NY2d 554; SOS Oil Corp. v Norstar Bank, 76 NY2d 561;
      622 W. 113th St. Corp. v Chemical Bank N. Y. Trust Co., 52 Misc 2d 444; Fromer Distribs. v Bankers Trust Co., 36 AD2d 840.) VII. A contract between First National Bank and plaintiffs cannot serve to extend the time restrictions established by the Uniform Commercial Code. (Sunshine v Bankers Co., 34 NY2d 404.) VIII. Plaintiffs should be awarded attorney fees, costs and disbursements due to banks’ bad faith.

      Lacy, Katzen, Ryen & Mittleman, Rochester (Sally A. Smith and Leslie W. Kernan, Jr., of counsel), for First National Bank of Rochester, respondent-appellant in the first above-entitled action.
    I. Compliance with the midnight deadline is a defense to any claim based upon a failure to comply with the midnight rule in UCC 4-302 (a). (General Motors Acceptance Corp. v Bank of Richmondville, 203 AD2d 851.) II. As a matter of law, First National Bank was entitled to charge-back all of the "stale dated” checks deposited by plaintiffs. (Fromer Distribs. v Bankers Trust Co., 36 AD2d 840; Bank of N. Y. v Asati, Inc., 184 AD2d 443; SOS Oil Corp. v Norstar Bank, 76 NY2d 561; Manufacturers & Traders Trust Co. v County Trust Region, 59 AD2d 645; Matter of Smith, 966 F2d 1527; Long Is. Natl. Bank v Zawada, 34 AD2d 1016.) III. As a matter of law, First National Bank was entitled to charge-back the last five checks that were returned for insufficient funds. (Fromer Distribs. v Bankers Trust Co., 36 AD2d 840.)

      Harris Beach & Wilcox, LLP, Rochester (Jeffrey W. Baker of counsel), for Fleet Bank, respondent-appellant in the first above-entitled action.
    I. Fleet Bank’s actions on November 12, 1991, amounted to a provisional settlement on all 18 checks. II. Fleet Bank’s final acceptance of the last five checks did not bar it from returning those checks. (SOS Oil Corp. v Norstar Bank, 152 AD2d 223, 76 NY2d 561; United States Fid. & Guar. Co. v Federal Reserve Bank, 620 F Supp 361, 786 F2d 77; Third Century Recycling v Bank of Baroda, 704 F Supp 417; National Sav. & Trust Co. v Park Corp., 722 F2d 1303; Gates v Manufacturers Hanover Trust Co./ Capital Region, 98 AD2d 829.)

      Andrew S. O’Connor, New York City, for appellant in the second above-entitled action.
    A.K.S. was harmed by Extebank’s wrongful charge-back, not by any action by Chase. (622 W. 113th St. Corp. v Chemical Bank N. Y. Trust Co., 52 Misc 2d 444; Fromer Distribs. v Bankers Trust Co., 36 AD2d 840; SOS Oil Corp. v Norstar Bank, 76 NY2d 561; Corsica Livestock Sales v Sumitomo Bank, 726 F2d 374.)

      Regosin, Edwards, Stone & Feder, New York City (Saul E.

      Feder of counsel), for respondent in the second above-entitled action.
    I. A.K.S. was harmed by Chase’s wrongful conduct and breach of its statutory obligations. (SOS Oil Corp. v Norstar Bank, 76 NY2d 561; Met Frozen Food Corp. v National Bank, 89 Misc 2d 1033; Jacobson v First Natl. City Bank, 29 AD2d 514; Fromer Distribs. v Bankers Trust Co., 36 AD2d 840; Corsica Livestock Sales v Sumitomo Bank, 726 F2d 374; Third Century Recycling v Bank of Baroda, 704 F Supp 417.) II. Chase’s assertions of Extebank’s statutory violations are speculative; and Chase did not seek to assert such claims by way of third-party claim against Extebank. (Fromer Distribs. v Bankers Trust Co., 36 AD2d 840; Rapp v Dime Sav. Bank, 48 NY2d 658.)
   OPINION OF THE COURT

Simons, J.

These two unrelated appeals involve claims by payees to recover on checks dishonored by the payor banks and address the liability imposed on a payor bank by UCC 4-302 (a). Specifically, they raise the questions whether (1) a payor bank’s timely return or dishonor of an item by midnight of the day following its receipt is a defense to the bank’s failure to settle the item on the day it was received by the payor bank; (2) a payor bank that has returned checks after its midnight deadline will be relieved of liability when the depositary bank subsequently debits its depositor’s account in violation of UCC 4-212 (1); and (3) equitable considerations will relieve a bank of liability for its failure to timely dishonor a check when the check was presented by a payee who was aware that it would be paid only if the bank made a mistake.

For the reasons which follow, we conclude that the judgment in Hanna should be modified to grant summary judgment to plaintiffs and defendant depositary bank, First National Bank of Rochester, and, in the second appeal, that the judgment in favor of plaintiff A.K.S. Jewelry should be affirmed.

I

A

In Hanna, plaintiffs Thomas Hanna and TAH Ltd. are the payees of 18 checks drawn on an account of Heavy-Hitters Inc. at defendant Fleet Bank. The checks, each in the amount of $3,423.33, were monthly rent checks payable to plaintiffs for the period June 1, 1990 through October 31, 1991. They were deposited by plaintiffs into their account at defendant First National Bank of Rochester on November 8, 1991. First National provisionally credited the plaintiffs’ account for the full amount of the checks and forwarded them to Fleet through a clearing house. Fleet received them following a long holiday weekend.

In May 1991, Heavy-Hitters had asked Fleet not to honor any "stale dated” checks drawn on its account, regardless of the payee. The record does not indicate the reason for the request, but Fleet accepted it, and issued a special instruction that all Heavy-Hitters’ checks were to be inspected and posted manually. Thus, while Fleet’s account posting machine was processing a large batch of checks drawn on its customers’ accounts on the day it received them, it picked up the special instructions requiring manual posting of Heavy-Hitters’ checks and kicked the 18 checks to plaintiffs out into a separate "exception pull” tray where they remained, untouched, until the following morning. On November 13, 1991, Fleet manually inspected the 18 checks and noticed that 13 of them were "stale” — i.e., more than six months old. These checks were hand stamped "Stale Dated” and returned to First National. The remaining five checks — each of which bore the legend "Void After 30 days” — were manually posted to the account of Heavy-Hitters.

First National received the dishonored 13 checks the following day, whereupon it charged back against the plaintiffs’ account the amount of the returned checks ($44,503.29), advised the plaintiffs that they had been dishonored as "stale dated” and charged plaintiffs a $65 fee, all in accordance with the provisions of UCC 4-404.

On November 20, 1991, Fleet returned the five remaining checks, which they had manually inspected and posted a week earlier, citing insufficient funds (NSF). On November 21, 1991 First National advised plaintiffs that these five checks had been dishonored for "insufficient funds”, charged-back $17,116.65 against plaintiffs’ account and assessed plaintiffs a $25 fee.

Plaintiffs then instituted this action against both banks, asserting a number of causes of action including a claim that the banks had violated the obligations imposed upon them by article 4 of the Uniform Commercial Code. Plaintiffs moved for summary judgment, and the banks filed a cross motion for similar relief.

On the motions the following facts were established: plaintiffs deposited the 18 checks in their First National Bank account on November 8,1991; Fleet Bank received and handled the checks on November 12, but it did nothing on that day which would constitute settlement or remittance of them under the provisions of UCC 4-104 (1) (l) (see also, UCC 4-104, Official Comment 6); Fleet returned the first 13 checks on November 13, within its midnight deadline (see, UCC 4-104 [1] [h]) and, upon receipt, First National revoked its provisional settlement of those 13 checks by its midnight deadline on November 14, 1991 (see, UCC 4-212 [1]; 4-104 [1] [h]); Fleet posted the remaining five checks to Heavy-Hitters’ account on November 13 and did not dishonor those checks until November 20, 1991, after final payment was established by the posting to the drawer’s account (see, UCC 4-213 [1] [c]); and First National charged back the amount of those five checks on November 21, 1991.

Supreme Court held that UCC 4-302 (a) imposes liability on a payor bank for its failure to meet either of two separate obligations: (1) to settle for the checks on the day they are received by the payor bank; and (2) to dishonor or return the checks by midnight of the day after they are received. Inasmuch as Fleet Bank failed to meet the first of these obligations, the court held that it was liable for the amount of the first 13 checks, and awarded plaintiffs judgment against both banks. It ruled in favor of defendants on four of the five remaining checks, however, recognizing Fleet’s equitable defense that plaintiff had knowingly presented checks that were void because of the legend on them and that could only be paid by mistake. The fifth check was valid because it had been presented within 30 days, and thus it awarded plaintiffs judgment on it (see, 159 Misc 2d 1).

