Provident Sav. Bank v. United Jersey Bank

• Decision Date: 03 July 1985
• Citation: 504 A.2d 135,207 N.J.Super. 303
• Parties: , 1 UCC Rep.Serv.2d 184 PROVIDENT SAVINGS BANK Plaintiff, v. UNITED JERSEY BANK, Defendant.
• Court: New Jersey Superior Court

Page 303

207 N.J.Super. 303

504 A.2d 135, 1 UCC Rep.Serv.2d 184

PROVIDENT SAVINGS BANK Plaintiff, v. UNITED JERSEY BANK, Defendant.

Superior Court of New Jersey, Law Division,

Bergen County.

Decided July 3, 1985.

Barry T. Moskvinitz, for plaintiff (Williams, Caliri, Miller & Otley, Wayne, attorneys).

James J. Kreig, Avenel, for defendant.

POLITO, J.S.C.

This matter involves the liability for the payment of a check, not properly signed pursuant to the deposit contract, between the customer and the bank. Plaintiff seeks recovery against defendant for breach of contract and negligence. Defendant admits liability but claims plaintiff is barred from recovery for failure to notify defendant within the one-year period provided pursuant to N.J.S.A. 12A:4-406(4). Plaintiff argues that the statute is not applicable under the facts in the case.

The parties have filed a stipulation of facts in lieu of a plenary hearing and submitted the issue for determination on said stipulated facts. We adhere to the established principle that we are bound by stipulations of fact. Ambassador Insurance Company v. Montes, 76 N.J. 477, 481, 388 A.2d 603 (1978); City of Jersey City v. Realty Transfer Co., 129 N.J.Super. 570, 324 A.2d 579 (App.Div.1974); Stalford v. Barkolow, 31 N.J.Super. 193, 106 A.2d 342 (App.Div.1954).

Plaintiff, Provident Savings Bank (Provident) a savings institution of this State, had a branch office located in the Borough of Leonia since 1978. United Jersey Bank (United Jersey) is a commercial bank, located in the City of Hackensack. Provident, by resolution of its board of directors, on May 18, 1978, authorized its Leonia branch to open a checking account with United Jersey. The resolution provided in paragraph two that any two officers or an officer and a designated employee were authorized to sign checks on behalf of Provident. The resolution further provided that United Jersey was permitted to honor all such checks when signed as authorized. Thereafter, the Leonia branch, pursuant to the resolution, opened an account with United Jersey. The signature card/deposit contract of United Jersey acknowledges the filing of the Provident resolution and further provides that checks required two signatures. Provident also supplied United Jersey with an authorized signature booklet which was revised in September 1978. The signature booklet listed as an officer of Provident, William F. Buckley an assistant vice president and manager of the Leonia branch, authorized to sign checks on behalf of Provident.

On July 5, 1979 Buckley issued a check payable to two confederates, dated July 5, 1979, without consideration to Provident, in the amount of $22,000. The check contained only the signature of Buckley and was not countersigned by another authorized officer or employee.

On July 11, 1979 the check in the amount of $22,000 was presented to United Jersey, which check was paid by United Jersey in violation of the deposit contract. The check lacked the necessary two signatures. United Jersey was negligent and breached the terms of the deposit contract, which was the proximate cause of the loss sustained by Provident.

On July 24, 1979 Buckley was relieved as manager of the Leonia branch and his services with Provident were terminated. Subsequently, on June 27, 1980, Buckley was convicted in the United States District Court for the District of New Jersey of conspiracy to misappropriate monies belonging to Provident and insured by a federal agency.

On July 31, 1979 United Jersey forwarded the monthly bank statement for the month of July 1979 of the Leonia branch to Provident's main office. The statement contained the check in the amount of $22,000 signed by Buckley but not countersigned by another officer or designated employee. Provident received the statement in the early part of August 1979. On September 30, 1982 Provident first gave notice to United Jersey of the check in the amount of $22,000 lacking the necessary two authorized signatures and demanded credit from United Jersey for said amount on their account. United Jersey has refused to credit Provident with said amount even though admitting wrongful payment of said check. Provident at no time ratified the payment of said check by United Jersey. Defendant, United Jersey, admitted negligence and breach of contract but relies on the provisions of N.J.S.A. 12A:4-406(4) as a bar against Provident's demand.

Provident claims that the check paid by United Jersey was not an unauthorized check within the meaning of the statute but was a check lacking a necessary signature and that the signature on said check was authorized pursuant to a resolution adopted by its board of directors on May 18, 1978.

The issue to be resolved is the interpretation of said statute in relationship to the claim set forth by the parties. The interpretation of the statute has never been previously resolved in this state with regard to the meaning of an unauthorized signature pursuant to N.J.S.A. 12A:4-406(4).

