Marine Midland Bank v. John E. Russo Produce Co., Inc.

• Decision Date: 03 April 1980
• Citation: 50 N.Y.2d 31,427 N.Y.S.2d 961,405 N.E.2d 205
• Parties: , 405 N.E.2d 205 MARINE MIDLAND BANK, Appellant, v. JOHN E. RUSSO PRODUCE CO., INC., et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 961

427 N.Y.S.2d 961

50 N.Y.2d 31, 405 N.E.2d 205

MARINE MIDLAND BANK, Appellant, v. JOHN E. RUSSO PRODUCE CO., INC., et al., Respondents.

Court of Appeals of New York.

April 3, 1980.

Richard W. Cook and John F. Gates, Syracuse, for appellant.

Minna R. Buck and Harold P. Goldberg, Syracuse, for Canestraro Produce, Inc., and another, respondents.

OPINION OF THE COURT

FUCHSBERG, Judge.

On this appeal in a suit brought by a bank to impose liability on two of its corporate customers and their officers, we are called upon to pass on issues involving (1) the inference, if any, a trier of the facts in a civil case may draw from a party's assertion of his Fifth Amendment right to refuse to answer questions posed by his adversary; (2) the imputation of a bookkeeper's knowledge of a fraudulent scheme to her corporate employer under the principles of the law of agency; (3) the procedures to be employed in moving to amend the pleadings to conform to the proof; and (4) alleged defects in a jury's verdict in the context of a trial court's direction that the jury not only return a general verdict but also supply written answers to interrogatories.

Defendant John E. Russo Produce Company, Inc. (Produce), and defendant-respondent Canestraro Produce, Inc. (Canestraro), are engaged in the wholesale and retail produce business in the City of Syracuse. If it be possible for two corporations to be closely related by blood as well as business, these are. Defendants John E. Russo and Rita Russo are the sole shareholders of Produce and the parents of defendant-respondents Joseph Russo and Andrew Russo, who control Canestraro. The firms had common offices and shared produce storage space in the Regional Market in Syracuse, and Canestraro was a principal supplier for Produce. In addition, Rita, the mother, was a salaried, part-time bookkeeper on Canestraro's payroll, as well as an authorized signatory along with her sons Joseph and Andrew on the checking account Canestraro maintained with plaintiff-appellant Marine Midland Bank.

The bank has accused the defendants of "check kiting", a practice in which checks are drawn against deposits which have not yet cleared through the bank collection process (see Black's Law Dictionary (5th ed.), p. 783). The specific transactions that led to this suit allegedly commenced in July of 1976. At that time Produce had checking accounts at Marine Midland and Citibank, both of which were set up on a "pay and refer" basis, under which any item that would create an overdraft in the account was not immediately dishonored, but held until the bank's branch manager received assurances from Produce that an adequate deposit to cover had been made. If such assurances were forthcoming before the bank's "midnight deadline" arrived (see, generally, David Graubart, Inc. v. Bank Leumi Trust Co. of N. Y., 48 N.Y.2d 554, 556-558, 423 N.Y.S.2d 899, 399 N.E.2d 930), the item would be paid.

The purported kite had its genesis in Produce's practice of covering its Marine Midland overdrafts by depositing checks drawn on its Citibank account. For its part, Canestraro, too, allegedly would, on occasion, cover overdrafts on its own account with a Produce Citibank check. The plot thickens with the detail that the Citibank account itself was often low on funds, a problem Produce would patch up by, in turn, giving Citibank a check drawn on its Marine Midland account. The essence of plaintiff's contentions, then, is that Produce was banking on the lag time in the check collection process and did so successfully until January of 1977, when, Citibank having had occasion to dishonor several checks made out by Produce to itself, this checking house of cards collapsed. In the aftermath, Marine Midland, which had already paid out the items the Citibank checks were intended to cover, found itself with a deficit that had snowballed to $309,800.

This action for fraud and conversion followed. In the ensuing 21-day jury trial, as part of its own case Marine Midland called John and Rita Russo, in turn, to the stand. Upon the advice of their own counsel, and in light of an ongoing FBI investigation of the transactions, however, each invoked the privilege against self incrimination when queried about whether he or she had signed any of the checks, had directed others to do so or had known there were then insufficient funds in the accounts to cover them. Over objection, the court later charged the jury that no inference adverse to these defendants could be drawn from their refusal to answer.

