Danco, Inc. v. Commerce Bank/Shore, N.A.

• Decision Date: 10 May 1996
• Citation: 675 A.2d 663,290 N.J.Super. 211
• Parties: , 29 UCC Rep.Serv.2d 513 DANCO, INC., Plaintiff-Appellant, v. COMMERCE BANK/SHORE, N.A., Defendant-Respondent and San Fran Plumbing, Third-Party Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 211

290 N.J.Super. 211

675 A.2d 663, 29 UCC Rep.Serv.2d 513

DANCO, INC., Plaintiff-Appellant, v. COMMERCE BANK/SHORE, N.A., Defendant-Respondent and San Fran Plumbing, Third-Party Defendant.

Superior Court of New Jersey Appellate Division.

Argued April 17, 1996.

Decided May 10, 1996.

Andrew Cohen, Haddonfield, argued the cause for appellant (Gerstein, Cohen & Grayson, attorneys; Suzanne E. Bragg, on the brief).

Richard M. Berman, Cherry Hill, argued the cause for respondent (Parker, McCay & Criscuolo, attorneys; Mr. Berman, on the brief).

Before Judges SHEBELL, STERN and WALLACE.

The opinion of the court was delivered by

SHEBELL, P.J.A.D.

Plaintiff, Danco, Inc. (Danco), filed an action against defendant, Commerce Bank/Shore, N.A. (Commerce), seeking payment of funds on three checks drafted by K. Hovnanian at Valley Brook, Inc. (Hovnanian) made payable to:

SAN FRAN PLUMBING, INC./

DANCO, INC.

112 STRATFORD AVENUE

STRATFORD, NJ 08084.

Plaintiff's complaint alleged that San-Fran Plumbing, Inc. (San-Fran) presented the three checks to Commerce for payment without the authority of Danco after San-Fran had forged the signature of Daniel Campbell, on behalf of Danco, and that Commerce paid the proceeds on the basis of indorsements believed to be forged by San-Fran. Plaintiff demanded judgment against Commerce for the face value of the checks totaling $22,332.50.

Commerce's answer denied all allegations, and asserted that the action was barred by the Uniform Commercial Code (U.C.C.), that the complaint failed to state a claim for which relief could be granted and was barred by the statute of limitations. Commerce also filed a Third-Party Complaint against San-Fran and its principal Frank Papa, alleging that the damages sought were the direct result of the breach of warranty of San-Fran. Neither San-Fran nor Papa responded to the Third-Party Complaint.

On motion before the completion of discovery, Commerce was granted summary judgment dismissing plaintiff's complaint with prejudice. The judge held that the checks were payable alternatively to either Danco or San-Fran, and not to the two in conjunction. He reasoned that if the check had been payable to both parties jointly only, it would have had an ampersand ("&") or the word "and" and not a virgule ("/"), meaning "or."

Danco is in the business of selling plumbing supplies. For approximately four years San-Fran obtained materials and supplies from Danco, on credit, for use in construction projects that included two development projects built by Hovnanian. When the San-Fran account became delinquent, Danco and San-Fran agreed to enter into a joint check agreement, whereby checks drafted by Hovnanian in payment of San-Fran's work in Hovnanian's projects would be made payable to both Danco and San-Fran.

On August 7, 1991, San-Fran wrote the following request to Hovnanian:

We would appreciated it, if all checks to San-Fran Plumbing, Inc., will be made out to two parties. First party San-Fran Plumbing, Inc., and the second party to be Danco Plumbing, Inc.

On May 14, 1992, another such request, involving a different development project, was made by San-Fran.

According to the certifications of Daniel Campbell, San-Fran, upon receiving a check from Hovnanian, would bring it to Danco to determine what San-Fran owed Danco. Both Danco and San-Fran would indorse the check, and then Danco would deposit the check into its bank account. If any amount of the Hovnanian check exceeded the amount owed by San-Fran to Danco, Danco would issue its check to San-Fran. In September of 1992, San-Fran filed for Chapter 7 bankruptcy, owing Danco almost $200,000.00.

During the course of litigation with a successor company to San-Fran, Danco discovered that San-Fran had received the following three joint checks which were not presented to Danco as had been their agreement: 1) 15-NOV-1991 for $11,025.00; 2) 11- for $10,660.00; and 3) 04-OCT-1991 for $647.50. Danco claims that its indorsement was forged, and that it never saw any of these checks.

Danco submitted an affidavit of forgery for each check to Midlantic Bank, the bank on which the checks were drawn. Midlantic, after conducting its investigation, determined that defendant, Commerce, was the depositing bank and turned the claim over to it. In response, Commerce produced a certification of Frank Papa asserting that Danco had authorized him to sign the checks for Danco. Danco denied this representation and continues to maintain that the indorsements are fraudulent.