The Appellate Division modified, holding that Fleet Bank’s timely compliance with the midnight deadline on November 13 provided a complete defense notwithstanding its failure to comply with the midnight rule requiring settlement a day earlier, and granted Fleet’s cross motion for summary judgment dismissing the complaint with respect to the 13 checks involved. Determining that First National’s liability for the 13 checks depended on Fleet’s liability and that Fleet was not liable, the Appellate Division granted First National’s cross motion for summary judgment, as well. The Appellate Division disagreed with Supreme Court’s conclusion that Fleet was entitled to a defense in equity on the four "void” checks, and granted plaintiffs partial summary judgment on those checks against both banks. The judgment in favor of plaintiffs on the last check was affirmed (see, 207 AD2d 181).

B

Plaintiff A.K.S. Jewelry, is the payee of a $100,000 check which was drawn on the account of defendant Doras Distributor at Chase Manhattan Bank. On February 28, 1990 plaintiff deposited the check into its account at Extebank. That same day, Extebank: (1) provisionally credited plaintiff’s account in the amount of $100,000, and (2) deposited the check in Extebank’s account at Chase. By notice dated March 2, 1990, Chase advised Extebank it had dishonored the check. The notice, which did not explain the reason for dishonor, was accompanied by a photocopy of the check. Extebank received the notice on March 4, 1990. It did not debit plaintiff’s account for the amount of the check, but redeposited the photocopy of the check in its account at Chase on March 5, 1990. Chase returned the check to Extebank on March 13, 1990 stamped "refer to maker.” That same day, Extebank debited plaintiff’s account $100,000, the sum it had credited on February 28.

Plaintiff instituted this action against Doras Distributor, Inc., its president and other related companies, and Chase Manhattan Bank. It did not sue Extebank, nor did Chase implead Extebank.

Supreme Court entered judgment against Chase in favor of plaintiff, holding that because Chase did not return the check until March 2, it had missed its March 1, 1990 midnight deadline and was therefore liable to plaintiff. The court held that even if proven, Extebank’s alleged untimely charge-back to plaintiff’s account would not insulate Chase from its failure to meet its midnight deadline. The Appellate Division affirmed (see, 210 AD2d 35).

II

Section 4-302 of the Uniform Commercial Code expressly requires payor banks to meet two deadlines in handling checks. It provides:

"In the absence of a valid defense such as * * * settlement effected or the like, if an item is presented on and received by a payor bank the bank is accountable for the amount of
"(a) a demand item * * * in any case where it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, * * * does not pay or return the item or send notice of dishonor until after its midnight deadline” (emphasis added).

These two deadlines, the midnight rule and midnight deadline, were incorporated into the Uniform Commercial Code as part of a revision which permitted payor banks to defer posting of items until the day after receipt (see, UCC 4-301, Official Comment 1; see generally, 6 Hawkland, Leary & Aider-man, UCC Series, § 4-302:01). The midnight rule — the requirement that the payor bank must settle for the item on the day of receipt —is addressed primarily to the payor bank’s prompt treatment of demand items. It maintains the preexisting legal requirement that payor banks "pay” for demand items on the day of receipt, notwithstanding the extension by one day of the payor bank’s right to dishonor or return the items. The payor bank’s settlement for the item, whether provisional or final, is necessary and important because it establishes the pivotal link between the upstream flow of provisional credits and the downstream flow of final payment from the payor bank through collecting banks to payee (see, UCC 4-213, Official Comment 8). It also ensures that use of the funds represented by the item is available to the party immediately entitled to it (see, 6 Hawk-land, op. cit., § 4-302:02, at 66).

The midnight deadline — requiring dishonor or return of the item by the payor bank by midnight of the next day — results in final payment of the item "simply with the lapse of time” (UCC 4-212, Official Comment 1; see also, SOS Oil Corp. v Norstar Bank, 76 NY2d 561, 567). The deadline, which presupposes a prior settlement for the item, was adopted to save banking institutions the effort and expense of sending confirmation of final payment of items (see, 6 Hawkland, op. cit., § 4-302:1, at 60-61).

Section 4-302 is intended to sanction institutions failing to meet the requirements for posting and dishonoring items contained in UCC 4-301. It does so by imposing liability for the amount of the item as a penalty upon a payor bank that fails to comply with either of the midnight requirements (see, UCC 4-302, Official Comment; New York Annots). The separate force of the two requirements is recognized in the statute. Thus, the statute does not impose liability for noncompliance with the midnight rule against a bank that is both the depositary and payor bank with respect to a particular item (see also, UCC 4-301 [2]). When a bank acts as depositary and payor, the immediate settlement of the item is presumed, but the bank remains accountable for the item if, like all other payor banks, it does not dishonor the item by midnight of the following banking day. By contrast, the statute holds a nondepositary payor bank, such as Fleet, liable for its failure to meet either obligation.

The heavy burden section 4-302 imposes on payor banks serves important commercial purposes: it "expedites the collection process by motivating banks to process instruments quickly, and it firms up the provisional credits received by each bank in the collection chain, thereby supplying a key element of certainty in commercial paper transactions” (SOS Oil Corp. v Norstar Bank, 76 NY2d, at 567, supra). Each of the separate statutory obligations plays a distinct role in furthering these purposes and, contrary to the holding of the Appellate Division in the Hanna case, a payor bank cannot be insulated from liability by meeting only the midnight deadline.

Some commentators have questioned the wisdom of imposing liability under UCC 4-302 (a) for the payor bank’s failure to settle for the item on the day it is received when the bank has dishonored or returned the item within the midnight deadline because if the item has been dishonored before payment of it has become final, the only apparent harm that results is that the depositary bank has been deprived of one day’s interest on the amount of the item. They maintain that holding the payor bank accountable for the face value of the item in light of such minimal damages is an unduly harsh penalty (see, 6 Hawk-land, op. cit, § 4-302:02, at 66-67). Noting that the statute imposes liability for a payor bank’s failure to settle for an item on the day of receipt and that the statute does not expressly provide that compliance with the midnight deadline is a defense to noncompliance with the midnight rule, the commentators nevertheless urge courts to construe timely dishonor or return of the item as a defense "like” settlement effected (see, id.; see also, preamble to UCC 4-302). We do not similarly view the matter.

The statutory requirement that the payor bank settle for the item on the day of receipt is the first step toward effectuating the overarching purposes of article 4 of the Uniform Commercial Code, to make the transactions it regulates swift and certain. Although timely dishonor may minimize pecuniary harm to the particular parties involved, forgiveness of the payor bank’s untimely conduct would do a significant disservice to the integrity of the complex, ordered, and predictable operation of article 4’s rules governing banks. Moreover, if compliance with the midnight deadline operates as a defense to noncompliance with the midnight rule, the midnight rule is effectively written out of the statute and payor banks are thus no longer required to settle the item on the day of receipt despite the plain statutory requirement that they do so. If such a change in the plain language of UCC 4-302 (a) is to be made, it should be made by the Legislature, not the courts.

Ill

A

Applying UCC 4-302 (a) to the Hanna action, Fleet Bank is accountable to plaintiffs for the amount of the 13 checks because it failed to settle them on the day they were received. First National’s motion for summary judgment should have been granted with respect to all 18 checks.

First National’s right to charge-back plaintiffs’ account for a provisional credit is set forth in UCC 4-212 (l). That section provides that a collecting bank is entitled to charge-back a provisional credit to its customer if the bank The section further provides that the right to charge-back terminates if and when a settlement for the item received by the collecting bank is or becomes final, that is, when it is finally paid by the payor bank (UCC 4-212 [1]; see, UCC 4-211 [3]; 4-213 [2], [3]; see also, Fromer Distribs. v Bankers Trust Co., 36 AD2d 840). A collecting bank acts as the agent of its customer, and until such time as the collecting bank receives final payment, the risk of loss continues in the customer, the owner of the item (see, UCC 4-201, Official Comment 4; see also, 5 Hawk-land, Leary & Alderman, UCC Series, §§ 4-201:02, 4-201:03). Thus, the provisional credit to the customer remains provisional and revocable until the collecting bank has received the funds, at which time "the relationship between the bank and customer changes from that of agent-principal to debtor-creditor” (5 Hawkland, op. cit., § 4-201:03, at 371).

"fails by reason of dishonor, suspension of payments by a bank or otherwise to receive a settlement for the item which is or becomes final * * * if by its midnight deadline or within a longer reasonable time after it learns the facts it returns the item or sends notification of the facts” (emphasis added).

Here, Fleet Bank never settled for any of the 18 checks involved in the litigation and thus First National never received a provisional payment of them. With respect to the first 13 checks, they were dishonored and returned by Fleet Bank, and there was no final payment of them. Thus, First National’s right to charge-back to the customer did not terminate. Inasmuch as it charged-back the provisional credit within its midnight deadline, i.e., prior to midnight on November 14, 1991 (the day after it received the returned and dishonored checks) in compliance with UCC 4-212 (1), it is not accountable to plaintiffs for the amount of the 13 checks (cf., UCC 4-213 [3]). Accordingly, First National’s cross motion for summary judgment was properly granted with respect to those checks.

