Fidelity & Deposit Co. of Md. v. Chemical Bank New York Trust Co.

• Decision Date: 16 December 1970
• Citation: Fidelity & Deposit Co. of Md. v. Chemical Bank New York Trust Co., 318 N.Y.S.2d 957, 65 Misc.2d 619 (N.Y. App. Term 1970)
• Parties: , 8 UCC Rep.Serv. 541 FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Respondent, v. CHEMICAL BANK NEW YORK TRUST COMPANY, Defendant-Appellant. CHEMICAL BANK NEW YORK TRUST COMPANY, Third-Party Plaintiff-Appellant, v. FIRST NATIONAL CITY BANK and Valley National Bank of Long Island, Third-PartyDefendants-Appellants.
• Court: New York Supreme Court — Appellate Term

Page 957

318 N.Y.S.2d 957

65 Misc.2d 619, 8 UCC Rep.Serv. 541

FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Plaintiff-Respondent, v. CHEMICAL BANK NEW YORK TRUST COMPANY, Defendant-Appellant.

CHEMICAL BANK NEW YORK TRUST COMPANY, Third-Party Plaintiff-Appellant, v. FIRST NATIONAL CITY BANK and Valley National Bank of Long

Island, Third-PartyDefendants-Appellants.

Supreme Court, Appellate Term, First Department.

Dec. 16, 1970.

Shearman & Sterling, New York City (Herman E. Compter and Matthew C. Gruskin, New York City, of counsel), for First National City Bank, third-party defendant-appellant.

Herman, McMahon, George & Herman, Valley Stream (William H. George, Valley Stream, and Harold Weisblatt, New York City, of counsel), for Valley National Bank of Long Island, third-party defendant-appellant.

Hendler & Murray, New York City (Arthur Lambert, New York City, of counsel), for plaintiff-respondent.

Before QUINN, J.P., and GOLD and MARKOWITZ, JJ.

PER CURIAM:

This is an action by plaintiff, as subrogee of Hertz, Neumark & Warner, to recover the proceeds of two checks bearing forged endorsements paid by defendant. Defendant brought a third party action based upon the guarantee of all prior endorsements. A registered representative of Hertz, Neumark & Warner received a telephone call from a friend referring two individuals who wished to sell certain securities through the brokerage firm. Information concerning these customers was given over the phone by the friend to the registered representative who recorded it on account cards. He did not contact the customers, attempt to verify any of the information and did not know whether the named customers actually existed. Nothing was sent to these customers. After discovery that the securities were stolen, the registered representative and plaintiff conducted an investigation where they were unable to connect the customers with their purported employer or with any of the addresses which were given for them.

The friend who referred these customers advised the registered representative that he had just met them. He supplied the numbers of the stock certificates and requested the registered representative to check to ascertain if these securities were transferable. No check was made to discover if the certificates were transferable other than telephone calls to the transfer agents who refused to provide this information over the telephone. Hertz, Neumark & Warner was subject to the New York Stock Exchange 'know your customer' rule.

The trial court did not accord this rule the weight of established business custom. It held the defense of negligence on the part of Hertz, Neumark & Warner was not available since it was not the proximate cause of the loss.

UCC 3--406 provides:

'Any person who by his negligence substantially contributes * * * to the making of an unauthorized signature is precluded...