Kosic v. Marine Midland Bank

• Decision Date: 10 July 1980
• Citation: 430 N.Y.S.2d 175,76 A.D.2d 89
• Parties: , 30 UCC Rep.Serv. 295 Vladimir KOSIC, Appellant-Respondent, v. MARINE MIDLAND BANK, Defendant and Third-Party Plaintiff-Respondent-Appellant, v. FIRST NATIONAL BANK, Third-Party Defendant-Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 175

430 N.Y.S.2d 175

76 A.D.2d 89, 30 UCC Rep.Serv. 295

Vladimir KOSIC, Appellant-Respondent, v. MARINE MIDLAND BANK, Defendant and Third-Party Plaintiff-Respondent-Appellant, v. FIRST NATIONAL BANK, Third-Party Defendant-Respondent-Appellant.

Supreme Court, Appellate Division, Fourth Department.

July 10, 1980.

Maas, Weinstein, Hutchings & Vullo, Rochester, for appellant-respondent (Richard P. Vullo, Rochester, of counsel).

Harter, Secrest & Emery, Rochester, for Marine Midland (Donald S. Mazzullo, Rochester, of counsel).

Shapiro & Rosenbaum, Rochester, for First Nat. Bank (Warren B. Rosenbaum, Rochester, of counsel).

Before SIMONS, J. P., and HANCOCK, SCHNEPP, DOERR and WITMER, JJ.

HANCOCK, Justice.

Plaintiff, a depositor, has sued defendant Marine Midland Bank (Marine) for charging his account with two cashier's checks which were not "properly payable" (Uniform Commercial Code, § 4-401). The central question in this appeal stems from the contention of Marine and third party defendant First National Bank (First National), the collecting bank, that Marine is relieved of any liability as drawee because the funds covered by the checks reached the intended payee. Special Term has denied plaintiff's motion for summary judgment as well as the cross motions of Marine and First National for summary judgment and dismissal of plaintiff's complaint. All three parties appeal. No issue pertaining to liability as between Marine and First National is presented.

Plaintiff and Suzanne Ferry had agreed to form a corporation, Captain Blake's, Inc., for the purpose of purchasing a restaurant. In January, 1978 plaintiff deposited $25,000 in his checking account with Marine and caused Marine to issue two cashier's checks drawn on the account one for $20,000 and one for $5,000, each made payable to Captain Blake's, Inc. The checks were drawn pursuant to an escrow agreement with Ferry in which plaintiff agreed to deposit $25,000 to be held, pending the consummation of the transaction, in an account in the Central Trust Company in the name of Captain Blake's, Inc.

Ferry proceeded not to Central Trust but to First National where she opened a joint savings account in the name of "Suzanne Ferry and Bruce (Kevin) Ferry" and a checking account in the name of the corporation to be formed. When she opened the checking account, she signed a temporary signature card as president of Captain Blake's, Inc. and was given permanent signature cards and forms for the signatures of other officers and for corporation banking resolutions. Although the bank requested that she return the permanent signature cards and the corporate resolutions as soon as possible, it never received them. In the joint savings account, she deposited $4,400 of her own money and also the $25,000 represented by the two cashier's checks which she endorsed on the back "S. Ferry" without reference to the payee, Captain Blake's, Inc. Ferry then applied for and obtained a loan from First National to Captain Blake's, Inc. in the amount of $30,000 giving back a demand note bearing interest at 2% above prime rate which she executed on behalf of the corporation as president and which she personally guaranteed by affixing her endorsement. After obtaining from Ferry an assignment of the full proceeds ($29,400) of the joint savings account as collateral, the bank credited the Captain Blake's, Inc. checking account with the amount of the loan $30,000.

When, in due course, the cashier's checks payable to Captain Blake's, Inc. bearing the purported endorsement "S. Ferry" were presented for payment, Marine honored the checks, paid the $25,000 to First National and charged plaintiff's account. Although corporate banking resolutions had not been filed, Suzanne Ferry drew several checks against the corporate checking account reducing the balance to $3,500 on January 31, 1978. On February 2, because it had been necessary to return a substantial check drawn upon insufficient funds in the Captain Blake's, Inc. account, First National exercised its right under the collateral assignment of the savings account and applied the $29,400 to the $30,000 note. The unsatisfied principal balance of the loan ($600), plus the accrued interest ($180.82), First National charged directly against the Captain Blake's, Inc. account. The restaurant project never materialized; the corporation was never formed; and, when plaintiff demanded the return of his $25,000, this lawsuit ensued.

Preliminarily, we observe that, were it not for the asserted defense, there would, in our opinion, be no doubt as to the liability of Marine. Because the two cashier's checks did not bear the endorsement of the payee, Captain Blake's, Inc., Marine breached a duty owed to its customer in charging against his account items which were not "properly payable" (Uniform Commercial Code, § 4-401; Tonelli v. Chase Manhattan Bank, N.A., 41 N.Y.2d 667, 394 N.Y.S.2d 858, 363 N.E.2d 564, 5A N.Y.Jur., Banks & Trust Companies, § 380, pp. 129-130). "The drawee bank stands in a debtor-creditor relationship to its customer and may make payment on checks drawn against its customer's account only as directed by the latter (Sundail Constr. Co. v. Liberty Bank, 277 N.Y. 137, 141-142, 13 N.E.2d 745; Shipman v. Bank of State of N.Y., 126 N.Y. 318, 327, 27 N.E. 371; Lynch v. First Nat. Bank of Jersey City, 107 N.Y. 179, 184, 13 N.E. 775; 5 B Michie, Banks Nat. and Banking, § 277a, p. 78)." (Tonelli v. Chase Manhattan Bank, N.A., supra, p. 670, 394 N.Y.S.2d p. 860, 363 N.E.2d p. 566; see also City Trust Co. v. Botting, 139 Misc. 684, 248 N.Y.S. 204).

We turn then to the defense that the proceeds of the two checks reached the intended payee. It is a general rule that a drawer may not recover from the drawee bank "on an improperly paid check where the proceeds of the check actually reached the person intended to receive them (Sundail Constr. Co. v. Liberty Bank, supra, 277 N.Y. p. 142, 13 N.E.2d 745; Lynch v. First Nat. Bank of Jersey City, supra, 107 N.Y. p. 184, 13 N.E. 775; Sweeney v. National City Bank of Troy, 263 A.D. 418, 33 N.Y.S.2d 885, affd. 290 N.Y. 624, 48 N.E.2d 711; Gotham-Vladimir Adv. v. First Nat. City Bank, 27 A.D.2d 190, 192-193, 277 N.Y.S.2d 719; 5 B Michie, op. cit., § 277a; 5A N.Y.Jur., Banks & Trust Companies, § 393)" (Tonelli v. Chase Manhattan Bank, N.A., supra, pp. 670-671, 394 N.Y.S.2d p. 860, 363 N.E.2d p. 567). The rule is based on the equitable principle that the drawer should not be unjustly enriched and "on the view that the drawer should not be permitted to recover from the drawee bank where he has suffered no loss from the improper payment of the check" (id., p. 671, 394 N.Y.S.2d p. 860, 363 N.E.2d p. 567).

Here, Marine and First National would invoke the doctrine contending that, because the two checks were deposited in the Ferry savings account which was in turn used as collateral to generate the $30,000 loan proceeds deposited in the checking account, Captain Blake's,...