Nor is First National liable to plaintiffs on the remaining five checks. Had Fleet settled for those checks on the day of receipt, its act of posting the checks to Heavy-Hitters’ account on November 13 would have resulted in final payment of them (see, UCC 4-213 [1] [c]), and First National’s right to charge-back plaintiffs’ account would have terminated. In this case, however, Fleet never settled for the checks and thus there was no provisional payment to First National which the posting could make final. Thus, First National’s status as plaintiffs’ agent never changed to the status of debtor. First National received and returned checks on November 20, 1991 and charged-back plaintiffs’ account on November 21, within its midnight deadline (see, UCC 4-212 [1]). Accordingly, First National is not liable to plaintiffs on those five checks, and its motion for summary judgment should be granted in its entirety.

B

In A.K.S. Jewelry v Doras Distrib., payor bank Chase Manhattan concedes that its dishonor of the check was untimely, but contends that it is relieved of its liability for the untimely return of the check because the right of Extebank to charge-back the provisional credit terminated when payment became final upon passage of Chase’s midnight deadline on March 1,1990. Chase contends that plaintiff's damages, arising from its inability to collect on Doras’ check, are attributable solely to Extebank’s untimely charge-back against plaintiff’s account.

The short answer to Chase’s claim is that Extebank is not before the Court because Chase did not implead it. Chase is strictly liable to plaintiff pursuant to UCC 4-302 (a) for its failure to return or send notice of dishonor of the check by its midnight deadline, and it cannot shift liability to a bank whose conduct was not challenged in the proceedings at nisi prius.

Moreover, Chase’s argument is without merit. When a payor bank fails to return the check by its midnight deadline, UCC 4-302 (a) imposes strict liability on the bank for the amount of the check (see, SOS Oil Corp. v Norstar Bank, 76 NY2d, at 567, supra; 2 White and Summers, Uniform Commercial Code § 20-2, at 292 [4th ed]). Where both the payor bank and the depositary bank violate their respective midnight deadlines (see, UCC 4-302 [a]; 4-212 [1]), liability to the customer is passed upstream from the depositary bank to the payor bank (see, Fromer Distribs. v Bankers Trust Co., 36 AD2d 840, supra). Liability ultimately rests upon the payor bank because it was the institution in the best position to timely dishonor or return the item in the first place.

Accordingly, defendant Chase Manhattan Bánk’s untimely return of the $100,000 check renders it liable to plaintiff for the amount of the check notwithstanding an untimely charge-back by the depositary bank, and judgment was correctly granted to plaintiff.

IV

In the Hanna appeal Fleet also asserts that it, as a payor bank, may assert an equitable defense to the payee’s action for payment on the check even though it failed to return or dishonor Heavy-Hitters’ checks within the midnight deadline.

The five most recent checks presented by plaintiffs — those dated less than six months prior to the date presented — all bore the legend "Void After 30 days” immediately above the drawer’s signature on the face of the checks. Four of these checks were presented more than 30 days after they were drawn. The checks were posted to the drawer’s account on November 13, 1991, the day after Fleet Bank received them, and at that point, Fleet Bank’s purported payment of them became final (see, UCC 4-213 [1] [c]). On November 20, 1991 Fleet Bank returned the checks to First National Bank due to insufficient funds in Heavy-Hitters’ account.

Notwithstanding Fleet’s manual processing of these checks prior to its midnight deadline and its return of them for other reasons, Fleet contends that plaintiffs should not prevail in their claims to recover on them because plaintiffs presented the checks with knowledge that they should not he paid because they were more than 30 days old and that if Fleet did pay the checks, it would do so only by mistake. The bank contends that the strict liability imposed pursuant to UCC 4-302 (a) should be subordinated to this equitable doctrine. It relies on UCC 3-418, which states that payment of any instrument is only "final in favor of a holder in due course, or a person who has in good faith changed his position in reliance on the payment.” Fleet argues that plaintiffs could not have relied in good faith on Fleet Bank’s payment of the four checks. Supreme Court recognized Fleet’s equitable defense; the Appellate Division did not. We conclude that the Appellate Division was correct.

Section 3-418 of the Uniform Commercial Code expressly excludes from its coverage "recovery of bank payments” under article 4. As the Official Comment to that section acknowledges, a bank’s ability to recover an item which it has improperly paid is temporally "limited by the bank collection provision (Section 4-301) * * * [and] terminates in any case when the bank has made final payment” (UCC 3-418, Official Comment 5). Moreover, the Code provides that "[i]n the event of conflict, the provisions of this Article [4] govern those of Article 3” (see, UCC 4-102 [1]). Thus, any right of Fleet Bank to recover its payment of the four void checks terminated when it posted those items to Heavy-Hitters’ account (see, UCC 4-213 [1] [c]).

Notwithstanding this, Fleet Bank argues that UCC 1-103 provides that principles of equity may be asserted when it states that "[ujnless displaced by the particular provisions of this Act, the principles of law and equity * * * shall supplement its provisions.” Fleet relies on Morgan Guar. Trust Co. v American Sav. & Loan Assn. (804 F2d 1487, 1494-1500, cert denied, 482 US 929 [payor bank entitled to restitution where holder of note presented it for payment notwithstanding its knowledge of maker’s bankruptcy]); see also, National Sav. & Trust Co. v Park Corp. (722 F2d 1303, cert denied 466 US 939 [payor bank entitled to restitution when checks mistakenly paid on account having insufficient funds]). We think it plain that UCC 4-302 displaces the common-law principles of equity (see, Bank Leumi Trust Co. v Bank of Mid-Jersey, 499 F Supp 1022, 1027, affd 659 F2d 1065; Third Century Recycling v Bank of Baroda, 704 F Supp 417, 421; compare, Hechter v New York Life Ins. Co., 46 NY2d 34, 39). By its terms, section 4-302 allows only limited defenses to untimely return or dishonor of an item, and they do not include the equitable defense asserted by Fleet Bank here (compare, 1990 Revised Uniform Commercial Code § 4-302 [b]; 2B ULA 54 [Master ed], not currently adopted in New York, which permits payor banks the defense of fraud by the person seeking to enforce the liability). Moreover, section 4-302 (a) holds that a payor bank is strictly liable for the amount of an item that has not been timely returned or dishonored "whether properly payable or not”.

As a policy matter, permitting a payor bank to avoid this strict liability by asserting the equitable defense of mistaken payment would seriously undermine the predictability and finality of commercial paper transactions, because items finally paid would be indefinitely exposed to claims of mistaken payment by banks. If the policies and banking practices sought to be achieved by article 4 of the Uniform Commercial Code are to be satisfied, they cannot be subordinated to equitable arguments that might be persuasive in other circumstances. That part of the Appellate Division order granting plaintiffs’ motion for summary judgment against Fleet Bank on the four checks should be affirmed.

Accordingly, in Hanna v First Natl. Bank, the order of the Appellate Division should be modified to grant summary judgment to plaintiffs and defendant First National Bank of Rochester, with costs to the prevailing parties against defendant Fleet Bank and, as so modified, affirmed. In A.K.S. Jewelry Mfg. Corp. v Doras Distrib., the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Titone, Bellacosa, Smith, Levine and Ciparick concur.

In Hanna v First Natl. Bank: Order modified in accordance with the opinion herein, with costs to plaintiffs and defendant First National Bank of Rochester as against defendant Fleet Bank and, as so modified, affirmed.

In A.K.S. Jewelry Mfg. Corp. v Doras Distrib.: Order affirmed, with costs.

      . To "settle” an item pursuant to UCC 4-104 (1) (l), a payor bank is required to do more than internally process the items. In support of their motion for summary judgment, plaintiffs established a prima facie case that Fleet had not done anything more than internally process the checks on November 12, and despite Fleet’s contention that there was a clearing house settlement of the checks on that day, Fleet presented no admissible evidence of that fact. It therefore failed to meet its burden in opposition to plaintiffs’ motion (see, Alvarez v Prospect Hosp., 68 NY2d 320, 324; Zuckerman v City of New York, 49 NY2d 557, 562). There is no merit in Fleet’s contention that its receipt of the depositary bank’s cash letter, which does not appear to be a remittance instrument (see, UCC 4-104 [1] [l], Official Comment 6; cf, UCC 4-105 [f|) constitutes a settlement, and Fleet offered no evidence of any agreement which would have permitted a clearing house settlement upon the cash letter (cf., Universal C.I.T. Credit Corp. v Farmers Bank, 358 F Supp 317, 322-323; UCC 4-103 [1]).

