Middle States Leasing Corp. v. Manufacturers Hanover Trust Co.

• Decision Date: 09 May 1978
• Citation: Middle States Leasing Corp. v. Manufacturers Hanover Trust Co., 62 A.D.2d 273, 404 N.Y.S.2d 846 (N.Y. App. Div. 1978)
• Parties: , 23 UCC Rep.Serv. 1215 MIDDLE STATES LEASING CORPORATION, Plaintiff-Respondent, v. MANUFACTURERS HANOVER TRUST COMPANY, Defendant-Appellant. MANUFACTURERS HANOVER TRUST COMPANY, Third-Party Plaintiff-Appellant, v. FEDERAL RESERVE BANK OF NEW YORK, Third-Party Defendant-Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

Page 846

404 N.Y.S.2d 846

62 A.D.2d 273, 23 UCC Rep.Serv. 1215

MIDDLE STATES LEASING CORPORATION, Plaintiff-Respondent, v. MANUFACTURERS HANOVER TRUST COMPANY, Defendant-Appellant.

MANUFACTURERS HANOVER TRUST COMPANY, Third-Party Plaintiff-Appellant, v. FEDERAL RESERVE BANK OF NEW YORK, Third-Party

Defendant-Respondent-Appellant.

Supreme Court, Appellate Division,First Department.

May 9, 1978.

Rolon W. Reed, New York City, of counsel (Rebecca H. Dent, New York City, with him on the brief, Simpson, Thacher & Bartlett, New York City, attys.), for defendant and third-party plaintiff-appellant.

Donald B. Relkin, New York City, of counsel (Michael J. Gerstein and Robert J. Miller, New York City, with him on the brief, Kreindler, Relkin & Goldberg, New York City, attys.), for third-party defendant-appellant-respondent.

Sidney A. Fine, New York City, of counsel (Burton M. Fine and David J. Rosen, New York City, with him on the brief, Fine, Tofel, Saxl & Berelson, New York City, attys.), for plaintiff-respondent.

Before LUPIANO, J. P., and LYNCH, SANDLER and SULLIVAN, JJ.

LUPIANO, Justice:

Plaintiff made a check drawn on defendant Manufacturers Hanover Trust Company, payable to the order of Interpace Corporation and United Leasing Services, Inc., in the sum of $150,050, which it delivered to United Leasing Services, Inc. The check was deposited by United Leasing in its account at Midlantic National Bank of New Jersey, the purported endorsement on the back reading as follows: "Pay to the order of Interpace Corporation and United Leasing Services, Inc." Manufacturers received the check through normal banking channels and paid it, debiting plaintiff's account accordingly on January 5, 1976. Subsequently, after being alerted that something was amiss, the drawee (Manufacturers) mailed the check back to Midlantic National Bank, the first collecting bank (the depositary bank) for "personal endorsements." Midlantic returned the check to the drawee with only the endorsement of United Leasing. Plaintiff, as maker, consequently sued the drawee bank.

Where a check is made payable to co-payees, the endorsement of both is necessary for negotiation (Uniform Commercial Code, § 3-116). Patently the check should not have been paid by the depositary bank, any subsequent collecting bank or the drawee bank where the purported endorsement was so obviously inadequate. The improper payment of this check was caused neither by a material alteration nor by an unauthorized signature. However ill-advised plaintiff may have been in drawing this check payable to two co-payees instead of to only one of the payees, namely, Interpace Corporation, such conduct did not and cannot absolve the drawee bank in its departure from reasonable commercial standards in paying this instrument.

With respect to the defense of unjust enrichment, the defendant drawee bank notes that "a drawer may be precluded from recovery on an improperly paid check where the proceeds of the check actually reached the person intended to receive them . . .. This equitable defense is founded on the concept of unjust enrichment and is based 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 a check . . .." (Tonelli v. Chase Manhattan Bank, N.A., 41 N.Y.2d 667, 670-671, 394 N.Y.S.2d 858, 860-861, 363 N.E.2d 564, 567 (1977)). The drawee bank then argues that as one of the co-payees, United Leasing, received the proceeds and as the other payee, Interpace, maintains no claim or interest in the check, plaintiff is not entitled to obtain summary judgment on the check against the drawee.

"It is incumbent upon a defendant who opposes a motion for summary judgment to assemble, lay bare and reveal his proofs, in order to show that the matters set up in his answer are real and are capable of being established upon a trial" (Di Sabato v. Soffes, 9 A.D.2d 297, 301, 193 N.Y.S.2d 184, 189 (1st Dept. 1959)). Defendant drawee bank has failed to observe this burden. It is undisputed, on this record, that Interpace received none of the proceeds of the check. In this context, it was necessary for the drawee bank to demonstrate, to lay bare its proofs that recovery by plaintiff on the check would constitute unjust enrichment. Clearly, plaintiff, as maker, intended that Interpace have an interest in the check. If this intent resulted from mistake induced by some third party, not an agent or employee of the maker, it does not benefit the drawee bank. It is not requisite for plaintiff in order to recover summary judgment to demonstrate the inadequacy of each and every defense raised. The burden of proving such defense rests with the defendant. Common sense dictates that defendant drawee bank's "bootstrap" argument relevant to unjust enrichment may not serve to deny, on this record, plaintiff's clearly meritorious claim.

The drawee bank in its studied attempt to avoid or delay honoring its obligation to answer to the plaintiff drawer for the amount of the check herein, argues that its discovery demonstrates the following: Plaintiff was to buy equipment from Interpace and lease it to Mancrete, Inc. United Leasing brought the deal to plaintiff and was to receive a commission for its service as a broker. Plaintiff made out a check for the price of the equipment to Interpace only, but was persuaded by United Leasing to make the check payable jointly to Interpace and United Leasing because Interpace owed money to United. Interpace, however, was selling the equipment directly to Mancrete and was surprised by plaintiff's inquiry as to whether Interpace had received the check or its proceeds. Accordingly, argues the drawee, "these facts demonstrate that this suit is not a single bad check case, but involves some complicated and highly suspicious business arrangements." This case is analogous to one in which the drawee bank has paid a check over a forged endorsement. Indeed, the same rules apply where a bank honors a check payable to order which lacks the endorsement of the payee. Where the proceeds of a check bearing a forged endorsement are actually paid to the payee named therein, the drawee bank cannot be held liable for the amount of such check (Yanowe & Co., Inc. v. American Exchange Irving Trust Co., 226 App.Div. 530, 234 N.Y.S. 603 (1st Dept. 1929)). "The bank which paid a check the payee's indorsement of which was forged may claim credit against the drawer for the amount turned over to the true payee from the identical money received by the person who procured the payment . . .." (5A N.Y.Jur., Banks And Trust Companies § 393) (Emphasis supplied). As noted in Yanowe & Co., Inc. v. American Exchange Irving Trust Co., supra, at p. 532, 234 N.Y.S. at p. 604, "(t)he averment . . . that the identical money received by the forger from the bank was turned over to the payee" is sufficient, if true, to preclude recovery from the bank by the maker of "the very moneys which have already been applied to its use."

A further example of payment of the identical proceeds of the check being ultimately received by the payee sufficient to shield the drawee bank from liability is ...