General Apparel Sales Corp. v. Chase Manhattan Bank, 70 Civ. 1410.

• Decision Date: 23 October 1970
• Docket Number: No. 70 Civ. 1410.,70 Civ. 1410.
• Citation: 321 F. Supp. 891
• Parties: GENERAL APPAREL SALES CORP., Plaintiff, v. The CHASE MANHATTAN BANK, N. A., Defendant.
• Court: U.S. District Court — Southern District of New York

321 F. Supp. 891

GENERAL APPAREL SALES CORP., Plaintiff, v. The CHASE MANHATTAN BANK, N. A., Defendant.

No. 70 Civ. 1410.

United States District Court, S. D. New York.

October 23, 1970.

Friend & Reiskind, New York City, for plaintiff; Edwin M. Reiskind, Jr., New York City, of counsel.

Matthew F. Donohue, New York City, for defendant; Joseph V. Hamilton, Jr., New York City, of counsel.

MEMORANDUM OPINION

LASKER, District Judge.

In this suit by a North Carolina corporation against a national banking association which has its principal office in the Southern District of New York, the plaintiff moves for summary judgment. The suit relates to two checks in the total amount of $16,729.75 which defendant received for the account of plaintiff and the proceeds of which defendant disbursed from that account. Plaintiff claims that, as a matter of law, defendant had authority neither to receive and collect the checks nor to permit the proceeds to be withdrawn.

The material facts are not in dispute¹ and may be described as follows: For some time prior to September 17, 1969, plaintiff maintained a checking account with defendant at its office at 2 Park Avenue, New York City. On that day one of plaintiff's officers telephoned Daniel McGlynn, an Assistant Treasurer of defendant, and requested that plaintiff's bank account be closed forthwith and that all funds in the account be forwarded to plaintiff's credit and account with the North State Bank of Burlington, North Carolina. McGlynn advised Maurice Koury, Chairman of plaintiff's Board of Directors, to put the request in writing, which Koury did, sending a letter of instructions on September 17, 1969, by certified mail, return receipt requested, addressed to the defendant to the attention of McGlynn. The letter, received by defendant on September 18, reads as follows:

"Confirming our phone conversation, we wish to close our checking account, General Sales Corp. Account # XXX-X-XXXXXX, immediately. All funds are to be transferred by wire to our Account # XXX-XXX-X with the North State Bank of Burlington, North Carolina. This transfer must be made through North Carolina National Bank in Charlotte, North Carolina for the account of North State Bank.

"I assume complete responsibility for this account as I am acting within the scope of my authority as Chairman of the Board of Directors.

"If you encounter any problems in carrying out our instructions, please feel free to phone us at 919 226-5581.

Sincerely yours GENERAL APPAREL SALES CORP. Maurice Koury"

On September 26, 1969, the defendant marked the plaintiff's checking account closed, and on September 30 mailed to the plaintiff a final statement (for the period August 29 through September 26) showing a zero balance in the account.

There was no further activity in the account until February 17, 1970, on which date the defendant accepted two checks payable to plaintiff's order in the total amount of $16,729.75, the proceeds of which defendant collected on February 19, 1970 and deposited in plaintiff's closed account. The proceeds of the checks were admittedly disbursed to some party other than the plaintiff. Curiously, the record contains no positive identification of the person to whom the proceeds were in fact paid, but only the statement in the affidavit of George R. Janssen, Second Vice President of defendant, sworn to June 24, 1970, that

"I believe Murray Wilson made the deposits on * * *. February 17, 1970 and the withdrawals between February 17 and February 25, 1970, but I cannot be certain."

In any event, the disposition of the case does not depend on whether Wilson, the former President of plaintiff, who had been authorized to draw on this account, did in fact receive the proceeds, but rather, on the fact that the proceeds were, without plaintiff's authority, paid out, in violation of the instructions of plaintiff as set forth in its letter of September 17, 1969, to some person other than the plaintiff or a person to whom payment was authorized by plaintiff. On the basis of these facts, the complaint alleges that defendant is liable for permitting unauthorized persons to convert the proceeds of the checks and for its negligence in doing so. The answer alleges that the defendant was authorized to do what it did, that the plaintiff was negligent, and that the plaintiff is estopped from bringing the suit.

This diversity case is governed by New York law. Article 4 of the Uniform Commercial Code of New York appears to control. Article 4-103 reads in relevant part:

"(1) The effect of the provisions of this Article may be varied by agreement except that no agreement can disclaim a bank's responsibility for its own lack of good faith or failure to exercise ordinary care or can limit the measure of damages for such lack or failure; * * *" Subparagraph 4 of the official comment relating to Section 4-103 reads:

"Under this Article banks come under the general obligations of the use of good faith and the exercise of ordinary care. * * * The term `ordinary care' is not defined and is here used with its normal tort meaning and not in any special sense relating to bank collections."

The undisputed facts here clearly establish that defendant failed to meet its statutory obligations to use ordinary care when, contrary to the unqualified written instructions of plaintiff, it (1) received and deposited the checks in the closed account of plaintiff and (2)...