Taylor v. Equitable Trust Co.

• Decision Date: 23 May 1973
• Docket Number: No. 242,242
• Citation: 304 A.2d 838,269 Md. 149
• Parties: , 12 UCC Rep.Serv. 922 Robert L. TAYLOR et al. v. The EQUITABLE TRUST COMPANY.
• Court: Maryland Court of Appeals

Page 149

269 Md. 149

304 A.2d 838, 12 UCC Rep.Serv. 922

Robert L. TAYLOR et al. v. The EQUITABLE TRUST COMPANY.

No. 242.

Court of Appeals of Maryland.

May 23, 1973.

David Freishtat, Baltimore, for appellants.

Joseph W. Janssens, Jr., Baltimore (Miles & Janssens, Baltimore, on the brief), for appellee.

Argued before MURPHY, C. J., and BARNES, SINGLEY, SMITH, DIGGES and LEVINE, JJ.

SINGLEY, Judge.

Although this case has overtones which are esoteric and sometimes bizarre, at the heart of the matter lies a relatively simple commercial transaction, a transfer of funds belonging to Robert L. Taylor, a plaintiff below and an appellant here, by The Equitable Trust Company (Equitable), which Taylor maintains was not authorized.

Through an intermediary, Taylor fell in with Elsa Yamin, who was represented to be the Ambassador of the Dominican Republic to the United Nations, and Frank Terranova, reputed to be a retired army general, who was Mrs. Yamin's financial adviser. Mrs. Yamin and Terranova persuaded Taylor that they were in a position to obtain for Trusco, Inc., a Canadian corporation controlled by Mrs. Yamin, a lease of the Hispaniola Hotel in the Dominican Republic, but that $300,000.00 would be required to consummate the transaction.

At the outset, it was agreed that Taylor would put up no money, but would provide the collateral to be used by Trusco in borrowing the necessary funds. In return, Taylor believed that he was to receive 60% of the stock of Trusco. Becuase Taylor had a criminal record, it was decided that he would remain in the background. ¹ Mrs. Yamin agreed to issue or sell the stock to Terranova, who in turn assigned his rights to a corporation controlled by Taylor. Allegedly for reasons of secrecy, the assignment appeared only on Taylor's copy of the agreement.

It would seem that Terranova was unable to borrow $300,000.00, and events took a new turn: $61,200.00 would have to be raised to secure the lease. The idea was that $20,000.00 would be provided by Taylor; $20,000.00 by George Gottlieb, an associate of Terranova's; and $20,000.00 by Terranova. Where the remaining $1,200.00 was to come from remains to this day an unanswered question.

On 13 February 1968, Mrs. Taylor, at her husband's direction, went to a branch of Equitable in suburban Baltimore where the Taylors had a joint checking account. There, she exchanged her check for $20,000.00 drawn on their account for a treasurer's check in the same amount, which was drawn to the order of:

'Government of Dominican Republic in favor of Hispaniola

Hotel Trusco Inc.'

What brought this curious bit of phraseology about, and what it was supposed to mean, was never explained. As it turned out, it matters little whether Trusco was a joint payee, or whether its name was added to identify its interest in the transaction. In accordance with Taylor's instruction, the check was delivered to an airline stewardess for delivery to Terranova's courier, who was waiting in New York.

Sometime later in February, James W. Vittetoe, a second vice president of Equitable, received a telephone call from Miami from a person who represented himself to be Taylor, whom Vittetoe did not know. ² The purpose of the call was to request that the $20,000.00 represented by the treasurer's check be transferred to the account of Jody Associates at Irving Trust Company in New York. Vittetoe was a loan officer, to whom such a call would not normally be routed. After consulting another officer, Vittetoe explained that this would require an instruction in writing from Taylor.

Thereafter, Vittetoe received the treasurer's check, which bore no endorsement, with the following handwritten letter, bearing neither a date nor a return address:

'Dear Mr. Vittetoe:

Please exchange the attached check to be payable to jody Associates or wire the sum of $20,000 to the Irving Trust Company, Woolworth Bldg., to Jody Associates.

Thank you on behalf of Mr. Robert Taylor.

Frank Terranova'

On 26 February, Equitable stamped the treasurer's check 'not used for purpose issued' and transferred $20,000.00 to Irving Trust Company, to be credited to the account of Jody Associates. ³

In June, 1968, Terranova called on Taylor for additional funds to bank the casino and stock the bar at the hotel. On 28 June, Taylor transferred by wire through Equitable an additional sum of $40,000.00 ($16,000.00 of which represented funds belonging to his children) to Royal Bank of Canada to the credit of Trusco, Inc. ⁴

Within a matter of days (although unknown to Taylor until later) Trusco entered into a lease for the hotel. Sometime in the summer of $1968, Taylor went to the Dominican Republic, visited the hotel, and saw that it was under Trusco's management. ⁵ In November of 1968, Taylor went to Brazil and did not return until the fall of 1969, almost a year later. During Taylor's stay in Brazil, he received a telephone call from Martin Yamin, Elsa's husband, asking whether Taylor was interested in selling his interest. Taylor said that he was, for $60,000.00. Nothing came of this.

