Five Towns College v. Citibank, N.A.

• Decision Date: 20 May 1985
• Citation: 108 A.D.2d 420,489 N.Y.S.2d 338
• Parties: , 25 Ed. Law Rep. 461, 41 UCC Rep.Serv. 503 FIVE TOWNS COLLEGE, Appellant, v. CITIBANK, N.A., Respondent.
• Court: New York Supreme Court — Appellate Division

Page 338

489 N.Y.S.2d 338

108 A.D.2d 420, 25 Ed. Law Rep. 461,

41 UCC Rep.Serv. 503

FIVE TOWNS COLLEGE, Appellant, v. CITIBANK, N.A., Respondent.

Supreme Court, Appellate Division Second Department.

May 20, 1985.

Ira H. Leibowitz, Lasky & Peterson, Garden City (Robert M. Levine, Garden City, of counsel), for appellant.

Bigham Englar Jones & Houston, New York City (Peter Broeman, New York City, of counsel), for respondent.

Before TITONE, J.P., and MANGANO, GIBBONS and O'CONNOR, JJ.

GIBBONS, Justice.

The issues raised on this appeal concern the propriety of Special Term's refusal to grant plaintiff partial summary judgment in its action to recover damages arising out of defendant's alleged improper payment of a series of checks bearing forged drawers' signatures, and its further decision to allow the defendant to amend its answer in order to assert, in effect, plaintiff's contributory negligence as an affirmative defense (CPLR 1411, 1412). In our view, the order, as amended, should be modified by deleting the provision granting leave to amend the answer in order to assert the aforementioned affirmative defense, and, as so modified, should be affirmed insofar as appealed from.

On or about September 3, 1979, plaintiff Five Towns College filed a signature card with defendant Citibank, N.A., designating its business manager (Mr. Martin Crafton), its president (Dr. Stanley G. Cohen), and its coordinator (Ms. Lorraine Kleinman) as the authorized signatories on its checking account No. 15107257. Previously, in March of 1979, the college had allegedly hired one Hilda Weisel as its new full-charge bookkeeper, and following the latter's untimely death in March of 1981, it was belatedly discovered that Ms. Weisel had embezzled in excess of $162,000 from the college by writing a series of checks to her own order and signing the names of either the college president (Dr. Cohen) or its coordinator (Ms. Kleinman). Citibank was notified of these forgeries on or about May 11, 1981, and following the latter's refusal to reimburse the plaintiff, this action was commenced in the Supreme Court, Nassau County, in which the college sought to recover the full amount of the forged checks. Issue was joined by the service of an answer in which the defendant bank successively pleaded Uniform Commercial Code §§ 3-406 and 4-406 as affirmative defenses ¹, and following the service of answers to plaintiff's first set of interrogatories, the college moved for summary judgment in the principal amount of $104,625, representing the face amount of the 30 checks bearing the forged signature of Lorraine Kleinman which had been paid by the defendant during the 12 months preceding the first date of notification to the bank of the forgeries.

In support of its application, plaintiff annexed the affidavits of its business manager (Mr. Crafton) and its coordinator (Ms. Kleinman) to establish the facts regarding Ms. Weisel's employment, the forgeries, and her lack of authority to sign Ms. Kleinman's name, and also annexed copies of the defendant's answers to its first set of interrogatories. In them, the defendant admitted that it had not taken any steps whatsoever to verify the drawer's signatures on any of the plaintiff's checks, but claimed, in mitigation, that "verification would not have detected the alleged forgeries complained of in this action". Moreover, while no verification of any of these items was apparently attempted, Citibank did maintain that it had in effect at the operative time, a viable verification policy pursuant to which "drawn on end-of-month and special instruction accounts signature verified".

In opposition, the defendant submitted an affidavit by an assistant manager of the defendant, employed at its Regional Processing Center, in which it was alleged, inter alia, that defendant presently lacked any knowledge or information regarding the existence or nonexistence of Hilda Weisel; that it had not, as yet, had the opportunity to depose Ms. Kleinman regarding either the fact of the "forgeries" or the existence of Ms. Weisel; that the "midnight deadline" for the acceptance or rejection of demand items imposed by UCC 4-302 (see also, UCC 4-104) renders the verification of signatures on every check impossible; that the verification procedure employed by Citibank constitutes the required exercise of "ordinary care" in the payment of customers' checks (see, UCC 4-406); and that there are other safeguards employed by Citibank in order to prevent the payment of unauthorized checks, e.g., the employment of Magnetic Ink Character Readers to make sure that every check which is actually paid is one of the preprinted checks which it sends to its depositors, thus insuring that if a check with a forged endorsement is paid "it would necessarily be result of Citibank's customer having failed to exercise a sufficient degree of care to keep the magnetically encoded checks out of the hands of the forger or unauthorized signer". In addition, the defendant cross-moved for (1) partial summary judgment dismissing the complaint insofar as it pertained to the recovery of items paid more than one year prior to the date of its notification; and (2) for leave to amend its answer in order to assert a claim of contributory negligence against the plaintiff.

