Parent Teacher Ass'n, Public School 72 v. Manufacturers Hanover Trust Co.

• Citation: 138 Misc.2d 289,524 N.Y.S.2d 336
• Parties: , 5 UCC Rep.Serv.2d 679 PARENT TEACHER ASSOCIATION, PUBLIC SCHOOL 72, Plaintiff, v. MANUFACTURERS HANOVER TRUST COMPANY, Defendant and Third-Party Plaintiff, v. Lee Joseph MESSINA a/k/a Joseph Messina a/k/a Lee Messina and Carol Messina, Third-Party Defendants.
• Decision Date: 14 January 1988
• Court: New York City Court

Page 336

524 N.Y.S.2d 336

138 Misc.2d 289, 5 UCC Rep.Serv.2d 679

PARENT TEACHER ASSOCIATION, PUBLIC SCHOOL 72, Plaintiff, v. MANUFACTURERS HANOVER TRUST COMPANY, Defendant and Third-Party Plaintiff, v. Lee Joseph MESSINA a/k/a Joseph Messina a/k/a Lee Messina and Carol Messina, Third-Party Defendants.

Civil Court of the City of New York,

Bronx County, Special Term,

Part 1.

Jan. 14, 1988.

Fiorie & Vignola by Daniel N. Fiorie, New York City, for plaintiff.

Robert M. Rosenblith by Robin J. Arzt, New York City, for defendant.

MICHAEL D. STALLMAN, Judge:

In this wrongful payment action, defendant bank seeks summary judgment based on the depositor's agreement. The following question is presented: Does a drawee-bank's negligent payment of a check over an obviously missing drawer's signature relieve a drawer-depositor of its duty to promptly notify the bank and commence suit during the periods provided by the account agreement?

FACTS

Plaintiff Parent Teacher Association (PTA) sues defendant Manufacturers Hanover Trust Company (MHT) for breach of contract and negligence in wrongfully honoring six checks aggregating $8,090.00, drawn on, and paid out from, plaintiff's account. PTA claims that all drawers' signatures were forged, and that three checks bore only one of the two required drawer signatures. Defendant MHT moves for summary judgment contending that plaintiff's claim is barred by non-compliance with a condition precedent and a period of limitation in the depositor's agreement.

During 1983 and 1984, PTA maintained a checking account with MHT. Prior to opening its account, PTA executed and filed with MHT a signature card containing a "Depositor's Contract" and "Certificate to Resolutions and Security Agreement Governing Bank Account for Unincorporated Associations." The documents, read as a whole, constitute the parties' agreement. Both documents required that all of plaintiff's checks bear the signatures of two PTA officers--Gloria Coxfield, president, and Carol Messina, treasurer. The Depositor's Contract contained PTA's agreement to be bound by the monthly statement of account. All account statements and correspondence were to be mailed to Carol Messina at her home. It is not disputed that their execution clearly manifested the parties' knowledge of, and intent to be bound by their terms.

On December 23, 1983 and January 25, 1984, MHT mailed regular monthly statements to Carol Messina. Each of these statements contained forged checks that MHT had paid during the preceding month. Each such statement contained the following warning:

"Please examine statement of account and vouchers at once.... The bank disclaims responsibility for any error in, or improper charge to, the account as rendered unless informed in writing of it within fourteen days of the delivery, mailing or availability of any statement and cancelled vouchers." ¹

It is not disputed that the two statements were promptly delivered to the Messina home. ² However, PTA alleges that Carol Messina did not see such statements until January 27, 1984, because her husband, Lee Messina, had intercepted them to conceal his forgery. ³ Four of the checks were payable to "C.L. Electric Service" and the other two were payable to Lee Messina himself.

It was not until February 3, 1984 that Carol Messina orally informed PTA's Executive Board of the forgery. Although a PTA representative orally informed MHT of the forgeries and missing signatures

that same day, no one gave written notice to MHT until February 10, 1984. It is not clear when Carol Messina first learned that the checks were missing, although she claims that her husband admitted having forged the checks and intercepted the bank statements in a conversation with her on January 27, 1984. This action was not commenced until March 26, 1985. ⁴

THE LAW

Before enactment of the Uniform Commercial Code and its predecessor statutes, common law governed the relationship between a bank and its depositors. A depositor was under a duty to exercise reasonable care to examine returned checks and verify statements in order to detect forgeries. Frank v. Chemical National Bank of New York, 84 N.Y. 209. See Leather Manufacturers' Bank v. Morgan, 117 U.S. 96, 6 S.Ct. 657, 29 L.Ed. 811; Critten v. Chemical National Bank, 171 N.Y. 219, 63 N.E. 969; Morgan v. U.S. Mtge. & Trust Co., 208 N.Y. 218, 101 N.E. 871. If the depositor neglected his duty and failed to notify the bank of forgeries within a reasonable time, any loss that ensued as a result of such negligence was borne by the depositor, provided that the bank was free from contributory negligence. Screenland Magazine, Inc. v. National City Bank of N.Y., 181 Misc. 454, 42 N.Y.S.2d 286; Thomson v. New York Trust Co., 266 A.D. 384, 42 N.Y.S.2d 145; Gutfreund v. East Riv. Nat. Bank, 251 N.Y. 58, 167 N.E. 171.