      . The midnight rule requires a payor bank to settle for an item before midnight of the banking day of receipt; the midnight deadline provides that the checks must be returned or dishonored before midnight of the day following receipt (see, UCC 4-301 [1]; 4-302 [a]; see also, UCC 4-104 [1] [l]; [h]X

      . In this action, First National is both a depositary and collecting bank (see, UCC 4-105 [a], [d]).


source: Caselaw Access Project

author: Chief Judge Kaye.

license: Public Domain

text:
    [661 NE2d 691, 637 NYS2d 961]
    In the Matter of Victor W. Gordon et al., Appellants, v Village of Monticello, Inc., et al., Respondents.
    Argued October 25,1995;
    decided December 7, 1995
    POINTS OF COUNSEL

      Loran Shlevin, Callicoon, and John J. Keating, Cochecton, for appellants.
    I. Public Officers Law § 107 (2) permits the court, in its discretion, to award attorneys’ fees to the successful party in any proceeding brought pursuant to Public Officers Law article 7. (Matter of Gordon v Village of Monticello, 207 AD2d 55; Matter of Clark v Lyon, 147 AD2d 838; Jones v Koch, 117 AD2d 647; Matter of Orange County Publs. v County of Orange, 120 AD2d 596, 68 NY2d 807; Matter of Orange County Publs. v Council of City of Newburgh, 89 Misc 2d 847, 60 AD2d 409, 45 NY2d 947; Duncan v Poythress, 777 F2d 1508; Matter of Sanna v Lindenhurst Bd. of Educ., 85 AD2d 157, 58 NY2d 626.) II. The court below erred when it reversed that part of the judgment of the Supreme Court which awarded plaintiffs-appellants’ attorneys’ fees and imposed standards upon the court not intended by the Legislature.

      Martin S. Miller, Village Attorney of Village of Monticello, and Mark Lewis Schulman, pro se, for respondents.
    I. The lower court erred in awarding attorneys’ fees to plaintiffs-appellants pursuant to Public Officers Law article 7. (Matter of New York Univ. v Whalen, 46 NY2d 734; Matter of Orange County Publs. v County of Orange, 120 AD2d 596, 68 NY2d 807; Matter of Previdi v Hirsch, 138 Misc 2d 436; Matter of Plattsburgh Publ. Co. v City of Plattsburgh, 185 AD2d 518; Senko v Fonda, 53 AD2d 638; Caristo Constr. Corp. v Diners Fin. Corp., 21 NY2d 507; Matter of Attorney-General v Katz, 55 NY2d 1015; Barry v Good Samaritan Hosp., 56 NY2d 921; Majauskas v Majauskas, 61 NY2d 481; Northern Westchester Professional Park Assocs. v Town of Bedford, 60 NY2d 492.) II. The court below did not abuse its discretion, as a matter of law, in reversing that part of the judgment of the Supreme Court which awarded attorneys’ fees to plaintiffs-appellants. (Matter of Plattsburgh Publ. Co. v City of Plattsburgh, 185 AD2d 518; Matter of Orange County Publs. v County of Orange, 120 AD2d 596.)
   OPINION OF THE COURT

Chief Judge Kaye.

This case raises the issue of the statutory discretion afforded trial courts to award costs and attorneys’ fees under New York’s Open Meetings Law (Public Officers Law §§ 100-111). Given the intentional and flagrant nature of the Open Meetings Law violations that took place, the trial court was fully justified in awarding attorneys’ fees under the statute.

On February 17, 1993, the Board of Trustees of Monticello— the governing body of the Village — decided in closed, executive session to create the new position of full-time Village Attorney and to divide up by resignation and subsequent appointment various other elected leadership positions. At a public meeting two weeks later, the Board passed a resolution, as had been agreed previously, creating the position of Village Attorney. Within minutes, the elected Village Justice was appointed to the position of Village Attorney, the then-Mayor was appointed Village Justice, the then-Deputy Mayor was appointed Mayor, the Assessor’s office was abolished and the then-Assessor was appointed a Member of the Board. By the end of the meeting, every supposedly elected position had been redistributed, as privately prearranged by the Board at the earlier, closed meeting.

Plaintiffs, citizens of Monticello, challenged these actions as violations of the Open Meetings Law (see, Public Officers Law 105). Both Supreme Court and the Appellate Division agreed, finding the Board’s machinations to be patently illegal and declaring them null and void (207 AD2d 55, 56-59). The factual and legal accuracy of those rulings is not even contested on this appeal.

What is challenged is the trial court’s award of costs and attorneys’ fees pursuant to the statutory provision stating that "costs and reasonable attorney fees may be awarded by the court, in its discretion, to the successful party” (Public Officers Law § 107 [2]). The Appellate Division reversed that award as a matter of law, holding that in order for there to be an award of attorneys’ fees under the statute, there must be an "indication in the record that [defendant] repeatedly has acted in violation of the Open Meetings Law or that its actions were undertaken in bad faith” (207 AD2d, at 59 [emphasis added]). In so doing, the Appellate Division extended its dictum in Matter of Plattsburgh Publ. Co. v City of Plattsburgh (185 AD2d 518, 520) and erroneously engrafted an additional legal requirement onto the statute.

The Open Meetings Law, passed in 1976 after the crisis of confidence in American politics occasioned by Watergate, was intended — as its very name suggests — to open the decision-making process of elected officials to the public while at the same time protecting the ability of the government to carry out its responsibilities (Sciolino v Ryan, 81 AD2d 475, 477; Matter of Orange County Publs. v Council of City of Newburgh, 60 AD2d 409, 418, affd 45 NY2d 947; see also, Communications Sys. v Federal Communications Commn., 595 F2d 797, 800 [interpreting 5 USC § 552b]). Thus, the statute provides generally that "[e]very meeting of a public body shall be open to the general public” (Public Officers Law § 103 [a]). As the Legislature stated in its preamble to the statute: "It is essential to the maintenance of a democratic society that the public business be performed in an open and public manner and that the citizens of this state be fully aware of and able to observe the performance of public officials” (Public Officers Law § 100). Given this explicit declaration, it is clear that the provisions of the Open Meetings Law are to be liberally construed in accordance with the statute’s purposes (Matter of Orange County Publs. v Council of City of Newburgh, 45 NY2d 947, 950 [Cooke, J., concurring], supra; Matter of Holden v Board of Trustees, 80 AD2d 378, 381).

Moreover, unlike New York’s Freedom of Information Law — a related statute enacted two years earlier (Public Officers Law art 6, L 1974, ch 578) — the Open Meetings Law contains no requirement, for an award of attorneys’ fees, that the information withheld from the public be of "clearly significant interest” and that there be no "reasonable basis” for withholding it {compare, Public Officers Law § 89 [4] [c]).

As we explained in Matter of New York Univ. v Whalen, however, not every violation of the Open Meetings Law automatically triggers its enforcement sanctions (46 NY2d 734, 735; see also, Matter of Goodson Todman Enters. v City of Kingston Common Council, 153 AD2d 103, 106). In contrast to the provisions of Federal and State civil rights laws, awards of attorneys’ fees under the Open Meetings Law should not be granted by courts to the prevailing party simply as a matter of course (compare, Matter of Thomasel v Perales, 78 NY2d 561 [42 USC § 1988]; Matter of Northeast Cent. School Dist. v Sobol, 79 NY2d 598, 610 [20 USC § 1415]; see also, Matter of New York State Clinical Lab. Assn. v Kaladjian, 85 NY2d 346 [CPLR 8601]).

Thus, as with awards of injunctive relief (see, Public Officers Law § 107 [1]), purely technical and nonprejudicial infractions (e.g., Town of Moriah v Cole-Layer-Trumble Co., 200 AD2d 879; Monroe-Livingston Sanitary Landfill v Bickford, 107 AD2d 1062) or wholly unintentional violations (e.g., Addesso v Sharpe, 44 NY2d 925; Matter of New York Horse & Carriage Assn. v Council of City of N. Y., 169 AD2d 547; see also, Public Officers Law § 107 [1]) do not rise to the level of supporting an award of attorneys’ fees. Similarly, where the defendant has made a good-faith, reasonable effort to comply with the statute, attorneys’ fees may not be warranted (e.g., Matter of Clark v Lyon, 147 AD2d 838; see also, Public Officers Law § 103 [b]).

However, where — as here — the court finds that defendants’ actions "took place * * * in such a manner as to circumvent the Open Meetings Law quorum requirement” (see, Public Officers Law 105 [1]), that defendants later "stretched credulity” in describing their conduct to the court, that there was good cause shown to void the actions taken (Public Officers Law § 107 [1]), and that there had been "obvious prejudice” to plaintiffs as a result of defendants’ intentional and deceitful conduct, an award of fees is justified (Matter of Orange County Publs., 120 AD2d 596, 597, supra). This, after all, is not a case where the defendants merely failed to properly post notice of a public meeting (see, e.g., Matter of Britt v County of Niagara, 82 AD 2d 65). Rather, what occurred here is that defendants — in blatant disregard of the public’s right to elect its own local officials — secretly decided to play what the trial court characterized as the game of "musical chairs” with each others’ jobs. Indeed, on this record, denial of a request for attorneys’ fees would constitute an abuse of discretion thereby obviating the need for remittal to the Appellate Division.