The plaintiff opposed the cross motion for leave to amend the answer, but on June 3, 1983, Special Term (Levitt, J.), granted the cross motion and denied the plaintiff's motion, stating, in pertinent part, as follows:

"for consolidation and for dismissal of the counterclaim were previously granted to the extent of consolidation for joint trial pursuant to CPLR 602(a) and deeming the counterclaim as an affirmative defense pursuant to CPLR 1403.

"UCC 4-406(4) states in relevant part as follows:

'(4) Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (sub-section ) discover and report his unauthorized signature * * * on the face or back of the item * * * is precluded from asserting against the bank such unauthorized signature....'

"Accordingly, the defendant's cross-motion for partial summary judgment dismissing the complaint insofar as it seeks recovery for checks paid by it prior to May 11, 1980 is granted since the first notice to defendant of the alleged forgeries was by letter dated May 11, 1981. The claim is, therefore, reduced from $162,036.26 as demanded to $104,625.00, which is the total of the thirty (30) checks within the statutory one-year limit noted above (See Mesnick v. Hempstead Bank, 106 Misc.2d 624 .

Plaintiff's motion for summary judgment based upon the alleged improper payment of the aforesaid thirty (30) checks is denied. Whether or not defendant failed to exercise ordinary care (See UCC 4-406) in payment of the proceeds of said checks to plaintiff's deceased bookkeeper, the alleged embezzler, who named herself as payee thereof and who allegedly forged the signature of an authorized corporate signatory thereon is a question of fact. Such a question of fact, not precluding others, mandates a denial of a summary disposition herein."

Subsequently, however, the court, sua sponte, amended its order, stating:

"On the Court's own motion and in an attempt to clarify the order of this Court Dated June 3, 1983, the Court amends said order by adding the following:

'The issue of contribution should be raised by affirmative defense rather than counterclaim (CPLR 1412). The Court grants the defendant permission to serve a second amended answer asserting the affirmative defense of contribution. Clearly, it was the legislature's intent to permit contributory fault to be asserted as a defense irrespective of the legal theory under which a plaintiff sues, i.e., not to limit that defense to negligence actions (Lippes v. Atlantic Bank of New York, 69 A.D.2d 127 2A Weinstein, Korn Miller Parag. 1401.13)' "As so amended, the order shall remain in full force and effect."

This appeal followed.

On appeal, it is the plaintiff's contention that Special Term erred in denying its motion for partial summary judgment on the 30 forged checks totaling $104,625 which the defendant had paid during the 12 months preceding its first notification of the forgeries (cf. UCC 4-406), since the admitted failure to attempt to verify any of the signatures of any of the plaintiff's checks constituted a "lack of ordinary care on the part of the bank in paying the item(s)" as a matter of law (see, UCC 4-406). In addition, plaintiff maintains that the concepts of contributory negligence and comparative fault (CPLR arts. 14, 14-A) are wholly inapplicable to an action, as here, predicated on contract and arising under the Uniform Commercial Code.

In our view, the existence of triable issues of fact, including, e.g., the existence of the alleged forger, her lack of authority to sign the disputed checks, and presence or absence of ordinary care on the part of the defendant bank in paying the contested items, precluded the entry of partial summary judgment in plaintiff's favor. However, we agree with the plaintiff that the principles of comparative fault should not be extended to alter the careful adjustment of the respective rights and obligations of a bank and its customers regarding the payment of checks bearing unauthorized or forged signatures set forth in the UCC. Accordingly, that aspect of the defendant's cross motion which sought leave to amend its answer in order to assert a claim for an apportionment of responsibility was not properly granted, and should have been denied in toto.

Assuming, arguendo, that plaintiff is correct in contending that the admitted failure of the bank to attempt any signature verification on any of the checks written against its account No. 15107257 constituted a per se failure to exercise ordinary care in the payment of such items (see, UCC 4-406 see...