Demos v. Lyons

• Decision Date: 24 June 1977
• Parties: , 22 UCC Rep.Serv. 754 George DEMOS and Christine Demos, his wife, Plaintiffs, v. Raymond T. LYONS, Jr., a/k/a R. T. Lyons, Jr., Defendant, and Summit Squire, Inc., a corporation of the State of New Jersey, Cranford HallNursing Home, a partnership, Anna L. Pizzi, and Raymond C. Zeltner, partners,Intervenors. SOMERSET TRUST COMPANY, a banking company of the State of New Jersey,Plaintiff, v. George DEMOS, Christine Demos, Raymond T. Lyons, Jr., a/k/a R. T. Lyons, Jr., and Summit Squire, Inc., a corporation of the State of New Jersey, Defendants.
• Court: New Jersey Superior Court

Page 489

151 N.J.Super. 489

376 A.2d 1352, 22 UCC Rep.Serv. 754

George DEMOS and Christine Demos, his wife, Plaintiffs, v. Raymond T. LYONS, Jr., a/k/a R. T. Lyons, Jr., Defendant, and Summit Squire, Inc., a corporation of the State of New

Jersey, Cranford HallNursing Home, a partnership,

Anna L. Pizzi, and Raymond C. Zeltner,

partners,Intervenors.

SOMERSET TRUST COMPANY, a banking company of the State of

New Jersey,Plaintiff, v. George DEMOS, Christine Demos, Raymond T. Lyons, Jr., a/k/a

R. T. Lyons, Jr., and Summit Squire, Inc., a

corporation of the State of New Jersey,

Defendants.

Superior Court of New Jersey, Law Division.

June 24, 1977.

Daniel J. Matyola, Somerville, for Somerset Trust Co. (Wharton, Stewart & Davis, Somerville, attorneys).

Phidias L. Pollis, Elizabeth, for George Demos and Christine Demos (Pollis, Pappas & Dillon, Elizabeth, attorneys).

Thomas F. Youngblood, Bloomfield, for Summit Squire, Inc. and Anna L. Pizzi and Raymond C. Zeltner, trading as Cranford Hall Nursing Home (Crummy, Del Deo, Dolan & Purcell, Newark, attorneys).

Richard J. Sauerwein, Springfield, for Raymond T. Lyons, Jr. BRODY, J. J. D. R. C., Temporarily Assigned.

This litigation arises out of the failure of George and Christine Demos (buyers) to go through with the purchase of the Summit Squire Restaurant the business from Summit Squire, Inc. and the realty from Anna L. Pizzi and Raymond C. Zeltner, trading as Cranford Hall Nursing Home (sellers). Sellers contend that the terms of sale are embodied in a signed contract. Buyers characterize the writing as merely a memorandum of intent, subject to approval by their attorney who had not seen it before they signed. When the document was signed, and in accordance with its terms, buyers gave sellers' attorney Raymond T. Lyons, Jr., a $25,000 check drawn on Somerset Trust Company (the bank) to hold in escrow as a deposit. Bank paid the check even though doing so produced a $9,638.28 overdraft against buyers' account.

The dispute between the buyers and sellers over disposition of the deposit must be resolved at trial. Now before the court for summary adjudication are the bank's claims against the buyers for reimbursement and against the stakeholder Lyons for return of the $9,638.28. I granted the bank partial summary judgment against the buyers for reasons given in an oral opinion. See N.J.S.A. 12A:4-401(1), which permits a bank to charge an overdraft against its customer's account. More troublesome is the question of whether the bank should have judgment as well against the stakeholder. Sellers resist the bank's motion and make their own against the bank, seeking to foreclose it from retrieving the $9,638.28.

It appears from the bank's evidence that the check was presented to it for payment late in the afternoon of June 2, 1976. One of the buyers, George Demos, had been in the bank that morning and advised its personnel that he was buying the Summit Squire, a substantial restaurant business in downtown Summit. He requested the bank to prepare an amortization schedule of payments to be used, he said, in connection with private financing he had arranged to complete the purchase. When the check arrived the bookkeeper's records disclosed that the buyers' account lacked $9,638.28 to cover it. It was too late in the day to learn from the bank's computer whether Demos had made a deposit to his account that morning to cover the check, and the bank was unable to reach him by telephone to determine whether he had done so. The check bore a notation, "Deposit Summit Squire," which, with what they learned from Demos's appearance earlier that day, correctly led officers of the bank to conclude that it was the deposit on the buyers' purchase of the restaurant.

The bank had to decide whether to hold the check until the following day, dishonor it, or pay it. Because the check was for a large sum, the officers felt obliged by custom to advise Lyons' depositary bank that afternoon if it was going to dishonor it. So as not to embarrass their customer in this important transaction, the bank officers decided to pay the check. In fact, Demos had made no deposit to cover the check.