Though, as the Appellate Division observed, the fact that a defendant has repeatedly violated the Open Meetings Law is certainly the kind of evidence that may justify an award of attorneys’ fees (see, Matter of Orange County Publs., 120 AD2d 596, 597, supra), that no such behavior was shown on the part of these defendants is of no moment since it is inconceivable that the Legislature had only such recidivist offenders in mind when it vested Trial Judges with the authority to award costs and fees in the first place. In fact, it is very often the possibility of recovering costs and attorneys’ fees that gives private citizens like plaintiffs the impetus they need to bring meritorious lawsuits to enforce the Open Meetings Law thus advancing the statutory policy of keeping New Yorkers better apprised of the actions of their elected officials.

Accordingly, the order of the Appellate Division insofar as appealed from should be reversed, with costs, and the trial court’s award of attorneys’ fees reinstated.

Judges Simons, Titone, Bellacosa, Smith, Levine and Ciparick concur.

Order, insofar as appealed from, reversed, etc.

       New York was the last State to pass what are commonly referred to as "government in the sunshine” laws (Whelan, New York’s Open Meetings Law: Revision of the Political Caucus Exemption and Its Implications for Local Government, 60 Brook L Rev 1483 [1995]).


text:
    [661 NE2d 694, 637 NYS2d 964]
    Holy Properties Limited, L. P., Respondent, v Kenneth Cole Productions, Inc., Appellant.
    Argued October 19, 1995;
    decided December 7, 1995

      POINTS OF COUNSEL

      Fischbein Badillo Wagner. Itzler, New York City (Bruce H. Wiener, Bentley Kassal, Kenneth G. Schwarz and Deborah J. Locitzer of counsel), for appellant.
    I. The traditional no-mitigation rule does not apply to modern commercial leases. (Matter of Hevenor, 144 NY 271; Kottler v New York Bargain House, 242 NY 28; Lenco, Inc. v Hirschfeld, 247 NY 44; Hermitage Co. v Levine, 248 NY 333; International Publs. v Matchabelli, 260 NY 451; Javins v First Natl. Realty Corp., 428 F2d 1071, 400 US 925; Park W. Mgt. Corp. v Mitchell, 47 NY2d 316; Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211; City of New York v Farrell Lines, 30 NY2d 76; 57 E. 54 Realty Corp. v Gay Nineties Realty Corp., 71 Misc 2d 353.) II. Paragraph 18 of the governing lease does not relieve the landlord, upon its reentry, of the duty to mitigate its damages. (Grays v Brooks, 148 Misc 2d 646; Cox v Dorlon Assocs., 113 Misc 2d 670; Orr v Doubleday, Page & Co., 223 NY 334; Rodolitz v Neptune Paper Prods., 22 NY2d 383; Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211; City of New York v Farrell Lines, 30 NY2d 76; Fabulous Stationers v Regency Joint Venture, 44 AD2d 547; Broad Props. v Wheels Inc., 43 AD2d 276, 35 NY2d 821; Kenilworth Realty Trust v Bankers Trust Co., 112 Misc 2d 523; 67 Wall St. Co. v Franklin Natl. Bank, 37 NY2d 245.) III. The Court below’s cases offer conflicting views regarding a landlord’s duty to mitigate damages. (Syndicate Bldg. Corp. v Lorber, 128 AD2d 381; Wallis v Falken-Smith, 136 AD2d 506; Howard Stores Corp. v Robison Rayon Co., 36 AD2d 911; Mitchell & Titus Assocs. v Mesh Realty Corp., 160 AD2d 465; Sage Realty Corp. v Kenbee Mgt.-N. Y., 182 AD2d 480; 11 Park Place Assocs. v Barnes, 202 AD2d 292; Comar Babylon Co. v Goldberg, 116 AD2d 551; Goldman v Orange County Ch., 121 AD2d 683; Centurian Dev. v Kenford Co., 60 AD2d 96.) IV. Many lower courts have vigorously advocated adopting a promitigation rule in both residential and commercial lease cases. (Park-wood Realty Co. v Marcano, 77 Misc 2d 690; Lefrak v Lambert, 89 Misc 2d 197, 93 Misc 2d 632; Paragon Indus. v Williams, 122 Misc 2d 628; Grays v Brooks, 148 Misc 2d 646; Rubin v Dondysh, 146 Misc 2d 37, 153 Misc 2d 657; Forty Exch. Co. v Cohen, 125 Misc 2d 475; Douglas Manor House v Wohlfeld, 66 Misc 2d 265.) V. Recent surveys demonstrate that a majority of States impose a duty to mitigate on commercial landlords. VI. Public policy dictates adopting a promitigation rule for commercial landlords. (Parsons v Sutton, 66 NY 92; Hamilton v McPherson, 28 NY 72; Bing v Thunig, 2 NY2d 656; Park W. Mgt. Corp. v Mitchell, 47 NY2d 316.)

      Finkelstein, Borah, Schwartz, Altschuler & Goldstein, P. C., New York City (Jeffrey R. Metz, Robert D. Goldstein, David R. Brody and Steven L. Schultz of counsel), for respondent.
    I. The Court below properly applied the plain language in the lease agreement between the parties. (Hall v Gould, 13 NY 127; International Publs. v Matchabelli, 260 NY 451; Mann v Munch Brewery, 225 NY 189; 186-90 Joralemon Assocs. v Dianzon, 161 AD2d 329; Backer Mgt. Corp. v Acme Quilting Co., 46 NY2d 211; 812 Park Ave. Corp. v Pescara, 268 App Div 436, 294 NY 792; Morgan Servs. v Lavan Corp., 59 NY2d 796; Truck Rent-A-Ctr. v Puritan Farms 2nd, 41 NY2d 420; Boyle v Petric Stores Corp., 136 Misc 2d 380; Musman v Modern Deb, 50 AD2d 761.) II. The parties negotiated a mitigation provision which placed the burden of mitigation upon the tenant. III. The Court below properly followed the law. (Becar v Flues, 64 NY 518; Underhill v Collins, 132 NY 269; Sancourt Realty Corp. v Dowling, 220 App Div 660; Syndicate Bldg. Corp. v Lorber, 128 AD2d 381; Mitchell & Titus Assocs. v Mesh Realty Corp., 160 AD2d 465; Sage Realty Corp. v Kenbee Mgt.-N. Y., 182 AD2d 480; 11 Park Place Assocs. v Barnes, 202 AD2d 292; Milltown Park v American Felt & Filter Co., 180 AD2d 235; Treeforms, Inc. v Action Audio, 102 AD2d 920; Centurian Dev. v Kenford Co., 60 AD2d 96.) IV. Public policy supports a continuation of the no-mitigation rule for commercial tenancies.

      Carb, Luria, Glassner, Cook & Kufeld, LLP, New York City (James E. Schwartz and Carol W. Duffy of counsel), for The Real Estate Board of New York, Inc., amicus curiae.

    I. The court should reaffirm the long-standing rule that a landlord has no duty to mitigate damages where a commercial tenant unjustifiably abandons its premises before the expiration of the lease term. (Becar v Flues, 64 NY 518; Sancourt Realty Corp. v Dowling, 220 App Div 660; Centurian Dev. v Kenford Co., 60 AD2d 96; Syndicate Bldg. Corp. v Lorber, 128 AD2d 381; Mitchell & Titus Assocs. v Mesh Realty Corp., 160 AD2d 465; Sage Realty Corp. v Kenbee Mgt.-N. Y., 182 AD2d 480; 11 Park Place Assocs. v Barnes, 202 AD2d 292; Auerbach v Bennett, 47 NY2d 619; Matter of Eckart, 39 NY2d 493; Maxton Bldrs. v Lo Galbo, 68 NY2d 373.) II. Paragraph 18 of the lease relieves the landlord of any duty to mitigate. (Tov Knitting Mills v Starr Realty Co., 148 AD2d 526; 812 Park Ave. Corp. v Pescara, 268 App Div 436, 294 NY 792; Hall v Gould, 13 NY 127; International Publs. v Matchabelli, 260 NY 451; Mann v Munch Brewery, 225 NY 189; Comar Babylon Co. v Goldberg, 116 AD2d 551; Halpern v Bargans, 46 AD2d 657; 150/ 160 Assocs. v Mojo-

      Stumer Architects, 174 AD2d 658; Lenco, Inc. v Hirschfeld, 247 NY 44; Kalisch-Jarcho, Inc. v City of New York, 58 NY2d 377.)
   OPINION OF THE COURT

Simons, J.