Danco filed suit against Commerce for processing the checks with the forged signatures. The Law Division judge in granting defendant's motion for summary judgment held that the checks were payable alternately to either Danco or San-Fran, and that even if Danco's signature was a forgery, only one signature needed to be valid, and therefore Commerce acted appropriately in cashing the checks.

Danco argues on appeal that the trial court's presumption that the virgule ("/") means "or" is incorrect, and that the meaning of the virgule is ambiguous. Such ambiguity, it argues, renders summary judgment inappropriate. It further urges that since discovery was incomplete, it was denied the opportunity to determine whether Commerce violated its own procedures regarding the processing of such instruments. See New Jersey Steel Corp. v. Warburton, 139 N.J. 536, 655 A.2d 1382 (1995).

Until February of 1995, N.J.S.A. 12A:3-116, Instruments Payable to Two or More Persons, provided the following with respect to an instrument payable to the order of two or more persons:

(a) if in the alternative is payable to any one of them and may be negotiated, discharged or enforced by any of them who has possession of it;

(b) if not in the alternative is payable to all of them and may be negotiated, discharged or enforced only by all of them.

Thus, the statute made a clear distinction between an instrument payable to "A and B" and one payable to "A or B." Further where an instrument was written payable to "A and/or B" the statute made it payable in the alternative to A, or to B, or to A and B together. Although no statute in New Jersey stated that "/" was the equivalent of "or," we perceive that this meant it could be negotiated, enforced or discharged by payment to either A or B.

However, the enactment of U.C.C. (Revised) § 3-110(d) in February of 1995, adds further light to the issue. It provides that where any ambiguity between joint or alternative payees is present, the ambiguity should be resolved in favor of alternative construction. It states:

(d) If an instrument is payable to two or more persons, alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument.... If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.

[N.J.S.A. 12A:3-110(d), (Emphasis Added) ].

The Official Comment to this Revised U.C.C. section states the following as to construing ambiguities in favor of alternative payees: "In the case of ambiguity[,] persons dealing with the instrument should be able to rely on the indorsement of a single payee." Official Comment, U.C.C. (Revised) § 3-110(d). Although this provision was not in effect at the time of this transaction, we believe there are persuasive reasons to hold in accordance with the U.C.C. revision. As we have noted, it is the objective intent of the maker that is controlling as to the indorsements required. Thus, unless the maker makes it clear that indorsement by a single payee is unacceptable, persons dealing with the instrument should be able to rely on the single indorsement without suffering the risk of incurring liability. The maker is in the best position to guard against the ambiguity and that is where the duty should be.

Only one case in our State has dealt with the question of what the virgule means. Kinzig v. First Fidelity Bank, N.A., 277 N.J.Super. 255, 258, 649 A.2d 634 (Law Div.1994). In Kinzig, supra, the trial court held that "use of a virgule permits payment to either of the payees listed on a check, and proper payment requires the indorsement of only one of the payees." Ibid. In modern writing, the word "virgule" means a short slanting stroke drawn between two words and indicating that either may be used by the reader to interpret the sense of the text. "It denotes the disjunctive or alternative." 92 C.J.S. Virgule (1995 supplement at 125) (emphasis added).

Other jurisdictions, both state and federal, have concluded that use of a virgule is not ambiguous and means "or." In each case, the courts have looked to dictionary definitions, and concluded that the plain meaning of a virgule ("/") indicates an alternative choice or "or." Purina Mills, Inc. v. Security Bank & Trust, 547 N.W.2d 336 (Mich.App.1996) (a virgule is defined as "an oblique stroke (/) used between two words to show that an appropriate one may be chosen to complete the sense of the text," quoting The Random House College Dictionary, Revised Edition (1975)); Mumma v. Rainier National Bank, 60 Wash.App. 937, 808 P.2d 767, 768, review den. 117 Wash.2d 1019, 818 P.2d 1098 (1991); Dynalectron Corp. v. Equitable Trust Co., 704 F.2d 737, 739 (4th Cir.1983); L.B. Smith, Inc. v. Bankers Trust Co. of W. New York, 80 A.D.2d 496, 439 N.Y.S.2d 543, 544 n. 2 (1981) (quoting The Random House Dictionary of the English Language, Unabridged Edition 1967, a virgule is "a short oblique stroke (/) between two words indicating that whichever is appropriate may be chosen to complete the sense of the text in which they occur"), aff'd, 55 N.Y.2d 942, 449 N.Y.S.2d 192, 434 N.E.2d 261 (1982); Brown Strober Bldg. Supply Corp. v. Living House, Inc., 107 Misc.2d 294, 433 N.Y.S.2d 724, 725 (N.Y.Dist.Ct.1980); Miron Rapid Mix Concrete Corp. v. Bank Hapoalim, B.M., 105 Misc.2d 630, 432...