Board of Higher Ed. of City of New York v. Bankers Trust Co.

• Decision Date: 07 May 1976
• Citation: 86 Misc.2d 560,383 N.Y.S.2d 508,19 U.C.C.Rep. 599
• Parties: , 19 UCC Rep.Serv. 599 BOARD OF HIGHER EDUCATION OF the CITY OF NEW YORK, Plaintiff, v. BANKERS TRUST COMPANY et al., Defendants.
• Court: New York Supreme Court

Page 508

383 N.Y.S.2d 508

86 Misc.2d 560, 19 UCC Rep.Serv. 599

BOARD OF HIGHER EDUCATION OF the CITY OF NEW YORK, Plaintiff, v. BANKERS TRUST COMPANY et al., Defendants.

Supreme Court, New York County, Part 4.

May 7, 1976.

W. Bernard Richland, Corp. Counsel, New York City (Michael Cecere and Michael Gordon, New York City, of counsel), for plaintiff.

Charles Leeds, New York City (Jack H. Weiner, New York City, of counsel), for Bankers Trust.

Bigham, Englar, Jones & Houston, New York City (Joseph A. Kilbourn and James R. Sullivan, New York City, of counsel), for Chemical Bank.

ABRAHAM J. GELLINOFF, Justice:

Plaintiff, the drawer of various checks, seeks judgment against defendant banks, claiming that defendants wrongfully paid the checks, and wrongfully debited the amounts thereof to plaintiff's accounts. Both sides move for summary judgment. Defendant Clarice Rich has not answered the complaint, and is not involved in this motion.

Ms. Rich was an employee of plaintiff. It was her duty to prepare requisitions for checks to be issued by plaintiff for scholarships and other payments to students, to prepare the checks, to have them signed by authorized personnel, and to send the checks to their recipients.

However, in some instances, instead of sending the checks, Ms. Rich retained them. Also, on a number of occasions she prepared duplicate requisitions and checks, which when signed, she likewise retained. She then forged the endorsement of the named payees on the checks she had retained, and cashed them at defendant Chemical Bank. Some of the checks were drawn on plaintiff's accounts at Chemical Bank, others on its accounts at defendant Bankers Trust. The amounts of the checks were charged to plaintiff's accounts at each bank. After discovery of the forgeries plaintiff demanded that its accounts be credited. Defendants' refusals led to this action.

Upon this motion for summary judgment, defendants assert that the endorsements, although forgeries, are nevertheless 'effective', because the forger, as an 'employee of the maker or drawer(,) has supplied * * * (the drawer) with the name of the payee intending the latter to have no such interest' (Uniform Commercial Code, § 3--405(1)(c)). Additionally, Chemical Bank argues that, as to the checks it cashed which had been drawn on Bankers Trust, Chemical was merely a collecting bank, and owed no responsibility to plaintiff as a matter of law. Finally, both defendants urge that, as to some of the checks, this action is barred by the pertinent statute of limitations.

Plaintiff does not seriously contest the applicability of Section 3--405 to the facts of this case. It does, however, claim that, as a municipal rather than a business corporation, it ought to be relieved of the onus of that section. This argument is frivolous.

Plaintiff's principal argument is that even if, by its terms, Section 3--405 does apply, defendants are estopped from invoking its protection because it was their gross negligence, amounting to commercial bad faith, which permitted the forger to cash the checks. Plaintiff is incorrect. For, Section 3--405 speaks as of the time the endorsement is forged, and makes that endorsement effective under the circumstances specified in the statute. Subsequent conduct in the negotiation of the check can not alter the effectiveness of the endorsement.

But the conclusion that the forged endorsements were effective does not determine the issue of defendants' liability. With respect to certain of the checks it cashed, Chemical, as drawee bank, had an obligation to plaintiff, its customer, to exercise due care; and it had authority to charge plaintiff's account only for checks it cashed 'in good faith' (Uniform Commercial Code § 4--401). If Chemical cashed these checks as a result of its own negligence, and not in good faith, it is liable to plaintiff notwithstanding the effectiveness of the endorsements (see, Federal Ins. Co. v. Groveland State Bank, 44 A.D.2d 182, 186--8, 354 N.Y.S.2d 220, 225--226 (4th Dept. 1974), modified on other grounds and otherwise affirmed, 37 N.Y.2d 252, 372 N.Y.S.2d 18, 333 N.E.2d 334 (1975); Arrow Bldrs. Corp. v. Royal National Bank, 21 N.Y.2d 428, 431, 288 N.Y.S.2d 609, 611, 235 N.E.2d 756, 757 (1968)).

The papers submitted on this motion demonstrate at the very least a bona fide factual issue as to Chemical's negligence and lack of good faith. For, at examination before trial, Chemical's employees admitted that Ms. Rich was able to obtain cash for the checks by simply presenting them to a teller. The bank made no attempt to verify her identity as the named payee; indeed, she frequently obtained cash for several...