622 West 113th St. Corp. v. Chemical Bank New York Trust Co.
| Decision Date | 27 December 1966 |
| Citation | 52 Misc.2d 444,276 N.Y.S.2d 85 |
| Parties | , 3 UCC Rep.Serv. 1148 622 WEST 113TH STREET CORP., Plaintiff, v. CHEMICAL BANK NEW YORK TRUST CO., Defendant and Third-Party Plaintiff, v. DEPARTMENT OF WELFARE OF the CITY OF NEW YORK, Third-Party Defendant. |
| Court | New York City Court |
Garfield, Gelman & Garfield, New York City, by Milton Gelman, New York City, for plaintiff.
John B. Wynne, by Robert J. Seymour, New York City, for defendant and third-party plaintiff.
Leo A. Larkin, New York City, for third-party defendant by Philip Sokol, New York City.
Plaintiff's complaint alleges that the defendant bank, in which it maintained an account, deducted sums from its account 'without authorization or justification.' * On the trial plaintiff proved it was a depositor, had deposited a New York City Department of Welfare check endorsed by a person who satisfactorily identified heself as the payee, and was notified six months later that the Department of Welfare claimed the endorsement was a forgery, and that the bank accordingly was debiting the account.
The defendant bank in its answer pleaded a general denial and an affirmative defense of forgery, and interposed a third-party complaint impleading the Department of Welfare. On the trial, the bank proved that six months after it had credited plaintiff for the amount of the check, it was notified by its correspondent bank that the Department of Welfare claimed the endorsement had been forged, forwarded a copy of an affidavit to that effect, and that as a result the bank repaid the drawee bank and the amount of the check was deducted from plaintiff's account.
On this state of the record, defendant bank claimed plaintiff had failed to prove the genuineness of the check, withdrew its affirmative defense of forgery, and urged that under its general denial it was entitled to judgment, plaintiff having failed to sustain its burden of proving the absence of any forgery. Plaintiff, on the other hand, pointing out that the defendant bank had failed to adduce any first-hand probative proof that the claimed forgery had taken place, insisted that defendant had failed to sustain its burden of proving the presence of a forgery, and that it was entitled to judgment.
The question is not to be resolved by abstract discussion as to the relative burdens of proving the affirmative or the negative of an asserted state of facts, nor by the artful or fortuitous state of the pleadings. The specific question posed would ordinarily be controlled by the provisions of the Uniform Commercial Code. Section 3--307 requires a specific denial of the genuineness of a signature on an instrument. Withdrawal by the bank of the affirmative defense of a forged endorsement leaves it with only a general denial. The sufficiency of the general denial would appear dubious, but in this case plaintiff is not suing on a specific instrument, but on its overall depositor-creditor relationship. It is the defendant who contested the validity of a specific instrument, and raised an issue of the effectiveness of an endorsement in its now withdrawn affirmative defense. The issue was raised and put in focus on the trial, however, and Sec. 3--307(1)(a) then places the burden of establishing the signature upon the party claiming under it. But subdivision (b) gives such party a presumption of genuineness, placing on the other party the burden of going forward to show a defense. See Official Comment, McKinney's Consolidated Laws of New York, Vol. 62 1/2, pp. 210--211.
The bank itself never established that the endorsement was a forgery--merely that it had received notice to that effect. Such proof may be sufficient in certain circumstances. Under Sec. 4--201 of the Uniform Commercial Code, prior to final settlement, the collecting bank is merely the agent for collection of the check deposited by the owner and any settlement is provisional. Stein v. Empire Trust Co., 148 App.Div. 850, 133 N.Y.S. 517. The depositor is considered to have warranted that all signatures on the instrument are genuine or authorized (Sec. 4--207(2)(b) and 'engages that upon dishonor and any necessary notice of dishonor and protest he will take up the item'. Thus, if the collecting bank has credited its customer's account for an item, but fails to receive a final settlement for the item, it may charge back the customer's account. U.C.C. Sec. 4--212. Under these circumstances, upon receiving notification by the drawee bank of a forged endorsement, the collecting bank may properly refund the amount to the drawee bank, and charge back that amount against the depositor's account. Geering v. Metropolitan Bank, 170 App.Div. 751, 156 N.Y.S. 582; Clarke, Bailey and Young, Bank Deposits and Collections (3rd ed. 1963) p. 513.
The defendant bank here attempted to invoke the chargeback procedure upon notification of the forged endorsement by the drawee bank, but there is one all-important difference here--this came six months after the initial deposit of the check by plaintiff, and long after final settlement of the item. A final settlement can be effected in several ways, as outlined in U.C.C. Section 4--213. Once a final settlement has taken place, the collecting bank is no longer an agent, but has been credited with ownership of the proceeds of the item, and a debtorcreditor relationship with its customer ensues. First National Bank of Blanchester v. Stengel, Sup., 169 N.Y.S. 217, and cases cited therein. The bank cannot then unilaterally deduct sums from the amount credited to a depositor. After final settlement, and the charging of the amount of the check against the drawer's account, a voluntary refund by the collecting bank is at its own peril, for there are defenses it could interpose to resist payment. Clarke, Bailey and Young, op. cit., p. 513 n. 182. The mere assertion of a claim to any part of a deposit does not permit a bank on its own to recognize the validity of that claim. Cf. Banking Law, Sec. 134, subd. 5.
The final settlement of a deposited item then, while terminating the collecting bank's right of charge-back in reliance upon a simple notification from the drawee bank, does not in any way preclude the bank from pursuing its remedies by way of plenary suit, in order to hold the depositor on its endorsement and the warranties connected therewith. U.C.C. Sec. 4--207; First National Bank of Blanchester v. Stengel, supra. In such an action, the depositor could rely upon the presumption of genuineness, and it would be incumbent upon the bank to produce first-hand probative proof as to any claimed forgery.
The defendant bank did not do so in this...
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...on a motion for judgment until after the jury has returned a verdict. [ 622 West 113th Street Corp. v. Chemical Bank New York Trust Co. , 52 Misc2d 444, 276 NYS2d 85 (Civ Ct New York County 1966).] The trial court should freely exercise this power in a doubtful case. [ Kagan v. Avallone , 2......
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