Bank of Commerce v. De Santis

Decision Date15 June 1982
Citation451 N.Y.S.2d 974,114 Misc.2d 491
Parties, 34 UCC Rep.Serv. 1270 BANK OF COMMERCE, Plaintiff, v. Michael DE SANTIS and James K. Noonan individually and as co-partners of De Santis and Noonan Realty Co., Defendants.
CourtNew York City Court

Harry Gurahian by Robert C. Clyne, New York City, for plaintiff.

Solomon Cohen, Brooklyn, for defendant De Santis.

DECISION

IRA HARKAVY, Judge.

A bank's right to charge back a customer's account when the bank has made provisional settlement for items that are subsequently dishonored is codified in section 4-212 of the Uniform Commercial Code. The issue before this court is the applicability of UCC 4-212 to accounts held in the name of a partner when the dishonored items were the subject of banking transactions conducted by one partner allegedly acting outside the scope of the partnership business. May a bank avail itself of the charge back remedy against accounts in the name of the individual non-participating partner? And if so, is the "innocent" partner entitled to indemnification from the wrongdoer?

Plaintiff, a New York banking corporation, commenced this action against defendants, MICHAEL DE SANTIS, (hereinafter "DE SANTIS"), JAMES K. NOONAN, (hereinafter "NOONAN"), and DE SANTIS and NOONAN REALTY CO., (hereinafter "D/N REALTY"), to recover for an overdraft in the account of D/N REALTY maintained at a branch of plaintiff's bank.

D/N REALTY is a partnership consisting of DE SANTIS and NOONAN organized in July, 1979 to engage in the real estate business. On July 24, 1979 D/N REALTY opened a partnership account at the plaintiff's branch located at 7923 Third Avenue, Brooklyn, New York. In connection with the opening of the account, NOONAN and DE SANTIS executed a signature card and a partnership certificate and authorization.

The partnership certificate and authorization provided in pertinent part "You (plaintiff) are authorized to honor, to receive and/or pay all instruments signed in accordance with the terms of this instrument even though drawn or endorsed to the order of any partner signing the same and/or tendering for cashing, or in payment of the individual obligation of such partner or for deposit to his personal account and you are not required or obligated to inquire as to the circumstances of the issuance or use of any instrument signed in accordance herewith On December 15, 1980, NOONAN deposited into the D/N REALTY account two checks drawn on the Bergen State Bank in Bergenfield, New Jersey, each in the sum of $6,000.00. Both checks were drawn on the account of Robert J. Mallon, Esq. NOONAN testified that he deposited the checks as an accommodation to a friend, and that he was simply acting as a check cashier.

or the application or disposition of such instrument or the proceeds thereof."

Check No. 979 was payable to BAK AIR FREIGHT CO., and the reverse side was endorsed BAK AIR FREIGHT INC., Allen (emphasis added) Krauss, and was stamped:

FOR DEPOSIT ONLY

DE SANTIS & NOONAN REALTY CO.

Check No. 980 was payable to Allan Krauss and the reverse side was endorsed Allan (emphasis added) Krauss, NOONAN and stamped with the same stamp as check no. 979.

On December 23, 1980, defendant NOONAN drew two checks on the partnership account, one in the amount of $9,000.00 for cash and the other for $3,000.00 to be deposited in his own personal bank account. In belief that the items deposited on December 15, had been collected, since more than five business days had elapsed, Robert N. DeChillo, the branch manager, authorized the encashment of the $9,000.00 check. The $3,000.00 check was deposited to NOONAN's personal account.

The following day, December 24, 1980 DeChillo was notified by the main office of his bank that they had been informed by the drawee bank that the two checks drawn on it were being returned unpaid because of a "stop payment". When the checks were returned, the amount of $12,000.00 was charged to the partnership account thereby creating an overdraft for the amount.

The overdraft was reduced to approximately $9,000.00 when the bank reapplied the $3,000.00 deposit in NOONAN's personal account to the partnership overdraft.

Subsequent attempts to have the partnership and Messrs. De Santis and Noonan pay the overdraft were unsuccessful and this suit was commenced.

The summons and verified complaint were served on each of the partners by substituted service in April and May, 1981. Both defaulted and a judgment was entered thereon on July 14, 1981.

Proceedings to enforce the judgment were largely unsuccessful although the Bank did restrain bank accounts of De Santis at several banks in which he had nominal balances.

In February, 1982, De Santis moved by order to show cause to vacate the default judgment as against him. The bank consented to the application on condition that the judgment and restraining notices remain as security. De Santis served an answer which put into issue the material allegations of the complaint, raised an affirmative defense of negligence and crossclaimed against Noonan for any amount the Bank recovers from De Santis.