In 1985, defendant Kenneth Cole Productions, Inc. entered into a written lease for premises in a commercial office building located at 29 West 57th Street in Manhattan. The term was to commence on January 1, 1985 and end on December 31, 1994. In December 1991, following a change of owners and an alleged deterioration in the level and quality of building services, defendant vacated the premises. Shortly thereafter, the new owner, plaintiff Holy Properties Limited, L.P., commenced a summary eviction proceeding against defendant for the nonpayment of rent. It obtained a judgment and warrant of eviction on May 19, 1992 and subsequently instituted this action seeking rent arrears and damages. At trial defendant asserted, as an affirmative defense, that plaintiff had failed to mitigate damages by deliberately failing to show or offer the premises to prospective replacement tenants. Supreme Court entered judgment for plaintiff, holding that defendant had breached the lease without cause and that plaintiff had no duty to mitigate damages. The Appellate Division affirmed.

The issue is whether, on these facts, the landlord had a duty to mitigate its damages after the tenant’s abandonment of the premises and subsequent eviction.

The law imposes upon a party subjected to injury from breach of contract, the duty of making reasonable exertions to minimize the injury (Wilmot v State of New York, 32 NY2d 164, 168-169; Losei Realty Corp. v City of New York, 254 NY 41, 47). Leases are not subject to this general rule, however, for, unlike executory contracts, leases have been historically recognized as a present transfer of an estate in real property (see, Becar v Flues, 64 NY 518, 520; Reichert v Spiess, 203 App Div 134, 139; see also, Centurian Dev. v Kenford Co., 60 AD2d 96). Once the lease is executed, the lessee’s obligation to pay rent is fixed according to its terms and a landlord is under no obligation or duty to the tenant to relet, or attempt to relet abandoned premises in order to minimize damages (2 Rasch, New York Landlord and Tenant § 26:22 [3d ed 1988]).

When defendant abandoned these premises prior to expiration of the lease, the landlord had three options: (1) it could do nothing and collect the full rent due under the lease (Becar v Flues, 64 NY 518, supra; Sancourt Realty Corp. v Dowling, 220 App Div 660), (2) it could accept the tenant’s surrender, reenter the premises and relet them for its own account thereby releasing the tenant from further liability for rent, or (3) it could notify the tenant that it was entering and reletting the premises for the tenant’s benefit. If the landlord relets the premises for the benefit of the tenant, the rent collected would be apportioned first to repay the landlord’s expenses in reentering and reletting and then to pay the tenant’s rent obligation (see, lease para 18; Underhill v Collins, 132 NY 269; Centurian Dev. v Kenford Co., supra). Once the tenant abandoned the premises prior to the expiration of the lease, however, the landlord was Within its rights under New York law to do nothing and collect the full rent due under the lease (see, Becar, 64 NY 518, supra; Underhill v Collins, 132 NY 269, supra; Matter of Hevenor, 144 NY 271).

Defendant urges us to reject this settled law and adopt the contract rationale recognized by some courts in this State and elsewhere. We decline to do so. Parties who engage in transactions based on prevailing law must be able to rely on the stability of such precedents. In business transactions, particularly, the certainty of settled rules is often more important than whether the established rule is better than another or even whether it is the "correct” rule (see, Maxton Bldrs. v Lo Galbo, 68 NY2d 373, 381). This is perhaps true in real property more than any other area of the law, where established precedents are not lightly to be set aside (Heyert v Orange & Rockland Utils., 17 NY2d 352, 360).

Defendant contends that even if it is liable for rent after abandoning the premises, plaintiff terminated the landlord-tenant relationship shortly thereafter by instituting summary proceedings. After the eviction, it maintains, its only liability was for contract damages, not rent, and under contract law the landlord had a duty to mitigate. Although an eviction terminates the landlord-tenant relationship, the parties to a lease are not foreclosed from contracting as they please (see, International Publs. v Matchabelli, 260 NY 451, 454; Mann v Munch Brewery, 225 NY 189, 194; Hall v Gould, 13 NY 127, 133-134). If the lease provides that the tenant shall be liable for rent after eviction, the provision is enforceable (id.).

In this case, the lease expressly provided that plaintiff was under no duty to mitigate damages and that upon defendant’s abandonment of the premises or eviction, it would remain liable for all monetary obligations arising under the lease (see, lease para 18).

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Titone, Bellacosa, Smith, Levine and Ciparick concur.

Order affirmed, with costs.


author: Smith, J. Bellacosa, J.

text:
    [661 NE2d 961, 638 NYS2d 388]
    Lehigh Portland Cement Company, Appellant, v New York State Department of Environmental Conservation, Respondent.
    Argued October 18,1995;
    decided December 5, 1995

      POINTS OF COUNSEL

      Rapport, Meyers, Griffen & Whitbeck, Hudson (Victor M. Meyers of counsel), for appellant.
    I. The Court below erred as a matter of law in affirming the lower court’s dismissal of the complaint on grounds that Lehigh was precluded from declaratory relief because it had an available administrative remedy pursuant to the State Administrative Procedure Act. (Matter of Atlantic Cement Co. v Williams, 129 AD2d 84; Kurcsics v Merchant’s Mut. Ins. Co., 49 NY2d 451; Matter of Herberg v Perales, 180 AD2d 166; Matter of Morgenthau v Erlbaum, 59 NY2d 143, 464 US 993; Watergate II Apts. v Buffalo Sewer Auth., 46 NY2d 52; City of Schenectady v Flacke, 100 AD2d 349, 63 NY2d 603; Hurlbut v Whalen, 58 AD2d 311, 43 NY2d 603; Barasch v Micucci, 49 NY2d 594.) II. The Uniform Procedures Act applies to petitions for Beneficial Use Determinations. (We’re Assocs. Co. v Cohen, Stracher & Bloom, 65 NY2d 148; People v Eulo, 63 NY2d 341; American Lodge Assn. v East N. Y. Sav. Bank, 100 AD2d 281; Servomation Corp. v State Tax Commn., 51 NY2d 608; Matter of Hearst Corp. v Clyne, 50 NY2d 707; Roe v Wade, 410 US 113; Doe v Coughlin, 71 NY2d 48, 488 US 879; East Meadow Community Concerts Assn. v Board of Educ., 18 NY2d 129.)

      Dennis C. Vacco, Attorney-General, Albany (Lawrence A. Rappoport, Victoria A. Graffeo, Peter H. Schiff and James A. Sevinsky of counsel), for respondent.
    I. The Department of Environmental Conservation’s construction that a Beneficial Use Determination is a jurisdictional determination and not an application for a permit that is subject to the time constraints of the Uniform Procedures Act is rational and should be upheld. (Matter of Seaboard Contr. & Material v Department of Envtl. Conservation, 132 AD2d 105; Matter of Guptill Holding Corp. v Williams, 140 AD2d 12, 73 NY2d 820; Matter of Meadow Brook Equities v New York State Dept. of Envtl.Conservation, 130 AD2d 283, 70 NY2d 950; Matter of NewYork State Assn. of Life Underwriters v New York State Banking Dept., 83 NY2d 353; Matter of Howard v Wyman, 28 NY2d 434; Ostrer v Schenck, 41 NY2d 782; Matter of Long Is. Light. Co. v New York State Dept.

      of Envtl. Conservation, 145 AD2d 70; Matter of Lindstrom v Zoning Bd. of Appeals, 205 AD2d 690; Matter of Atlantic Cement Co. v Williams, 129 AD2d 84.) II. The Court below properly dismissed the complaint for Lehigh’s failure to exhaust its administrative remedies. (Young Men’s Christian Assn. v Rochester Pure Waters Dist., 37 NY2d 371; Matter of Grattan v Department of Social Servs., 131 AD2d 191, 70 NY2d 616; Matter of Fahey v Axelrod, 152 AD2d 867.) III. This matter should be dismissed as moot. (Matter of Hearst Corp. v Clyne, 50 NY2d 707; Matter of Gold-Greenburger v Human Resources Admin., 77 NY2d 973.)
   OPINION OF THE COURT

Smith, J.

The issue presented on this appeal is whether a declaratory judgment action was properly dismissed on the ground that plaintiff failed to exhaust administrative remedies. We conclude that the dismissal was improper because, in this case, the pursuit of administrative remedies would have been futile. Accordingly, we modify the order of the Appellate Division and remit this declaratory judgment action to the trial court for a determination on the merits of plaintiffs complaint.

Between August and November 1992, plaintiff submitted petitions to the Department of Environmental Conservation (DEC) pursuant to DEC’s Beneficial Use Determination (BUD) program. The petitions sought permission to use waste materials as substitutes for raw materials in plaintiff’s cement manufacturing processes. Upon the fulfillment of certain conditions, the BUD program permits the storage and use of solid waste materials, without a solid waste management facility permit, if those waste materials are incorporated into a marketable product, i.e., "beneficially used” (see, 6 NYCRR 360-1.15, formerly 6 NYCRR 360-1.2). Otherwise, the management, disposal and storage of nonhazardous solid waste may be handled only by solid waste management facilities. These facilities are subject to extensive regulation (see, 6 NYCRR part 360).

