State v. Barclays Bank of New York, N.A.

• Decision Date: 19 October 1989
• Citation: 546 N.Y.S.2d 479,151 A.D.2d 19
• Parties: , 9 UCC Rep.Serv.2d 1286 STATE of New York, Respondent, v. BARCLAYS BANK OF NEW YORK, N.A., Appellant.
• Court: New York Supreme Court — Appellate Division

Page 479

546 N.Y.S.2d 479

151 A.D.2d 19, 9 UCC Rep.Serv.2d 1286

STATE of New York, Respondent, v. BARCLAYS BANK OF NEW YORK, N.A., Appellant.

Supreme Court, Appellate Division Third Department.

Oct. 19, 1989.

Moses & Singer (David M. Satnick, of counsel), New York City, for appellant.

Robert Abrams, Atty. Gen. (Denise A. Hartman, of counsel), Albany, for respondent.

Before KANE, J.P., and MIKOLL, YESAWICH, LEVINE and MERCURE, JJ.

YESAWICH, Justice.

Plaintiff, the named payee, brought this conversion action to recover the face amount of checks which Bankers Trust Company of Hudson Valley, N.A., since absorbed by defendant, paid over forged endorsements into the account of Richard Caliendo. An accountant, Caliendo had prepared tax returns for various clients. In so doing, he acquired checks which were written by his clients and made payable to various State taxing authorities. For the 10 months preceding his death, Caliendo improperly endorsed these checks and deposited the proceeds thereof into his account at Bankers Trust. The latter then collected the face value of the checks, in excess of $545,000, from the clients' (drawers') banks.

It is undisputed that plaintiff never received delivery of the checks and, in fact, did not become aware of their existence until after Caliendo's death. When Caliendo's fraud was discovered, a number of the drawers brought actions against Bankers Trust seeking to hold it liable for payment of the checks, many of which were for fictitious tax obligations. Those of the drawers' actions, the first of which was commenced in 1980, three years prior to the instant lawsuit initiated by plaintiff, which have not yet been settled are pending in Supreme Court in Ulster County. In those actions, one of the defenses being asserted is that the forged endorsements were the result of the respective drawers' negligence in permitting their agent, Caliendo, unfettered authority over the drawers' banking matters.

In 1983 defendant moved, pursuant to CPLR 3211(a)(7), to dismiss the complaint for failure to state a cause of action. Defendant argued that inasmuch as plaintiff never received delivery of the checks, it never became the true owner and thus it had no property interest in the checks upon which to sue. That motion was denied but defendant's appeal therefrom was never perfected. Thereafter, defendant, relying on the identical ground upon which its motion to dismiss was based, moved for summary judgment. Supreme Court concluded that summary judgment was precluded by the doctrine of the law of the case and denied defendant's motion. For the reasons hereinafter set out, we reverse andgrant summary judgment in defendant's favor.

The law of the case doctrine declares that a court of coordinate jurisdiction should not disregard an earlier decision on the same question in the same case (Tenzer, Greenblatt, Fallon & Kaplan v. Capri Jewelry, 128 A.D.2d 467, 469, 513 N.Y.S.2d 157). This doctrine is inapplicable here however, for unlike a motion for summary judgment which searches the record and assesses the sufficiency of the parties' evidence, a motion to dismiss for failure to state a cause of action merely examines the adequacy of the pleadings (see, id.). The two motions being distinctly different, defendant had an unimpaired right to resort to summary judgment.

The single substantive issue defendant raises is whether a named payee of an undelivered check may bring a conversion action against a depositary bank which cashed the check over a forged endorsement. We hold that it cannot; delivery, either actual or constructive, is an indispensible prerequisite for such an action.

In New York, this precise question has not been dealt with since the Uniform Commercial Code was adopted in 1962. There are, of course, reported instances where New York courts, including our own, have allowed payees to sue depositary banks pursuant to UCC 3-419 even though the payees never actually received the check involved (see, e.g., Hechter v. New York Life Ins. Co., 46 N.Y.2d 34, 412 N.Y.S.2d 812, 385 N.E.2d 551; see also, Heffernan v. Norstar Bank of Upstate N.Y., 125 A.D.2d 887, 510 N.Y.S.2d 248; Moore v. Richmond Hill Sav. Bank, 117 A.D.2d 27, 502 N.Y.S.2d 202; Capital Dist. Tel. Employees Fed. Credit Union v. Berthiaume, 105 Misc.2d 529, 432 N.Y.S.2d 435; Barden & Robeson Corp. v. Tompkins County Trust Co. 67 Misc.2d 587, 324 N.Y.S.2d 543), but in none of these cases did the court focus attention specifically on the issue of nondelivery. In fact, in each of them the check either came into the hands of the payee's agent or a co-payee; apropos of this latter circumstance, analyses by leading commentators on the UCC makes clear that delivery to one co-payee is constructive delivery to the other co-payee (White and Summers, Uniform Commercial Code § 515.5, at 664-665 [3d student's ed]; see also, Bailey, Brady on Bank Checks p 27.8 [6th ed.]. And plaintiff's contention that Henderson v. Lincoln Rochester Trust Co., 303 N.Y. 27, 100 N.E.2d 117 is dispositive is readily answerable, for the record there discloses that the delivery issue was never even broached.

Federal authorities interpreting New York law, cited by plaintiff, are not wholly beneficial to its cause, for in United States v. Bankers Trust Co., 17 UCC Rep.Serv. 136, the check at issue was actually delivered to one of several joint payees. As for Lund's, Inc. v. Chemical Bank, 870 F.2d 840, we find the rationale of this decision, that delivery is not an essential precondition of a conversion action because to impose such a requirement would allow banks "frequently [to] escape liability" on forged endorsements, unpersuasive (id., at 852; see also, United States v. Bankers Trust Co., supra, at 141). Given that a depositary bank which pays on a forged endorsement is subject to suit by the drawee bank (UCC 3-417[1][a]; 4-207[1][a], and in some cases the drawer (Underpinning & Foundation Constructors v. Chase Manhattan Bank, N.A., 46 N.Y.2d 459, 464, 414 N.Y.S.2d 298, 386 N.E.2d 1319), the likelihood that liability quite often will be avoided does not appear justified.

Nor are we dissuaded by the suggestion that requiring the payee to sue the drawer upon the underlying obligation would create "circuity of action" (United States v. Bankers Trust Co., supra; Lund's Inc. v. Chemical Bank, supra ). In the circumstances prevailing here, circuity of action serves a salutary function; it preserves the allocation of rights and liabilities the UCC created in that it facilitates the defenses available to each of the parties in the commercial chain (see, White and Summers, Uniform Commercial...