National Newark and Essex Bank v. Giordano

• Decision Date: 15 July 1970
• Citation: 111 N.J.Super. 347,268 A.2d 327
• Parties: , 7 UCC Rep.Serv. 1153 NATIONAL NEWARK & ESSEX BANK, a national banking association of the United States, Plaintiff, v. Anthony GIORDANO, Defendant.
• Court: New Jersey Superior Court

Page 347

111 N.J.Super. 347

268 A.2d 327, 7 UCC Rep.Serv. 1153

NATIONAL NEWARK & ESSEX BANK, a national banking association of the United States, Plaintiff, v. Anthony GIORDANO, Defendant.

Superior Court of New Jersey Law Division.

July 15, 1970.

Samuel A. Christiano, West Orange, for plaintiff.

Monroe Jay Lustbader, Newark, for defendant (Lustbader & Lustbader, Newark, attorneys).

SUGRUE, J.C.C. (temporarily assigned).

This case involves a suit on an installment sale and security agreement. Defendant agreed to purchase two trucks for use in his business from Joseph Fiero. To enable him to do so, plaintiff agreed to lend him $9500. Defendant signed an installment sale security agreement which recited that plaintiff would lend him $9500, which he agreed to repay in 24 equal consecutive monthly installments of.$443.33, commencing November 16, 1967. The contract is dated October 13, 1967. Defendant was to have the use and possession of the trucks in his business and plaintiff retained a security interest in the trucks and a right to retake in case of default by defendant.

On October 13, 1967, plaintiff issued its check by Anthony Dondona, its assistant vice-president, in the amount of $9500, payable to the order of Joseph Fiero. Defendant delivered the check to Fiero on October 15, 1967. On October 16, 1967, when defendant first discovered the trucks were defective, he requested plaintiff to stop payment on its check to Fiero. The bank refused, claiming it could not stop payment on its own check. Defendant offered to post a bond to protect the bank, but this did not dissuade plaintiff from its position.

The check, in addition to Fiero's endorsement, bears an out-of-state bank endorsement dated October 18, 1967 and subsequent endorsements.

On breach of the installment sale and security agreement the trucks were subsequently repossessed by plaintiff and sold at public auction for $1500. At the time of repossession one truck was missing its tires, wheels and brakes, and the transmission was jammed on the other. The trucks were sold for their parts value only. Plaintiff has demanded judgment for the amount due on the agreement, plus interest and costs.

The factual summary of the case is not in dispute. The primary issue raised is whether a bank may stop payment on its own check.

The question does not appear to have been decided in this State but there is a clear weight of authority in other jurisdictions which denies a bank the right to countermand its own check. Causey v. Eiland, 175 Ark. 929, 1 S.W.2d 1008, 56 A.L.R. 529 (Sup.Ct.1928); United States v. Milton, 382 F.2d 976 (6 Cir. 1967).

A check drawn by the bank upon itself is commonly referred to as a cashier's check. It is issued by an authorized officer of a bank, directed to another person, evidencing the fact that the payee is authorized to demand and receive from the bank, upon presentation, the amount of money represented by the check. Thus, even though the check is drawn by an authorized officer rather than the cashier, it is legally the equivalent of a cashier's check. The check here in question is one drawn by an authorized officer and will be designated herein as a cashier's check.

A cashier's check is a bill of exchange drawn by the bank upon itself. 10 Am.Jur.2d, Banks, § 544, at 518. When a bank issues a cashier's check it becomes primarily obligated to pay the amount represented upon presentation. Scharz v. Twin City State Bank, 201 Kan. 539, 441 P.2d 897 (Sup.Ct.1968). The transaction is not executory but rather an executed transaction of purchase and sale. It is a sale of credit by the bank to the purchaser. Kerr S.S. Co. Inc. v. Chartered Bank of India, etc., 292 N.Y. 253, 54 N.E.2d 813, 153 A.L.R. 382 (Ct.App.1944). The bank thus becomes a debtor and the purchaser a creditor. Schulze v. Rayunec, 350 F.2d 666 (7 Cir. 1965), cert. den. Boughner v. Schulze, 382 U.S. 919, 86 S.Ct. 293, 15 L.Ed.2d 234. The purchaser's obligation on the check becomes secondary and the bank is both the drawer and drawee. It undertakes to draw the amount represented from its own resources. It must therefore of necessity be said that issuance of the cashier's check constitutes an acceptance of it by the issuing bank. In drawing the instrument the bank represents that as drawee it will honor the draft when presented. The requirements for an acceptance as set forth in N.J.S.A. 12A:3--410(1) are fulfilled by the affixing of the signature of the agent of the issuing bank. The rule may thus be stated that a cashier's check is accepted for payment when issued. See Mellon National Bank v. Citizens Bank & Trust Co., 88 F.2d 128 (8 Cir. 1937), cert. den. 302 U.S. 702, 58 S.Ct. 21, 82 L.Ed. 542.

Under the provisions of N.J.S.A. 12A:4--303 a stop-order, whether or not effective under other rules of law to terminate or suspend the bank's right or duty to pay an item, comes too late to terminate or suspend such right or duty if it is received after the bank has accepted or certified the item. Since a cashier's check is accepted when issued, N.J.S.A. 12A:4--303 in effect makes it impossible to stop payment...