New York State Court of Claims

New York State Court of Claims

BROAD STREET v. THE STATE OF NEW YORK, #2003-028-500, Claim No. 105461, Motion Nos. M-65654, CM-65820


Individual induced Lottery to issue prize money for winning ticket in the name of another and then cashed prize money check at Claimant's business. Lottery subsequently determined that named payee was not the individual who had claimed prize. Through bank transactions funds were debited from Claimant's account and returned to Defendant's account. Summary judgment granted to Claimant as UCC § 3-405's "impostor rule" applies to facts making indorsement valid.

Case Information

BROAD STREET CHECK CASHING CORP. The caption of this action is amended sua sponte to reflect the State of New York as the only properly named defendant.
Claimant short name:
Footnote (claimant name) :

Footnote (defendant name) :
The caption of this action is amended sua sponte to reflect the State of New York as the only properly named defendant.
Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
Motion number(s):
Cross-motion number(s):
Claimant's attorney:
Defendant's attorney:
BY: Kathleen M. Resnick, Esq.Assistant Attorney General
Third-party defendant's attorney:

Signature date:
January 10, 2003

Official citation:

Appellate results:

See also (multicaptioned case)


The following papers were read on the parties' motions for summary judgment pursuant

to CPLR 3212:

1) Notice of Motion and Supporting Affirmation of Assistant Attorney General Kathleen M. Resnick with annexed Exhibits A-E (Resnick Affirmation) and the Supporting Affidavit of Mary Kay Derby with annexed Exhibits 1-6 (Derby Affidavit) filed August 16, 2002 together with Defendant's Memorandum of Law (State's Memorandum)
2) Notice of Cross-Motion and Affirmation in Support/Opposition of Cynthia J. Russell, Esq., with annexed Exhibits 1-6 (Russell Affirmation) and the Affidavit of Fanny Fischer (Fischer Affidavit) filed September 20, 2002; together with Claimant's Memorandum of Law (Claimant's Memorandum);

3) Affirmation in Opposition of Assistant Attorney General Kathleen M. Resnick with annexed Exhibits A-E (Resnick Reply) filed October 7, 2002;

4) Reply Affirmation of Cynthia J. Russell, Esq., (Russell Reply) filed October 17, 2002;

: Claim and Answer.

In the underlying Claim, Broad Street Check Cashing Corp., a check cashing business operated pursuant to Banking Law Article 9-A, seeks to recover $2,500.00 which it alleges the Defendant, through its Division of the Lottery, caused to be removed from its bank account and credited to the Defendant's account. Claimant also seeks the statutory fee for a returned check pursuant to General Obligations Law §5-328. Each party has moved for summary judgment.

The facts are not in dispute (see, Russell Affirmation, Exhibits 1 and 2 [Claimant's Notice to Admit and Defendant's Response, respectively]). On or about April 5, 2000 an individual representing himself to be Daniel Harris presented to the Defendant's Division of the Lottery claims office in lower Manhattan a winning "Win4" lottery game ticket. The winning ticket had a prize value of $2,500.00. Pursuant to its regulations Defendant requested this individual to sign the back of the ticket and write down his social security number (see, Derby Affidavit Exhibit 1). A prize claim receipt was then generated which set forth information regarding the prize, the claimant and an affirmation signed by the individual that, inter alia, the personal information is correct (Id., Exhibit 2). Defendant then issued a check payable to "Daniel Harris" for the prize money. Defendant's check was drawn on an account maintained at Key Bank, N.A.

On that same day, an individual representing himself to be Daniel Harris, cashed the Defendant's check at Broad Street's business, receiving the proceeds less Broad Street's fees. In order to do so the individual produced the prize claim receipt. Broad Street then deposited the Defendant's check into an account it maintained at Chase Manhattan Bank.

Thereafter, on July 31, 2001, Defendant was contacted by a social worker for Daniel Harris, prompted by an Internal Revenue Service notice, who stated Daniel Harris did not win this money and that he was concerned about losing his social security benefits. Daniel Harris then executed an affidavit in which he denied, inter alia, receiving the check or authorizing anyone to sign his name. Defendant then forwarded this information to Key Bank requesting that it investigate the matter for forgery. Key Bank forwarded the information to Chase for action. Chase debited Claimant's account in the amount of $2,500.00 and transferred the funds to Key Bank, which deposited the funds into Defendant's account.