Exception was also taken to the court's failure to charge that the bank could recover on a theory of "money paid out by mistake". In this connection, it is relevant, that though, as indicated, the pleadings asserted causes of action in fraud and conversion only, at the close of the bank's case the court granted its unparticularized motion to conform the pleadings to the proof.

The verdict's form also gave rise to controversy. Pursuant to CPLR 4111 (subd. (c)), the jury had been directed not only to return a general verdict but also to supply written answers to 12 interrogatories, the first 10 of which were to specify whether each of the five remaining defendants ¹ John, Rita, Produce, Canestraro and Joseph were liable, first in fraud and then in conversion. The eleventh inquired in what amount, if any, the jury determined that Marine Midland had been injured, and the last whether the bank's claims had been satisfied by a demand note of Produce personally indorsed by John and Rita.

The answers to each of the first 10 interrogatories found the defendants free from liability, while the eleventh, in an answer the bank insist was inconsistent with the first 10, nevertheless fixed its loss at $309,800. The twelfth interrogatory went unanswered, and the clerk never inquired of the jury whether it had reached a general verdict.

When the jury announced these conclusions, and before it was discharged, the bank, in moving to set aside the verdict, in essence confined itself to arguing that the answers to the interrogatories were inconsistent with one another. It did not object to disbanding the jury. It was not until two days later, when Marine Midland tendered its formal postverdict motions under CPLR article 44, that it also contended that the jury should have been asked to clarify its answers and that the absence of a general verdict was a fatal defect. The Trial Judge denied the motions in their entirety.

However, the Appellate Division reversed the judgment in favor of John, Rita and Produce and ordered a new trial as to these defendants, primarily on the ground that the trial court had erred in charging the jury that the invocation of the Fifth Amendment was not to be taken into account in weighing the evidence. On the other hand, the judgment was affirmed as to the Canestraro corporation and Joseph individually, the court finding that "there was sufficient evidence for the jury to conclude" that Rita performed only "mechanical" bookkeeping tasks for Canestraro and that, therefore, her awareness of the kite was not to be imputed to it or its managing officer ² (65 A.D.2d, p. 952, 410 N.Y.S.2d 730). For the reasons that follow, we conclude that the bank is also entitled to a new trial against Canestraro.

We begin by observing that the trial court acted well within its power in posing the interrogatories it submitted to the jury. Doing so, it employed a technique especially well suited to cases with multiple parties and legal theories (see, e. g., Dore v. Long Is. R. R. Co., 23 A.D.2d 502, 256 N.Y.S.2d 425; cf. People v. Piazza, 48 N.Y.2d 151, 165, 422 N.Y.S.2d 9, 397 N.E.2d 700).

Moreover, the options available to a Judge who has followed such a course, when confronted with apparent inconsistencies in a jury's determinations under this hybridization of general and special verdicts, are controlled by CPLR 4111 (subd. (c)). The design of this section was alleviation of injustices not infrequently produced by the prior ad hoc approach to inconsistent verdicts (see, generally, Kennard v. Welded Tank & Constr. Co., 25 N.Y.2d 324, 305 N.Y.S.2d 477, 253 N.E.2d 197; Siegel, Supplementary Practice Commentaries (1969), McKinney's Cons.Laws of N.Y., Book 7B (Supplementary Pamphlet, 1964-1979), CPLR 4111, pp. 85-86). In the main, it provides that, if a jury's answers to interrogatories are consistent with one another, but one or more is in conflict with the general verdict, the court has discretion to order a new trial or require the jury to reconsider or enter judgment according to the answers. But, if answers are inconsistent with one another and one or more conflicts with a general verdict, the court's alternatives are limited to ordering reconsideration or a new trial.

In terms of the case before us, while, of course, an explicit direction to the jury that it render its general verdict on the basis of its answers to the interrogatories might have been a wise precaution militating against inconsistency, Marine Midland's challenge to the result is ultimately defeated in any event on the threshold ground that the answers were in fact completely consistent. The jury unequivocally found no liability on the part of any defendant. And, its answer to question 11, while fixing the amount of the bank's loss, was by no means to be taken as an allocation of responsibility to the defendants, an assumption that would have been at odds with the definitive determinations that preceded it.

Nor was the jury's failure to report a general verdict fatal. Even if the bank had timely complained of its absence and a verdict adverse to the defendants had thereafter been pronounced, CPLR 4111 (subd. (c)) would still have permitted the court to prefer the specific over the general by entering judgment in accordance with the answers the interrogatories had induced. Even more dispositively, we need not dwell on these hypotheses, for Marine Midland must be deemed to have...