In March and July of 1993, plaintiff sent two demand letters to DEC stating that six of its pending BUD petitions would be deemed approved pursuant to the Uniform Procedures Act (UPA) unless DEC issued determinations on the petitions within five working days. The UPA provides specific time frames in which the DEC must notify permit applicants that their applications are incomplete, hold hearings (where required), and issue decisions on applications (see, ECL 70-0109). "Permit” is defined by statute as "any permit, certificate, license or other form of department approval” (ECL 70-0105 [4]). The NYCRR applies UPA time frames to permit applications relating to the collection, treatment and disposal of refuse and other solid waste (see, ECL 70-0107, 70-0109).

DEC responded to plaintiffs demand letters by stating, in letters dated March 29, 1993 and July 15, 1993, that the UPA does not apply to BUD petitions. DEC’s replies declared:

"A determination of beneficial use, as provided for in 6 NYCRR Part 360-1.2 (a) (5) [recodified and amended as 6 NYCRR 360-1.15], is a decision regarding the Department’s jurisdiction to regulate an activity as a solid waste management facility. A request for a beneficial use determination is not an application for a permit. Such a request is not subject to the timeframes [sic] or any other provision of the Uniform Procedures Act. Consequently, your request for a decision under 6 NYCRR Part 621.9 (b) is not appropriate in this instance.”

Both DEC responses were signed by DEC’s Chief Permit Administrator.

After receiving DEC’s reply letters, plaintiff commenced this declaratory judgment action in Supreme Court seeking a declaration that UPA time frames apply to BUD petitions, and deeming eight of plaintiff’s petitions approved. Plaintiff then moved for summary judgment. DEC cross-moved to convert the action into a CPLR article 78 proceeding and to dismiss. DEC argued that its determination, that UPA time frames do not apply to BUD petitions, was rational. Alternatively, DEC sought a declaration that the UPA does not apply to the BUD program. In support of its cross motion, DEC submitted an affidavit from its Chief Permit Administrator stating:

"The Department has, since the promulgation of Part 360 on December 31, 1988, taken the position that the type of decisions which plaintiff sought was a determination in the first instance or a confirmation that the proposed uses of certain 'solid waste’ materials in a beneficial manner were exempt from the definition of 'solid waste’ and, therefore, exempt from the Department’s extensive Part 360 regulations. Therefore, it is our view that petitions for beneficial use determinations are similar to petitions for declaratory rulings. * * * In reviewing plaintiff’s letter demands, my staff consulted its counterpart staff in the Department’s Region 4 office and also the Department’s Division of Legal Affairs. As a result of these consultations, I affirmed the Department’s longstanding position that petitions for beneficial use determinations are not subject to the requirements of the UPA.”

While the declaratory judgment action was pending, the DEC completed processing, and issued decisions on, the eight BUD petitions specified in plaintiff’s complaint. The DEC granted one petition, requested additional information on another, and denied six petitions. Plaintiff commenced a separate article 78 proceeding seeking annulment of the six denials.

While the article 78 proceeding was pending, the Supreme Court in the declaratory judgment action, sua sponte, dismissed plaintiff’s complaint on the ground that plaintiff failed to exhaust administrative remedies. The Supreme Court held that plaintiff should have sought a declaratory ruling from the DEC on whether the UPA applied to BUD petitions before commencing this present action (see, State Administrative Procedure Act § 204; 6 NYCRR part 619). Plaintiff appealed the dismissal of its action to the Appellate Division. During the appeal, the article 78 proceeding was dismissed on the ground that DEC had not acted arbitrarily, capriciously or irrationally in denying the six BUD petitions (see, Lehigh Portland Cement Co. v New York State Dept. of Envtl. Conservation, 161 Misc 2d 652). Plaintiff did not appeal the dismissal of its article 78 petition. Subsequently, the Appellate Division affirmed Supreme Court’s dismissal of the declaratory judgment action.

Plaintiff argues that the State Administrative Procedure Act does not require the pursuit of administrative remedies before relief may be sought in Supreme Court, and that in this case, pursuing a declaratory ruling from the DEC would have been futile. Generally, "one who objects to the act of an administrative agency must exhaust available administrative remedies before being permitted to litigate in a court of law” (Watergate II Apts. v Buffalo Sewer Auth., 46 NY2d 52, 57). However, exhaustion of administrative remedies is not required where an agency’s action is challenged as beyond its grant of power or when resort to an administrative remedy would be futile (Watergate, supra, at 57). Although a court may dismiss a declaratory judgment action in a proper exercise of discretion, the mere existence of other adequate remedies does not mandate dismissal (CPLR 3001; Matter of Morgenthau v Erlbaum, 59 NY2d 143, 148).

Here, the DEC clearly and unequivocally stated its long-established position that UPA time frames do not apply to BUD petitions, both in correspondence with plaintiff and through the affidavit of the Chief Permit Administrator. The Chief Permit Administrator, who consulted with counterparts in DEC’s Region 4 office and with DEC’s Division of Legal Affairs, "affirmed” DEC’s "longstanding position” that the UPA does not apply to BUD petitions. DEC has taken this position since the promulgation of part 360 of the NYCRR, which became effective as of December 31, 1988. Consequently, ever since the inception of the BUD program, the DEC, as a matter of policy on at least a regional basis, has processed BUD petitions in accordance with the view that compliance with UPA time frames was not necessary.

DEC arrived at a definitive position which concretely affected the status of plaintiff’s BUD petitions and then communicated this position to plaintiff. As a result of DEC’s actions, plaintiff continued to remain in the dark as to when it could expect DEC to finish processing its BUD petitions. However, plaintiff received notification that no matter how long the processing took, the BUD petitions could not be deemed approved because, according to the DEC, the UPA time frames did not apply. Under the particular circumstances of this case, any resort by plaintiff to administrative remedies would have been futile.

The evidence before the Supreme Court indicated that the Chief Permit Administrator’s letter accurately stated longstanding agency policy. The Supreme Court erred because it required plaintiff to pursue administrative remedies when the evidence demonstrated that resort to administrative remedies would have been futile.

Supreme Court’s reliance on New York Inst. for Educ. of Blind v United Fedn. of Teachers’ Comm. (83 AD2d 390, affd 57 NY2d 982) was misguided as that case differed markedly from the circumstances here. In New York Inst., we affirmed the dismissal of plaintiff's declaratory judgment complaint for failure to exhaust administrative remedies because the New York State Labor Relations Board had not passed on the issue of whether plaintiff, a State-supported private school, was a public employer under article 14 of the Civil Service Law. Resort to administrative remedies there would not have been futile because the administrative agency did not issue any sort of determination or statement of policy on the issue in dispute.

The dissent also relies on inapposite authority. In Matter of Kirk v Bahou (73 AD2d 770, affd 51 NY2d 867) petitioners sought the annulment of civil service examination results and an injunction preventing the Civil Service Commission from certifying or appointing anyone from an eligible list drawn from the civil service examination, even though the Commission had not determined whether it would uphold the results of the examination in dispute. Petitioners did not present any evidence that the Commission had decided to certify a list based on the examination results, offering instead, a statement by one petitioner that "I believe” the Commission has already decided this matter. Under these circumstances, resort to administrative remedies would not have been futile, and the petition was dismissed for failure to exhaust administrative remedies.

Matter of Grattan v Department of Social Servs. (131 AD2d 191, lv denied 70 NY2d 616) involved an attempt by the State Department of Health to recover Medicaid overpayments to the Albany County Health Department. The Albany County Health Department sought an injunction against the recoupment on the ground that too much time had elapsed between the alleged overpayments and the decision to recoup. Finding no evidence in the record which clearly indicated that the State Department of Health had predetermined the issue of timeliness, or construed the relevant regulation in a manner which would require an adverse result against the Albany County Health Department in an administrative hearing, the Appellate Division held that futility of pursuing administrative remedies had not been demonstrated.

Unlike New York Inst., Bahou or Grattan the administrative agency here clearly and unequivocally stated its long-standing position, in effect since the inception of the BUD program, that the UPA does not apply to BUD petitions. Moreover, DEC implemented this policy on at least a regional basis. Nothing in the record supports the dissent’s characterization of the Chief Permit Administrator as an "administrative functionarv.” Indeed, the NYCRR suggests that the Chief Permit Administrator is a policy-making employee empowered to act on behalf of the DEC Commissioner on issues relating to permit application processing. The NYCRR provides that:

"Chief permit administrator means an employee of the department located in the main office of the department and designated to act on the commissioner’s behalf in carrying out [part 621]” (6 NYCRR 621.1 [b]).

Even if we assume that the Chief Permit Administrator could not set agency policy, nothing indicates that the letters sent to plaintiff did not accurately reflect agency policy (see, Compass Adjusters & Investigators v Commissioner of Taxation & Fin., 197 AD2d 38).

This case does not involve a new, unarticulated or unsettled policy issue within the administrative agency, a vague or unclear articulation of agency policy, a case-specific determination on unique facts, decisions issued by low-level agency employees, or any other circumstance which calls for a hearing so that a clearer formulation of and the rationales for agency policy may be fully aired. The plaintiff here could not hope to obtain a clearer definition or resolution of issues than already provided by the DEC.