N.J.S.A. 12A:4-406(4) provides as follows:

Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (subsection (1)) discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized indorsement is precluded from asserting against the bank such unauthorized signature or indorsement or such alteration. [Emphasis supplied]

N.J.S.A. 12A:1-201(43) defines an unauthorized signature as follows:

Unauthorized signature or indorsement means one made without actual or apparent authority and includes a forgery.

In Brighton Inc. v. Colonial First National Bank, 176 N.J.Super. 101, 422 A.2d 433 (App.Div.1980), aff'd 86 N.J. 259, 430 A.2d 902 (1981), the action arose through the acts of a "faithless employee". There the employee had authority to sign checks, but in many instances he forged the name of a principal whose name was required on a company check as drawer. Plaintiffs notified the drawee bank of checks bearing the forged signatures of a drawer more than one year after the last check was paid. The court in its interpretation of N.J.S.A. 12A:4-406(4) with regard to notice beyond the one-year period on the forged checks stated:

The one-year period limitation in § 4-406(4) is not merely a statute of limitations, but a rule of substantive law barring absolutely a customer's untimely asserted right to make such a claim against the bank.

The purpose of the statute is to have one uniform rule throughout the country in place of the various time periods that existed prior to the U.C.C. As stated in Official Comment 7 thereto, the statute sets forth ... a public policy in favor of imposing on customers the duty of prompt examination of their bank statements and the notification of banks of forgeries and alterations and in favor of reasonable time limitations on the responsibility of banks for payment of forged or altered items .....

See Official Comment 1; Bailey, Brady on Bank Checks (5th Ed. 1979 § 26.16). Rainbow Inn, Inc. v. Clayton Nat'l Bank, 86 N.J.Super. 13, 23 (App.Div.1964) recognizes that the purpose of this statute "was to fix an absolute time limit within which notice of the forgery must be given by the depositor to the bank and beyond which, if notice is not given, the bank would not be liable for paying a forged instrument and charging the depositor's account." See Official Comment 5 to U.C.C. § 4-406. [176 N.J.Super. at 109, 422 A.2d 433]

The issue as to timely notice also was raised in Western Un. Tel. Co. v. Peoples Nat'l Bank Lakewood, 169 N.J.Super. 272, 404 A.2d 1178 (App.Div.1979). The Appellate Division in reversing a judgment in favor of Western Union stated:

.... a customer owes the duty to his bank to examine cancelled checks and statements received from the bank and to give timely notice of any irregularities." Arrow Builders Supply Corp. v. Royal Nat'l Bank of N.Y., 21 N.Y.2d 428, 431, 235 N.E.2d 756, 758, 288 N.Y.S.2d 609, 612 (Ct.Appl.1968); Forbes v. First Camden Nat'l Bank & Trust Co., 25 N.J.Super. 17, 23 (App.Div.1953). This duty has been recognized by statute, U.C.C. § 4-406(1); N.J.S.A. 12A:4-406(1); N.J.S.A. 17:9A-229.1 to 229.5; and time limitations for bringing suit may be imposed by statute U.C.C. § 4-406(4); N.J.S.A. 12A:4-406(4); N.J.S.A. 17:9A-229.2 and 229.3; Duralite Co. Inc., v. New Jersey Bank & Trust Co., 97 N.J.Super. 48 (App.Div.1967); Billings v. East River Savings Bank, 33 A.D.2d 997, 307 N.Y.S.2d 606 (App.Div.1970), or by agreement between the bank and its customer. See New York Credit Men's Adjustment Bureau, Inc. v. Manufacturers Hanover Trust Co., 41 A.D.2d 912, 343 N.Y.S.2d 538 (App.Div.1973). [at 278, 404 A.2d 1178]

However, plaintiff, Provident, claims that N.J.S.A. 12A:4-406(4) is inapplicable in the instant case as said statute is limited only to unauthorized signatures and not to incomplete signatures. Provident argues that in the absence of a second signature, the check did not contain the signature of Provident; that the absence of the second required signature is the same as if there were no drawer signature at all; that without it, the check is not a complete negotiable instrument. Provident relies on N.J.S.A. 12A:3-104(1)(a) which in pertinent part states:

(1) any writing to be a negotiable instrument within this chapter must

(a) be signed by the maker or drawer Plaintiff contends that the absence of a necessary drawer signature does not make the incomplete signature "unauthorized."

N.J.S.A. 12A:3-401(2) defines signature:

Signature is made by use of any name, including any trade or assumed name upon an instrument or by any word or mark used in lieu of a written signature.

Provident further contends that pursuant to N.J.S.A. 12A:1-201(43) drawer's signature was not made without...