L. B. Smith, Inc. v. Bankers Trust Co. of Western N. Y.

• Decision Date: 27 May 1981
• Citation: 80 A.D.2d 496,439 N.Y.S.2d 543
• Parties: , 31 UCC Rep.Serv. 596 L. B. SMITH, INC., Respondent, v. BANKERS TRUST COMPANY OF WESTERN NEW YORK, Appellant, and Myron Wasik et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 543

439 N.Y.S.2d 543

80 A.D.2d 496, 31 UCC Rep.Serv. 596

L. B. SMITH, INC., Respondent, v. BANKERS TRUST COMPANY OF WESTERN NEW YORK, Appellant, and Myron Wasik et al., Defendants.

Supreme Court, Appellate Division,

Fourth Department.

May 27, 1981.

Mousaw, Vigdor, Reeves, Heilbronner & Kroll, Rochester, for appellant; Robert Pearl, Rochester, of counsel.

Harter, Secrest & Emery, Rochester, for respondent; Fred Aten, Rochester, of counsel.

Before SIMONS, J. P., and DOERR, DENMAN and SCHNEPP, JJ.

HANCOCK, Justice:

Under the Uniform Commercial Code, a check payable to "A or B" may be negotiated upon the proper endorsement of either payee. A check payable to "A and B" requires the endorsement of both (Uniform Commercial Code, § 3-116; ¹ see Pierce, Practice Commentaries, McKinney's Cons.Laws of N.Y., Book 62 1/2, § 3-116, p. 77).

The narrow question we face (not heretofore decided by an appellate court in New York) is whether a check to the order of two payees whose names are separated by the symbol (/), a slash or diagonal line, known as a virgule, ² is an alternative direction to pay either or a direction to pay both jointly. Simply put: does a check payable to "A/B" require the endorsement of both payees for negotiation or of only one?

The case arises from a check in the amount of $50,000 deposited in defendant Bankers Trust Company of Western New York (Bankers) on September 22, 1978 by one Charles F. Reilly, an employee of plaintiff, L. B. Smith, Inc., to the credit of Inland Erectors of New York State (Inland Erectors) in a checking account which had been opened and maintained by Mr. Reilly in Bankers in the name of Inland Erectors. The check, drawn by Vitale Bros. Contractors, Inc. on the Genesee Valley National Bank, was payable to "L. B. Smith/Inland Erectors of New York State" and, when presented by Mr. Reilly for deposit, bore what appeared to be endorsements of both payees. Mr. Reilly, it later developed, had obtained the check as part of a complex scheme to defraud his employer by selling off its heavy equipment, and plaintiff asserts that Mr. Reilly's purported endorsement on its behalf was unauthorized and a nullity under Uniform Commercial Code (§ 3-404). Interpreting the (/) to mean "and" and not "or", plaintiff has brought suit against Bankers for accepting the check for deposit in the account of Inland Erectors with only one valid endorsement instead of the two it claims are required under Uniform Commercial Code (§ 3-116). Special Term rejected Bankers' counter argument that the (/) was a direction to pay in the alternative and that the single valid endorsement on behalf of Inland Erectors was sufficient; accordingly, it denied Bankers' motion for a dismissal of the complaint as against it (CPLR 3211, subd. a). We reverse.

We adopt the holding of the United States District Court for the District of Columbia in Dynalectron Corp. v. Union First Nat. Bank, 488 F.Supp. 868, 869 to the effect that:

The virgule is normally used to separate alternatives. Thus, a bank exercising reasonable care and acting in good faith would necessarily interpret a check drawn to two payees whose names are separated by a virgule as being drawn payable to the payees in the alternative.

And that:

A check drawn payable to two payees, A and B, whose names are separated by a virgule is a check payable to the payees in the alternative. Such a check is functionally identical to one drawn payable to two payees in the manner "A or B".

Our decision gives the virgule its commonly accepted meaning and is consistent not only with Dynalectron but with a recent decision by the Court of Appeals of Georgia in Ryland Group, Inc. v. Gwinnett County Bank, 151 Ga.App. 148, 259 S.E.2d 152 and with reported cases in lower courts in New York (Miron Rapid Mix Concrete Corp. v. Bank Hapoalim, B. M., 105 Misc.2d 630, 432 N.Y.S.2d 776; Brown Strober Bldg. Supply Corp. v. Living House, Inc., (Dist.Ct.) 107 Misc.2d 294, 433 N.Y.S.2d 724).

In finding that the symbol (/) means "or"...