Silver v. Com. Trust Co.

• Decision Date: 17 October 1952
• Docket Number: No. 62303,62303
• Citation: 22 N.J.Super. 604,92 A.2d 152
• Parties: SILVER v. COMMONWEALTH TRUST CO. (TRUST CO. OF NEW JERSEY, third-party defendant).
• Court: New Jersey County Court

Page 604

22 N.J.Super. 604

92 A.2d 152

SILVER v. COMMONWEALTH TRUST CO. (TRUST CO. OF NEW JERSEY, third-party

defendant).

No. 62303.

Hudson County Court Law Division, New Jersey.

Oct. 17, 1952.

Isidore Parnes, Union City, for plaintiff.

Burke, Sheridan & Hourigan, Union City, for defendant and third-party plaintiff.

Thomas E. Lynch, Jersey City, for third-party defendant (Benjamin Gross, Irvington, of counsel).

DREWEN, J.C.C.

Commonwealth Trust Company and the Trust Company of New Jersey, defendant banks, move for summary judgment against the plaintiff. Rule 3:56. The suit was brought originally against Commonwealth Trust Company on the ground that it had unlawfully charged plaintiff's account with the sum of $5,000, the face amount of a check drawn by plaintiff to the order of Grantwood Electric, a corporation, and delivered by him to one Eisenberg, for the payee. The check, in accordance with endorsements made by Eisenberg, was deposited by him in a trade name account of his own in the Trust Company of New Jersey. Through routine clearance it was presented to Commonwealth Trust as drawee and paid by it, the check being charged against plaintiff's account. Upon the bringing of plaintiff's suit against it, Commonwealth Trust complained against the Trust Company of New Jersey as third-party defendant on the ground that the latter's endorsement guaranteed the prior endorsements. The banks base their motion for summary judgment mainly upon the contention that Eisenberg's authority as agent of the payee corporation to endorse as he did is sufficiently obvious to warrant the judgment sought.

The facts appear to be undisputed. On or about August 1, 1951 the check in question was presented by Eisenberg to the Trust Company of New Jersey at its West New York, Branch for deposit. As presented it bore two endorsements, in Eisenberg's handwriting, the first 'Grantwood Elect.,' a corporation, and the second 'Grantwood Elect.App.Co.' The second endorsement is in the trade name of a business, hereinafter called the Appliance Company, then solely owned and conducted by Eisenberg, who had an account in that name at the branch where the check was presented. The bank accepted the check and it was deposited to the credit of Eisenberg's trade name account. In a word, the instrument was one drawn for payment to a corporation and endorsed for deposit in a personal account. The corporation payee had no account with the Trust Company of New Jersey. Plaintiff alleges that no part of the check proceeds reached the corporation.

The Trust Company of New Jersey does not contend that in making the deposit it inquired in any manner concerning the authenticity of the corporate endorsement. It does contend, by way of avoidance, that Eisenberg was competent as the corporate agent to endorse the check and to deposit it as he did. The merit of that contention is the subject of the motion. The law that is basic to the controversy is well established. 'A bank which has dealings with a corporation must be assured that an officer, who endorses checks payable to the corporation, and receives from the bank the proceeds therefrom, has such authority.' Slavin v. Passaic National Bank & Trust Company, 114 N.J.L. 341, 176 A. 339, 341 (E. & A. 1935). The same decision is authority for the doctrine that in paying to one other than the designated payee, without due inquiry, a bank disobeys the direction of its depositor and 'for such failure must suffer the consequences.' It is further declared that 'The law holds banks to a strict accountability' in this regard. Callaway v. Hamilton National Bank of Washington, 195 F.2d 556, 563 (D.C. Cir., 1952); Singer Sewing Machine Company v. Citizens National Bank & Trust Company, 111 N.J.L. 199, 168 A. 32 (Sup.Ct.1933), affirmed 112 N.J.L. 497, 171 A. 796 (E. & A. 1934); Wagner Trading Company v. Battery Park National Bank, 228 N.Y. 37, 126 N.E. 347, 9 A.L.R. 340 (N.Y.1920); Ward v. City Trust Company of N.Y., 192 N.Y. 61, 84 N.E. 585 (N.Y.1908). It has been held that a bank's acceptance of a check for deposit in a depositor's account is equivalent to the cashing of the check for such depositor. Bryan v. First National Bank, 205 Pa. 7, 54 A. 480 (Pa.1903); Teas v. Third National Bank & Trust Company, 125 N.J.Eq. 224, 4 A.2d 64 (E. & A. 1939). In the last cited case the court says 125 N.J.Eq. at page 227, 4 A.2d at page 66 'There is no substantial difference between an unauthorized endorsement and a forged endorsment, the result being the same in so far as concerns the passing of title.' Altogether, the decisions clearly evince a canon of discipline in the relation of banker and depositor that is founded upon necessity, and firmly established. The validity of this principle and its application to the case are not controverted by either defendant.