The first half of the Court's inquiry revolves around the Defendant's Division of Lottery. A New York State lottery ticket is a bearer instrument (Benjamin v Benjamin, (106 AD2d 599 affd opn below 65 NY2d 756; Stern v State of New York, 128 AD2d 926 appeal dismissed 70 NY2d 746). Lottery prizes are to be awarded as soon as reasonably possible after the claim has been filed, validated and verified, and the claimant has been identified to the satisfaction of the division (21 NYCRR § 2803.3). Any prize in excess of $600.00 shall be payable only by check (21 NYCRR § 2803.5 [b][1]). Pursuant to 21 NYCRR § 2803.6:
The State and its agents, officers, employees, the division and the director and the agents, officers and employees shall all be discharged of any and all liability upon payment of a prize to a ticket holder.
Since these regulations pertain to gambling they are to be strictly construed (Craft v Capital District Regional Off Track Betting Corporation, 107 AD2d 952, 954).

If, the Defendant had followed the above referenced regulatory scheme, and the prize funds had not been returned to the Defendant, Defendant's responsibility would have been fulfilled and this Claim dismissed, as Defendant urges the Court to do on its motion. However, the Court cannot overlook the fact that the Defendant is in possession of the prize funds, despite having been presented with the winning ticket, and the now dishonored check. As such, its arguments that its obligations are discharged by payment (State's Memorandum at 4) or cloaked in immunity are unsupported. In this Court's view, the protections afforded the Defendant upon payment of the prize are intended to cut off claims regarding the winning ticket, and not Defendant's obligations as the maker or drawer of a check, which is the issue before this Court.

Accordingly, the Court now turns to examine the matter in light of the Uniform Commercial Code. The parties dispute the applicability of UCC § 3-405 to the instant facts. UCC §3-405 creates an exception to the general rule that a drawer is not liable on an unauthorized endorsement. The statute provides at UCC § 3-405 (1) (a) that:

"(1) [a]n indorsement by any person in the name of a named payee is effective if
"(a) an impostor by use of the mails or otherwise has induced the maker or drawer to issue the instrument to him or his confederate in the name of the payee".

The purpose of UCC § 3-405 is to "narrow the liability of the banks and broaden the responsibility of their customers " (Prudential-Bache Sec. v Citibank, 73 NY2d 263, 270, quoting 1 White and Summers, Uniform Commercial Code § 16-5, at 804 [Practitioner's 3d ed]). The effect of UCC § 3-405 is to put the loss on the drawer, who was induced by an imposter to draw a check, and not on the drawee bank. As the Court of Appeals has stated, UCC § 3-405 is essentially a loss-balancing statute that distributes the loss on the party that is in the best position to prevent the loss, i.e., the drawer (see, Underpinning & Foundation Constructors v Chase Manhattan Bank, N.A. 46 NY2d 459).

Defendant, citing to Pellicio v Hartford Life Insurance Co., 262 AD2d 293, acknowledged that pursuant to UCC § 3-405 the maker [Defendant] would be liable to the entity [Claimant] cashing the check, on the theory that the maker is in the best position to prevent the loss but then argues that the Claimant was in the best position to prevent the loss because it could require picture identification to protect its assets (State's Memorandum at 3, 4). The Defendant supports this argument by noting that if the imposter had false picture identification and the Defendant had asked for same[1] even the Defendant would have been duped (Id.). The Court finds this argument disingenuous at best. In the first instance, Broad Street in cashing the check, relied upon the very same document the Defendant did in issuing the check; namely, the prize claim receipt. Moreover, regardless of how many are duped in the processing of this check the statute has distributed that loss to the drawer (see, Underpinning & Foundation Constructors v Chase Manhattan Bank, N.A. supra).

The Court finds that the impostor rule is applicable to the facts at bar and that the individual who represented himself to be Daniel Harris, and obtained the check from Defendant and immediately thereafter cashed it at Broad Street, was an impostor within the meaning of UCC § 3-405. As such, his indorsement of the check was not a forgery (see, Cohen v Lincoln Sav. Bank, 275 NY 399, 404) and the maker is liable to Claimant on what became a dishonored check.

Accordingly, the Claimant's cross-motion for summary judgment is granted and the

Defendant's motion for summary judgment dismissing the Claim is denied.

Claimant is entitled to a judgment in the amount of $2,500.00 plus interest from October 22, 2001, that being the date Claimant's account was debited (see, Freeman Check Cashing, Inc. v State of New York, 97 Misc 2d 819). Claimant is also entitled to the statutory fee of $20.00 pursuant to General Obligations Law §5-328(3) and the Clerk is directed to enter judgment accordingly. To the extent claimant has paid a filing fee, it may be recovered pursuant to Court of Claims Act §11-a(2).

January 10, 2003
Albany, New York

Judge of the Court of Claims

[1] Although Defendant asserts that the Lottery does not require identification beyond the sworn Prize Claim Form (see, Derby Affidavit, Exhibit 2 ) the regulations permit the claimant to be "identified to the satisfaction of the division" (21 NYCRR § 2803.3), which could require additional proof.