Accordingly, the order of the Appellate Division should be modified, without costs, by reinstating the complaint and, as so modified, affirmed.

Bellacosa, J.

(dissenting). We would affirm the Appellate Division order affirming the dismissal of the complaint seeking declaratory judgment. The key question is whether plaintiff-appellant Lehigh exhausted its administrative remedies before pursuing judicial relief. That issue turns on whether the so-called futility exception to the doctrine of the exhaustion of administrative remedies applies in this case. We agree with both lower courts that the exhaustion of remedies principle, not its exception, should control.

Lehigh wished to secure a Beneficial Use Determination (BUD) under ECL article 70 and 6 NYCRR part 621. In order to accelerate the process, it invoked the provisions of the Uniform Procedures Act (ECL 70-0101 et seq.), which authorizes a procedure to induce prompt administrative determinations of permit applications. Lehigh sent five-day demand letters to the Department of Environmental Conservation (DEC), as authorized by 6 NYCRR 621.9 (b) and ECL 70-0109 (3) (b). DEC responded with letters from its Chief Permit Administrator describing DEC’s "longstanding position” under the Uniform Procedures Act and stating that BUDs were not covered because a BUD "is not an application for a permit.” The Administrator added in the letters that a BUD relates only to "the Department’s jurisdiction to regulate an activity as a solid waste management facility.”

Rather than availing itself of procedures for review and relief from the Department under State Administrative Procedure Act (SAPA) § 204, Lehigh instead shifted immediately and directly to a judicial field of engagement. It sought declaratory relief from Supreme Court that BUDs were "permits” as a matter of law. Lehigh argued that DEC’s failure to act in a timely manner on its BUD petitions should result in automatic approvals under the Uniform Procedures Act (ECL 70-0109).

Supreme Court denied Lehigh’s summary judgment motion and instead dismissed its action because of Lehigh’s failure to seek and exhaust administrative opportunities for relief as prescribed in SAPA § 204 and 6 NYCRR part 619. The Appellate Division unanimously affirmed (210 AD2d 670), noting that the letters responding to Lehigh’s initial applications should not be treated as the functional equivalent of a formal determination by the State Department of Environmental Conservation.

The putative "futility” exception to the overarching exhaustion of administrative remedies doctrine was mentioned by this Court in Watergate II Apts. v Buffalo Sewer Auth. (46 NY2d 52, 57). It was not part of the ratio decidendi there and has not been further explained or explored by this Court. Because the exception is necessarily replete with factual nuance, courts should be wary of elevating the concept of "futility” to a matter-of-law judicial outlet by recognition and application of it in sparsely or less than definitively developed records. Otherwise, the narrow exception could quickly and voluminously swallow the prudent long-standing rule itself and be subjected to widely varying availability and application. The exhaustion doctrine, after all, is rooted in the well-settled, sensitive distribution of branches of governmental authority. It also underscores the goal of preserving finite judicial resources for invocation only as to relatively final matters and as a matter of last recourse (see, 2 Davis and Pierce, Administrative Law § 15.2, at 309 [3d ed 1994]).

We conclude that the "futility” exception should be developed and applied sparingly in those instances "where it persuasively appears that the final administrative decision has in fact been reached, and that nothing remains but the preparation and entry of the formal order” (2 Cooper, State Administrative Law, at 581 [1965] [emphasis added]). That cannot be said of the letters from the Permit Administrator in this case. Not only is it clear that the Permit Administrator’s function is expressly limited to processing permit applications (see, 6 NYCRR 621.1 [b]), but it is also unassailable that the letters were not formal or final determinations of the DEC itself or that the Department ever adopted or ratified the assertions in the Administrator’s letter. Consultation and in-house soundings by an administrative functionary do not represent, and should not be treated as, the legally functional equivalent of departmental policy in general or as applied to the particular circumstance (majority opn, at 141, 143).

Additionally, there may be cases where a particular step in the administrative process would be demonstratively unavailing because of a lack of power in the agency or reviewing body to make the requisite decision (see, Bethesda Hosp. Assn. v Bowen, 485 US 399). That, too, cannot be said of this case (see also, 2 Am Jur 2d, Administrative Law, § 511, at 497, n 53 [citations omitted]). "[G]eneral statements by the agency [through its agents or subordinates] as to its contemplated action” ought not ordinarily to qualify for such a significant exception to such an important standing-like doctrine (2 Cooper, op. cit., at 580). The United States Supreme Court has persuasively observed that "the long settled rule of judicial administration [is] that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted” (Myers v Bethlehem Shipbuilding Corp., 303 US 41, 50-51).

By our analysis and authorities and in our respectful view, the letters sent to Lehigh by the Chief Permit Administrator are not a blueprint for the exceptional "futility” channel to the courts that would allow Lehigh to dispense with the generally necessary predicate of pursuing avenues of review and redress available from the DEC itself under SAPA. Lehigh presented no demonstrable basis that the DEC would be bound by or estopped by the Permit Administrator’s letters or that the agency itself had prejudged or promulgated anything formally concerning the dispositive law issue as it applied to the particular permit applications (see, Matter of Grattan v Department of Social Servs., 131 AD2d 191, 193 ["(T)here is nothing in the record which clearly indicates that respondent has predetermined the issue of timeliness”], lv denied 70 NY2d 616; Matter of Kirk v Bahou, 73 AD2d 770, 771 [rejecting futility claim based on bare allegation in petition that "I believe” the Civil Service Commission had already decided the issue], affd for reasons stated below 51 NY2d 867).

Significantly, the majority’s use of a DEC litigation affidavit injects another troublesome feature to the dispositional analysis of this case. This is a form of procedural bootstrapping that reformulates facts not available on the question of claimed "futility” at the time Lehigh shifted to judicial intervention. "Futility” should be determined by objective analysis and data in the prelitigation setting and fact pattern. Courts should not engage in a postlitigation recharacterization of the basis for any applicant short-circuiting administrative channels and the threshold exhaustion rubric. It cannot fairly be said on this record that at the time Lehigh decided to jump to judicial relief that"DEC [had] arrived at a definitive position which concretely affected the status of plaintiff’s BUD petitions” (majority opn, at 141 [emphasis added]). The Chief Permit Administrator’s letters, viewed as of the time Lehigh received them, were not actions or determinations by the Department. The governing, published regulation of DEC fixing the letter writer’s level of authority showed a circumscribed delegation to process the Commissioner’s part 621 responsibilities, not to make DEC policy involving such an important jurisdictional and classification matter (6 NYCRR 621.1 [b]). The letters also lacked definiteness and finality in any administrative adjudicative sense. Under the circumstances presented by this case, Lehigh gained no justification to bypass, by its own interpretation and choice, the established, promulgated and formal procedures for review and relief in the first instance from the administrative agency itself.

Lehigh’s effort to nudge the bureaucracy with respect to what it may have personally perceived as red-tape delays and a foregone conclusion may be understandable. That general societal skepticism, however, cannot form a sustainable legal basis for everyone who deals with administrative agencies to divert matters up to court levels and bypass regular agency processes. Under the holding of this case, future applicants dealing with administrative agencies may chart their own courses under the futility exception. The adverse precedential implications of countenancing such self-help and invocation of judicial intervention will be procedurally disruptive and exceedingly burdensome in the face of the multitudinous permutations of communications uttered, in writing and orally, by various bureaucracies that speak with many and varying voices and styles and at many levels below formal departmental adjudicatory resolution.

Therefore, we believe that Supreme Court and the Appellate Division properly dismissed Lehigh’s end run of the DEC. For the stated policy reasons, as well as for more orderly, regular and definitive protocols, to be evenhandedly applied to all entities interacting with administrative agencies, we believe the lower courts correctly adhered to the governing doctrine.

The expansion of the futility exception in this case is not doctrinally sound nor justifiably applied in these circumstances and on this record. If all it takes to go to court on such matters is a subjective sense of futility by an unhappy recipient of a letter from a bureaucrat, then not much is left to the exhaustion of administrative remedies doctrine (see, Young Men’s Christian Assn. v Rochester Pure Waters Dist., 37 NY2d 371, 375). Thus, we respectfully dissent and vote to affirm the order of the Appellate Division.

Chief Judge Kaye and Judges Titone and Ciparick concur with Judge Smith; Judge Bellacosa dissents and votes to affirm in a separate opinion in which Judges Simons and Levine concur.

Order modified, etc.

      . 6 NYCRR part 360 regulates all solid waste management facilities, except for hazardous waste management facilities (see, 6 NYCRR 360-1.1).

      . The Chief Permit Administrator’s affidavit stated that "regional staff’ and "staff in the Department’s Region 4 office” were consulted before the Department’s long-standing position was affirmed.

      . Part 621 governs the procedures used in processing permit applications as required by certain sections of the ECL (see, 6 NYCRR part 621-Introduction).