Certain other pertinent rules of law are equally clear. They bear in general upon the Banks' contention for Eisenberg's agency. 'A president of a corporation does not have, by virtue of holding the office of president, any power to endorse checks, drafts, notes and other obligations payable to the corporation * * *.' Where a bank receives a check payable to a corporation and endorsed by the president so as to make it payable to himself, and the president deposits it in his personal account with the bank, the bank is chargeable with notice so as to put it on inquiry to determine whether the president of the corporation was authorized so to use its funds as against the corporation.' Dennis Metal Mfg. Co. v. Fidelity Union Trust Company, 99 N.J.L. 365, at page 368, 123 A. 614, at page 615 (Sup.Ct.1924). See also Aerial League of America v. Aircraft Fireproofing Corporation, 97 N.J.L. 530, 117 A. 704 (E. & A. 1922); Economy Auto Supply Company v. Fidelity, etc., Company, 105 N.J.L. 206, at pages 207--208, 144 A. 30 (E. & A. 1928); Slavin v. Passaic National Bank & Trust Company, supra.

By what do the banks seek to induce the award of a summary judgment? Their argument for competency in the endorser to deal with the check as he did is based upon a somewhat complicated narrative of events and circumstances anterior to the check's issuance. These things are all reported in the submitted depositions and apparently are not in dispute.

Plaintiff is an attorney-at-law of this State. During the period that includes the relevant happenings he was Eisenberg's attorney and rendered him the legal services indicated. The Appliance Company had originally been a partnership, consisting of Eisenberg and one other. It operated a store and salesroom in Cliffside Park, Bergen County. It was a going concern when Eisenberg, in July 1949, caused the corporation Grantwood Electric to be created. Plaintiff, as attorney, filed the document that made the corporate entity De jure, and the franchise tax was paid. Nothing more was done. The corporation has never had officers, directors or stockholders. No stock was ever issued or paid for. It has never held a meeting. Though it remained dormant, its name was prominently displayed on the Cliffside Park premises together with that of the partnership. The depositions leave no doubt that the plan was to transfer all partnership assets to the corporation.

There is also in the pattern of circumstance another client of plaintiff, Comet Embroidery Company, a partnership of the two Goldstein brothers, hereinafter mentioned. In June 1951 Eisenberg informed the plaintiff that he had been given to understand that the Goldsteins might be available for a loan to him (Eisenberg) of a sum sufficient to enable him to acquire the partnership property. The loan was soon made. It was in the sum of $10,000, represented by plaintiff's check, drawn on funds in his trust account in Commonwealth Trust Company, to the order of Eisenberg. In return for the check a note was given, payable to Nathan and Harry Goldstein, trading as Comet Embroidery Company. The makers of the note were the corporation Grantwood Electric, Eisenberg, and Gertrude, his wife. Eisenberg signed for the corporation as president. In addition to the note there was given to the lenders an agreement to pledge as security for its payment the corporate stock of Grantwood Electric, when issued. With $7,500 of the loan Eisenberg purchased his partner's interest in the Appliance Company. The remaining $2,500 he deposited in the Hudson Trust Company of Hoboken, in the account of the corporation, which he had opened there. In the opening of this account Hudson Trust Company required the usual corporate certificate designating the depository, and the persons authorized to transact with it the corporation's banking business. Such a certificate was furnished. In substance it purports to be a copy of a resolution, certified by Gertrude Eisenberg, as secretary, as having been adopted at a meeting of the board of directors held June 28, 1951. The persons therein named as authorized to deal with the bank are the said Eisenberg as president and the said Gertrude as secretary, it being further certified that these persons are 'duly qualified and now acting' in their respective offices. We know from what has been already stated that the certificate was and is entirely baseless, its single verity being the statement that Grantwood Electric is a corporation of New Jersey. It does not appear that plaintiff had any knowledge of this certificate. Meanwhile the Appliance Company retained its assets and continued its business. The only change was a dissolution of the partnership, following which a new certificate of the same trade name was filed for Eisenberg alone.

Within a short time Eisenberg applied to plaintiff for a second loan. It was obtained from the same source and perfected by the same method. The amount of it was $5,000, in the form of plaintiff's check drawn on trust funds and dated August 1, 1951. The check was drawn to the corporation. It is the check Sub judice. The note given in return for it...