The depositor's common law duty has been codified by the Uniform Commercial Code as follows:

customer must exercise reasonable care and promptness to examine the statement and the items to discover his unauthorized signature ... and must notify the bank promptly after discovery thereof. U.C.C. Section 4-406(1).

In accord with its broad purpose of facilitating commercial relationships and curtailing litigation, the Code has modified the common law rule in a number of ways. First, the Code adopted bright line distinctions which minimize the need for testimonial proof and exhaustive factfinding. Where a customer has not fulfilled his duty to the bank, the customer can be precluded, under certain circumstances, from asserting an unauthorized signature or alteration provided that the bank used ordinary care: UCC 4-406(2)-(3). Moreover, a customer who fails to report an unauthorized signature or alteration within one year is statutorily precluded from asserting such claim notwithstanding the bank's negligence. UCC 4-406(4).

These provisions are not exclusive. Given the Code's effort to harmonize the law with its view of commercial reality, and in accord with traditional common law notions of freedom of contract, the Code permits parties to a contract of deposit to agree between themselves as to their duties, and the legal consequences to flow from breach, provided that the agreement does not disclaim the bank's responsibility for its own lack of good faith or failure to exercise ordinary care. U.C.C. 4-103(1), 1-102(3). Thus, the contract of deposit may include conditions precedent or the equivalent of a shortened statute of limitations ( See New York Credit Mens' Adjustment Bureau, Inc. v. Manufacturers Hanover Trust Co., 41 A.D.2d 912, 343 N.Y.S.2d 538) as long as they are not unconscionable or manifestly unreasonable, or the product of overreaching. See Official Comment to UCC 4-103.

Hornbook concepts of agency law require that, as between a bank and its depositor, the knowledge and actions of the depositor's employee or agent be imputed to the depositor. See White and Summers, Uniform Commercial Code (West Hornbook Series, 2d ed.) 630; 5 N.Y.Jur., Banks and Trust Companies, Section 311-14, 434-39. A depositor has been held to possess the knowledge of a dishonest employee entrusted with the responsibility of Rather, respondeat superior must be applied to the instant situation for two reasons: First, an incorporeal entity--whether a corporation or an unincorporated association such as plaintiff--can only act through an agent or employee. Second, only the depositor can take appropriate measures to assure that the persons it chooses to transact its business are honest and reliable. This rule may work a hardship on an innocent principal, particularly on an unincorporated association such as plaintiff, whose other members may ultimately bear the loss. Yet, it is the least unfair, and the only practicable means, of allocating responsibility for a situation unfortunately all too common. Nothing in law or logic justifies exempting a bank depositor from this basic principle of agency law. Moreover, the rule encourages depositors to be vigilant to the conduct of their agents and discourages collusion which could easily defraud the bank. Thus, a faithless or unreliable agent's actions may explain, but cannot excuse, a principal depositor from his duty to examine statements and promptly inform the bank of irregularities.

                reconciling bank statements since the depositor's own examination could have revealed the irregularity.   Critten, 171 N.Y. at 234, 63 N.E. 969;   Thomson, 266 A.D. 397, 42 N.Y.S.2d 145;   Potts & Co. v. Lafayette Nat. Bank, 269 N.Y. 181, 199 N.E. 50.   This rationale is tautological and merely restates the obvious
                

THE AGREEMENT

The Certificate to Resolution provides the following condition precedent to suit in paragraph 8:

"Unless this association shall notify the Trust Company in writing within 14 calendar days of the delivery or mailing of any statement of account and cancelled vouchers, of any claimed errors in such statement, or that this association's signature upon any such returned voucher was forged, or that any such voucher was made or drawn without authority of this association or not in accordance with the signature arrangement ... said Trust Company shall not be liable for any payments made and charged to the account of this association or for any other error in the statement of account as rendered to it."

Paragraph 8 also sets forth the following contractual period of limitation:

"No legal proceeding or action shall be brought by this association against the Trust Company to recover any payment of any instrument upon which any signature ... has been forged or was improper, or which was drawn, made, accepted ... without the authority of this association ... or not in accordance with the signature arrangements ... unless (a) the association shall have given the written notice as provided herein above, and (b) such legal proceeding or action shall be commenced within one year after the date when such statement and cancelled...