On his return from Brazil, Taylor called Yamin, who told him that Trusco's interest in the hotel had been sold, and that it was Terranova who had put up all the money to obtain the lease, with the result that Taylor had no interest in the matter. When settlement negotiations with Terranova and the new purchaser proved abortive, Taylor and his wife brought suit in the Circuit Court for Harford County against Equitable in November of 1970. ⁶ The declaration contained three counts: the first sounded in contract, and sought $20,000.00 in damages. The second alleged negligence, and sought compensatory damages of $20,000,00 and punitive damages of $100,000.00. The third alleged that because Equitable never informed Taylor of the diversion of the funds, he was induced to make the second payment of $40,000.00, as well as an investment of an additional $30,000.00 in another of Terranova's enterprises, for which $150,000.00 in damages were claimed.

The case was tried below without a jury, and resulted in a judgment in Equitable's favor for costs. Taylor and his wife, and their three minor children by their mother as next friend, have appealed to this Court.

The court below found that Equitable breached its contract with Taylor, and had acted in a negligent fashion when, under the circumstances of the case, it cancelled the unendorsed treasurer's check and transferred $20,000.00 to Irving Trust Company. The trial court concluded, however, that it was Taylor's negligence in not aggressively asserting his rights, and not Equitable's breach or its failure to use due care, which was the proximate cause of Taylor's loss. The court then endeavored to buttress this conclusion with a finding that the $20,000.00 transfered was used to purchase the lease, and therefore was ultimately used for the purpose which Taylor intended.

We do not see it quite that way. We regard the transaction as being largely governed by the Uniform Commercial Code (UCC) Maryland Code (1957, 1964 Repl. Vol.) Art. 95B. A good point of departure is found in a comment in 2 Bender's U.C.C. Service, Hart and Willier § 12.35, at 12-129 (1972):

'Nowhere in the Code does it say in so many words that a bank, whether a collecting bank or payor bank, is liable for negligently paying an item. Hints, however, abound. They start with Section 1-103, providing that common-law rules of negligence still apply. Section 3-419(3) limits recovery against collecting banks for conversion only if they acted in good faith and followed 'reasonable commercial standards.' Section 3-406 precludes assertion of a material alteration or unauthorized signature against the party whose negligence substantially contributed to the wrongdoing, but only if the payor is a holder in due course or paid 'in good faith and in accordance with the reasonable commercial standards of the drawee's or payor's business.' A bank is prohibited from disclaiming 'responsibility for its own lack of good faith or failure to exercise ordinary care' under Section 4-103(1), apparently upon the assumption that such duties exist. Finally, a bank's lack of care shifts the burden for paying over a gorged signature of a materially altered item from its customer who was negligent in discovering the wrongdoing, back to the bank under Section 4-406(3).'

The relation between a bank and its depositor is a legal one. It is broadly defined as being that of debtor and creditor, Keller v. Fredericktown Sav. Institution, 193 Md. 292, 296, 66 A.2d 924 (1949), the rights of the depositor and the liability of the bank being contractual, Pritchard v. Myers, 174 Md. 66, 76, 197 A. 620 (1938), but see Note, Negotiable Instruments: Payment of Materially Altered Checks: Bank Not Liable to Depositor in Tort, 40 Cornell L.Q. 795 (1955). ⁷ Unless modified by the parties the contract is that implied in a banking relationship, Magness v. Equitable Trust Co., 176 Md. 528, 531, 6 A.2d 241 (1939). For a breach of this contract, an action in tort will lie, Siegman v. Equitable Trust Co., 267 Md. 309, 313, 297 A.2d 758 (1972), following in the venerable footsteps of Rolin v. Steward, 14 C.B. 595, 139 Eng.Repr. 245 (1854) and Marzetti v. Williams, 1 B & AD 415, 109 Eng.Repr. 842 (1830).

While this line of cases dealt primarily with wrongful dishonor of a depositor's checks, we see no reason why the same general principles are not equally applicable to a wrongful disbursement of funds belonging to a depositor. See General Apparel Sales Corp v. Chase Manhattan Bank, NA, 321 F.Supp. 891 (S.D.N.Y.1970), where recovery was allowed when the bank accepted deposits of General Apparel's funds after the account had been closed. See also Note, 40 Cornell L.Q., supra at 801; Comment, Bank Not Liable in Tort to Depositor for Honoring Forged or Altered Check, 6 Syracuse L.Rev. 365, 367-368 (1955).

Subtitle 3 of the UCC is devoted to Commercial Paper. It is applicable...