Hechter v. New York Life Ins. Co.

• Decision Date: 06 December 1978
• Citation: 46 N.Y.2d 34,385 N.E.2d 551,412 N.Y.S.2d 812
• Parties: , 385 N.E.2d 551, 25 UCC Rep.Serv. 537 Rochelle M. HECHTER, Respondent, v. NEW YORK LIFE INSURANCE COMPANY et al., Defendants, and Chemical Bank, New York, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 812

412 N.Y.S.2d 812

46 N.Y.2d 34, 385 N.E.2d 551, 25 UCC

Rep.Serv. 537

Rochelle M. HECHTER, Respondent, v. NEW YORK LIFE INSURANCE COMPANY et al., Defendants and Chemical Bank, New York, Appellant.

Court of Appeals of New York.

Dec. 6, 1978.

Jeffrey Silberfeld, Point Lookout, and Philip H. Weinberg, Jamaica, for appellant.

Grant S. Lewis, New York City, for respondent.

OPINION OF THE COURT

COOKE, Judge.

The concern on this appeal is whether an action by the payee of a check against a collecting bank for wrongfully collecting the instrument over a forged indorsement is timely if brought within six years of accrual.

Plaintiff Rochelle Hechter was named as payee on three checks issued in April, 1970. Two of these negotiable instruments were drawn by New York Life Insurance on Morgan Guaranty Trust Company, while the third, issued by United Benefit Life Insurance, had as its drawee the Omaha National Bank. In the aggregate, the checks represented more than $135,000 in life insurance proceeds payable to Mrs. Hechter on the death of her husband. It is alleged that one Emanuel Pavsner, who at the time served as plaintiff's attorney, was authorized to deposit the checks in a bank account bearing her name. Instead of doing so, Pavsner forged Mrs. Hechter's indorsement on the instruments and deposited them in his personal account maintained at defendant Chemical Bank. Chemical initiated collection of the checks, ¹ which were subsequently honored by the respective drawee banks. Needless to say, Pavsner withdrew all the funds from his account, apparently misappropriating the portion belonging to Mrs. Hechter. A 1974 action against the attorney terminated in a default judgment which remains wholly unsatisfied.

Contending that defendant Chemical Bank wrongfully collected the checks over forged indorsements, plaintiff commenced the present lawsuit on December 1, 1975, more than five years after the instruments were deposited. Following joinder of issue, Chemical moved for summary judgment on the ground, Inter alia, that the action was time-barred. ² Special Term denied the motion, deferring decision on the Statute of Limitations issue until presentation of the facts at trial. A unanimous Appellate Division affirmed, without opinion, later granted leave to appeal to this court, and certified for our review the question: "Was the order of the Supreme Court, as affirmed by this Court, properly made?" We now affirm, and hold that defendant's Statute of Limitations defense is without merit.

Prior to enactment of the Uniform Commercial Code, it was the settled law of this State that the payee of a negotiable instrument possessed a valid cause of action against a bank which had collected the instrument over the payee's forged indorsement (e. g., Moch Co. v. Security Bank of N. Y., 176 App.Div. 842, 163 N.Y.S. 277, aff'd. 225 N.Y. 723; see, also, White, Some Petty Complaints About Article Three, 65 Mich.L.Rev. 1315, 1333, n. 58). Not atypically, such an action could be styled in either conversion or contract (see, e. g., Hillsley v. State Bank of Albany, 18 N.Y.2d 952, 277 N.Y.S.2d 148, 223 N.E.2d 571, affg. 24 A.D.2d 28, 263 N.Y.S.2d 578; Henderson v. Lincoln Rochester Trust Co., 303 N.Y. 27, 100 N.E.2d 117; see, also, Kessler, Forged Indorsements, 47 Yale L.J. 863, 874-875). Of course, the underlying actionable conduct was more akin to conversion than breach of contract, but the law would allow the plaintiff to disregard the tort and sue in assumpsit (see, e. g., United States Portland Cement Co. v. United States Nat. Bank, 61 Col. 334; Kessler, Forged Indorsements, 47 Yale L.J. 863, 874). That this contract action had as its theoretical basis the well-known common-law action for money had and received is made clear by Henderson v. Lincoln Rochester Trust Co. (Supra, 303 N.Y. at p. 32, 100 N.E.2d at p. 120, quoting National Union Bank v. Miller Rubber Co., 148 Md. 449, 455-456, 129 A. 688): " 'Where, however, a collecting bank cashes a check on a forged endorsement a different principle applies. There the collecting bank on the forged endorsement acquires no title whatever to the paper, because the endorsement, its only source of title, is a nullity. It therefore is wrongfully in possession of the check, and in equity and good conscience holds it for the payee. If, while in possession of it, it by means of the forged indorsement collects it, then it holds the proceeds of the collection in the same way for the payee, and that relationship creates a privity between it and the payee. And if the payee elects to ratify the collection of the check by the collecting bank, he may recover from it the amount collected.' " As is true in any instance where the plaintiff elects to waive the tort and pursue his action on a contract theory (see Dentists' Supply Co. of N. Y. v. Cornelius, 306 N.Y. 624, 116 N.E.2d 238, affg. 281 App.Div. 306, 119 N.Y.S.2d 570), a payee suing a collecting bank in contract was entitled to the benefit of the six-year Statute of Limitations (see, e. g., Henderson v. Lincoln Rochester Trust Co., 303 N.Y. 27, 32, 100 N.E.2d 117, 119, Supra; Moch Co. v. Security Bank of N. Y., 176 App.Div. 842, 163 N.Y.S. 277, affd. 225 N.Y. 723, Supra ).

With the advent of the Uniform Commercial Code, doubt was cast upon the continued viability of any cause of action against a collecting bank which had dealt with an instrument in accordance with "reasonable commercial standards" (Uniform Commercial Code, § 3-419, subd. (3); see Hutzler v. Hertz Corp., 39 N.Y.2d 209, 217, n. 3, 383 N.Y.S.2d 266, 270, 347 N.E.2d 627, 632). We need not address the question of when a collecting bank is liable for paying out or collecting over a forged indorsement, however, as defendant has consciously chosen at this juncture to rely solely upon a Statute of Limitations defense. ³ Nonetheless, the provisions of the Uniform Commercial Code are relevant to our present inquiry, since defendant premises its argument upon a change of law allegedly worked by that statute. Reduced to its essence, defendant's contention is that section 3-419 (subd. (1), par. (c)) ⁴ of the Uniform Commercial Code abolishes the pre-code contract action against a collecting bank, restricting the payee's remedy to a suit in conversion with its attendant three-year limitation period (CPLR 214).

To adopt this position would be to evince a fundamental misapprehension concerning the nature of the pre-code contract cause of action. That action is but a specific application of the common-law maxim that a litigant may abandon his tort cause of action in favor of one grounded in contract (see, generally, Terry v. Munger, 121 N.Y. 161, 24 N.E. 272). Nothing in the express language of section 3-419 of the Uniform Commercial Code can be read to sweep aside this historic principle. Indeed, the section adopts the common-law view which holds payment or collection over a forged indorsement to be a classical instance of conversion (see Uniform Commercial Code, § 3-419, Official Comment 3). Left undisturbed is the plaintiff's right to elect a contract rather than tort remedy, and concomitantly, to shroud his...