The bank contends that its claim is governed by Maplewood Bank and Trust Co. v. F.I.B., Inc., 142 N.J.Super. 480, 362 A.2d 44 (App.Div.1976), where the court, dealing with a strikingly similar set of facts, gave the bank judgment because it had paid the check by mistake. The court applied N.J.S.A. 12A:3-418, which reads in pertinent part, that "payment or acceptance of any instrument is final in favor of a holder in due course, or a person who has in good faith changed his position in reliance on the payment." The issue in Maplewood Bank was whether the stakeholder was a holder in due course. The court held he was not and therefore the bank was entitled to restitution because it had mistakenly paid the check.

The sellers have conceded that, as was the case in Maplewood Bank, they were not holders in due course and did not change their position in reliance on the payment. They contend, however, that Maplewood Bank does not control because that court did not consider the effect of N.J.S.A. 12A:4-213(1), which reads in part, "An item is finally paid by a payor bank when the bank has done any of the following whichever happens first: (a) paid the item in cash; or (etc.) * * *." The sellers argue that this provision bars restitution absolutely because of the absence of § 3-418 language that applies the bar only to protect a holder in due course or a person who relied on the payment.

Given the asserted conflict between the chapter 3 ("Commercial Paper") section and the chapter 4 ("Bank Deposits and Collections") section, the sellers contend that the chapter 4 section should prevail in accordance with N.J.S.A. 12A:4-102(1), which provides in part, "In the event of conflict the provisions of this Chapter govern those of Chapter 3 * * *." Their position is supported in White and Summers, Uniform Commercial Code (1972), §§ 16-2 and 16-3 at 519-529.

The word "final" as used to describe a payment, embraces two distinct concepts: one, a rule of law; the other, the time payment occurs.

As a rule of law, "payment is final" refers to the common law principle that one cannot recover back money paid, simply because of a change of mind. Its rationale is repose. Establishing the finality of a payment tends to assure stability in people's affairs. However, the law may compel restitution where there are competing considerations such as fraud, duress and mistake favoring the payor. When these considerations are raised, the evidence must be examined and equities balanced. Under some circumstances the payor's equities are insufficient to overcome those of the payee or others who may have relied in good faith on the payment. But even where no one has relied on the payment, the policy of repose may nevertheless prevail where the payor's asserted equity is based on facts he knew before payment and freely chose to disregard. Where the payor is denied restitution because others relied in good faith on the payment, he is said to be estopped. Where no one relied upon the payment but restitution is denied because the payor voluntarily paid knowing he had reason not to, he is said to have waived his right to restitution based on that reason. See Ross Systems v. Linden Dari-Delite, Inc., 35 N.J. 329, 334, 173 A.2d 258 (1961), and Great American Ins. Co. v. Yellen, 58 N.J.Super. 240, 245, 156 A.2d 36 (App.Div.1959).

As a description of the time when payment occurs, "payment is final" means that commercial paper is paid at the moment the payor performs some defined act, such as delivery of cash to the payee or making a book entry. The moment when payment has thus been "finalized" often becomes important to establish priorities (e. g., between an attaching creditor of drawer and a payee) or to establish when the payor must have a prevailing equity to get back the money.

Legislation that fails to distinguish between the normative and descriptive uses of the expression "payment is final" may cause confusion. Thus, a statute stating only that payment is final upon the happening of a particular event could either be stating a rule of law intended to change the common law by denying the payor restitution regardless of the equities, or merely be pinpointing the moment when payment occurs, thereby freezing priorities and compelling the payor to account absent prevailing common law equities.

The sellers give the former construction to § 4-213(1), which reads as follows:

An item is finally paid by a payor bank when the bank has done any of the following, whichever happens first:

(a) paid the item in cash; or

(b) settled for the item without reserving a right to revoke the settlement and without having such right under statute, clearing house rule or agreement; or

(c) completed the process of posting the item to the indicated account of the drawer, maker or other person to be charged therewith; or

(d) made a provisional settlement for the item and failed to revoke the settlement in the time and manner permitted by statute, clearing house rule or agreement.

Upon a final payment under subparagraphs (b), (c) or (d) the payor bank shall be accountable for the amount of the item.

The sellers' interpretation of this section must be matched against legislative intent as gleaned from the language of the statute and, if the language lacks clarity, as found in the policy objectives of the statutory scheme. Dvorkin v. Dover Tp., 29 N.J. 303, 313, 148 A.2d 793 (1959); N.J. Builders, Owners and Managers Ass'n v. Blair, 60 N.J. 330, 338, 288 A.2d 855 (1972).

The statutory language is oriented to time of payment, not legal effect of payment. "Finally paid" suggests that act in a sequence of acts which establishes the time of payment. The word "when" can refer only to time of payment. Looking beyond the section in question, one finds in the Uniform...