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Standard Accident Insurance Co. v. Montclair Trust Co.

Decided: June 8, 1954.

STANDARD ACCIDENT INSURANCE COMPANY, A CORPORATION, PLAINTIFF,
v.
MONTCLAIR TRUST COMPANY, A CORPORATION, AND UNION COUNTY TRUST COMPANY, A CORPORATION, DEFENDANTS



Waugh, J.s.c. (temporarily assigned).

Waugh

[31 NJSuper Page 254] The defendant Union County Trust Company, a corporation, hereinafter referred to as Union County Trust, moves for summary judgment against the plaintiff. Plaintiff sues both the Union County Trust and Montclair Trust Company based upon payment of a check drawn by the New Jersey Mortgage

Company, a depositor of Union County Trust, on which the endorsements of two of three payees are alleged to be forged.

The Jersey Mortgage Company, a lender of funds on bonds and mortgages, operates upon a system whereby it uses for the closing of its loans, attorneys taken from a list approved by various title companies, and in this instance by the Lawyers Title Insurance Corporation of Richmond. Lawrence Owiter, an attorney then practicing in Montclair, was on the approved list of the Lawyers Title Insurance Corporation of Richmond. On October 27, 1949 Mr. Owiter submitted to the Jersey Mortgage Company an application for an F.H.A. loan in the sum of $3,600 to be issued to his clients, Raymond and Ida DeWolfe, who in fact were mother and son. The mortgage company issued its commitment in that amount to Mr. Owiter on December 13, 1949, and it was accepted by his clients. On December 16, 1949 the mortgage company sent to Mr. Owiter its check for $3,600 drawn on the Union County Trust and authorized him to disburse the funds under its title binder. A copy of this check is attached to the complaint. The check was drawn to the order of "Raymond F. DeWolfe and Ida C. DeWolfe, h/w and Lawrence Owiter, attorney." It is now alleged that Owiter forged the signatures of Raymond F. DeWolfe and Ida C. DeWolfe, h/w, and deposited the same to his trustee account in the Montclair Trust Company on December 19, 1949. The check was cleared through the Federal Reserve Bank and paid by the Union County Trust on December 21, 1949.

According to the testimony of Robert E. Goldsby, president and treasurer of the Jersey Mortgage Company, the bank statement of the Union County Trust Company showing the charge of $3,600 against the account of Jersey Mortgage was received by it some time between January 2 and January 10, 1950. The statement was accompanied by the checks for the month of December 1949, including the check which the Jersey Mortgage Company had drawn to

Owiter and the DeWolfes and on which Owiter allegedly forged the signatures of the other payees. It further appears that there never was any communication addressed to the Union County Trust Company by the Jersey Mortgage Company relating in any way to the check for $3,600 or calling the bank's attention to the fact that the signatures of the payees had been forged. When New Jersey Mortgage learned of the forgeries, it immediately reported it to the Lawyers Title Insurance Corporation and no one else.

At the time the mortgage loan was applied for by Owiter there was a lien against the DeWolfe property in the sum of $2,400, represented by a first mortgage originally in the name of Frederick D. Pettet, Jr. and Connie Pettet, his wife. The proceeds of the $3,600 loan granted by the Jersey Mortgage Company were to be used to cancel the Pettet mortgage and to supply the DeWolfe's with the sum of $1,200, being the balance of the proceeds of the check. When the proceeds of the check for $3,600 were received by Owiter, he did not cancel the Pettet mortgage but instead retained the $2,400 and used the same for his own purposes. The sum of $1,200 was paid by him to the DeWolfes.

The Lawyers Title Insurance Corporation of Richmond had issued a title policy in connection with the transaction, out of which Owiter received the $3,600 check from the Jersey Mortgage Company. This title policy of insurance was issued only to the Jersey Mortgage Company and insured its mortgage as being a first lien upon the premises.

The Lawyers Title Insurance Corporation was covered by the plaintiff on a fidelity bond by the terms of which the plaintiff agreed to reimburse the Lawyers Title Insurance Corporation for any losses which it sustained through fraud or dishonesty committed by any of its approved closing attorneys in connection with the handling of funds delivered to said attorneys for closing a real estate purchase or loan transaction in which the Lawyers Title Insurance Corporation proposed to issue or issued a title insurance binder or policy. The DeWolfe mortgage was subsequently sold by

the Jersey Mortgage Company to the United National Bank of Cliffside Park in March of 1950. In February of 1951 the Jersey Mortgage Company discovered that the Pettet mortgage was still open of record and was thus a prior lien to the DeWolfe mortgage. The Jersey Mortgage Company thereupon called on the Lawyers Title Insurance Corporation of Richmond, which had issued the title policy in connection with the transaction handled by Owiter, to make good upon its policy and to satisfy the Pettet mortgage, the then existing first lien. Thereupon the Lawyers Title Insurance Company paid the Pettets the balance due on their mortgage and took an assignment of said mortgage on August 13, 1951.

Thereafter, the Lawyers Title Insurance Corporation, at the insistence of the Standard Accident Insurance Company, instead of cancelling the Pettet mortgage, subordinated the Pettet mortgage to the mortgage of the Jersey Mortgage Company. By reason of the loss sustained by the Lawyers Title Insurance Corporation arising out of the defalcation of Owiter in connection with the mortgage closing, the plaintiff paid the Lawyers Title Insurance Corporation of Richmond for the loss which it sustained in paying off the Pettet mortgage. In connection with the payment of said loss, the Jersey Mortgage Company on February 1, 1952 assigned to the Lawyers Title Insurance Corporation all of its right, title, and interest in the aforesaid check of $3,600. On February 18, 1952 the Lawyers Title ...


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