De Santis first argument is that the transactions described herein were conducted solely by Noonan without the authority of DeSantis, that Noonan was acting outside the scope of the partnership business, and therefore that De Santis' individual assets may not be used to satisfy the overdraft. De Santis does not dispute that he signed the "Partnership Certificate and Authorization". His defense rests on the theory that he did not cash or consent to the cashing of the checks which created the overdraft nor did he receive any of the proceeds.

It is undisputed that the transactions herein were conducted by Noonan without the knowledge or consent of De Santis. De Santis predicates his defense on the premise that because he neither knew of, nor condoned Noonan's actions that Noonan was acting outside the scope of the partnership business. Section 20(1) of the Partnership Law states: "Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority".

The test of apparent authority is subjective. If a third party could have been said to have reasonably relied on the apparent authority then the alleged agent's principal is estopped from claiming lack of knowledge or consent. In light of the "Partnership Certificate and Authorization", the plaintiff could be said to have reasonably relied upon Noonan's apparent authority to make the banking transactions described herein. It is well settled that one partner's actions need not be explicitly authorized, consented to, or ratified by another partner. "A partnership is a voluntary association by which in all of the affairs connected with the business an authority is impliedly given to every member to dispose of the partnership property as if it were his own personal effects. Such is the indivisable nature of their interest, and the capacity of every member to act as the authorized agent of all, that whatever one does in the course of the partnership business has the same efficacy as if all had severally and directly joined in the act." Mabbett v. White, (1855) 12 N.Y. 442, 455. In essence, an action need not be actually within the scope of the partnership business, so long as it is apparently within the scope of the partnership business.

De Santis asserts that he had no knowledge of Noonan's transactions with the plaintiff, prior to his telephone conversation with plaintiff's branch manager after the discovery of the overdraft. Section 23 of the Partnership Law states; "Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter acquired while a partner or then present to his mind and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner". De Santis lack of actual notice is immaterial. Section 23 of the Partnership Law imparts constructive notice of transactions within the scope of the partnership business by one partner to all the other partners.

De Santis cites section 24 of the Partnership Law, in his memoranda of law. Section 24 states: "Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership, or with the authority of his co-partners loss of injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act." The applicability of Section 24 to the case at hand is dubious. Section 24 of the Partnership Law deals with "wrongful act or omission" such as tort or fraud. Halperin v. Edwards and Hanly, (D.C.N.Y.1977) 430 F.Supp. 121; Guild v. Herrick, 51 N.Y.S.2d 326. The instant case is predicated upon an alleged breach of contract i.e. the "Partnership Certificate and Authorization", and not upon a theory of tort liability. This distinction is important because partners are jointly and severally liable for torts committed in the course of partnership business and an action may be brought against all or any of them in their individual capacities or against the partnership as an entity. Martinoff v. Triboro Roofing Co., (1962, Sup.) 228 N.Y.S.2d 139; Pederson v. Manitowoc Co., (1969) 25 N.Y.2d 412, 306 N.Y.S.2d 903, ...

To continue reading

Request your trial
16 cases
  • IN RE SECURITIES GROUP 1980
    • United States
    • U.S. Bankruptcy Court — Middle District of Florida
    • 20 Febrero 1991
    ...business. See also In re The Securities Group, 89 B.R. 204, 215 (N.D. Fla.1988); See also Bank of Commerce v. DeSantis, 114 Misc.2d 491, 451 N.Y.S.2d 974 (N.Y.City Cir.Ct.1982). 58. Furthermore, this court has noted that the Limited Partnership agreements "authorized the partnerships to `en......
  • In re Monetary Group
    • United States
    • U.S. Bankruptcy Court — Middle District of Florida
    • 3 Enero 1989
    ...on the other partners, so long as it is apparently within the scope of the partnership\'s business. Bank of Commerce v. Desantis, 451 N.Y.S.2d 974, 114 Misc.2d 491 (N.Y. City Civ.Ct.1982). See also, Riley v. Larocque, 297 N.Y.S. 756, 163 Misc. 423 (1937) (Even a professional partnership wil......
  • In re Securities Groups
    • United States
    • U.S. Bankruptcy Court — Middle District of Florida
    • 13 Julio 1988
    ...on the other partners, so long as it is apparently within the scope of the partnership's business. Bank of Commerce v. DeSantis, 451 N.Y.S.2d 974, 114 Misc.2d 491 (N.Y.City Civ.Ct.1982). See also, Riley v. Larocque, 297 N.Y.S. 756, 163 Misc. 423 (1937) ("Even a professional partnership will......
  • Securities Group, In re
    • United States
    • U.S. Court of Appeals — Eleventh Circuit
    • 15 Marzo 1991
    ...the partnership; his acts need only be "apparently within the scope of the partnership business." Bank of Commerce v. De Santis, 114 Misc.2d 491, 494, 451 N.Y.S.2d 974, 977 (N.Y.Civ.Ct.1982). Guarantying the debts of another entity is generally not within the apparent business of a partners......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT