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Joseph v. Lesnevich

Decided: July 15, 1959.


Conford, Freund and Haneman. The opinion of the court was delivered by Freund, J.A.D.


[56 NJSuper Page 343] Plaintiff, Murray Joseph, was the true owner of seven United States Treasury negotiable bonds, each in the amount of $1,000 and each payable to bearer. On March 23, 1951 the bonds were stolen from his home in Fort Lee. The burglary, together with the serial numbers of the instruments, was immediately reported to the municipal

police department and to the Federal Bureau of Investigation. Three newspapers circulated throughout or in parts of Bergen County reported the theft.

Two years and three months later a New York brokerage house presented the bonds to a redemption agent of the Treasury Department in Philadelphia. Treasury paid the redemption price to the bearer and notified the police and plaintiff. Over five years later plaintiff brought this action.

From the theft to the ultimate redemption, the bonds had a peculiar history. They found their way into the hands of five separate possessors, excluding the New York broker. It is against four of these five and against one other defendant that plaintiff proceeds -- on the theory they are liable in tort for conversion of personalty. 89 C.J.S. Trover & Conversion § 14, p. 539.

Defendants Gus Lesnevich and Louis Gentilhuomo were partners engaged in the used car business in Cliffside Park in 1951, trading as Champ Motors. According to a statement Gentilhuomo gave the police, "Things at the used car lot were not going so well and we were on the verge of giving up the business." In October 1951 Lesnevich received a letter which he opened in the presence of his partner and two others. In the envelope were the seven $1,000 bonds with a letter reading:

"Dear Gus: I heard you were in need of financial help and I am sending these bonds to you to use for your business, I will see you sometime in the future and identify myself --

Your Pal and Friend"

Gentilhuomo asked Lesnevich "if this could be a joke of some kind and he said he didn't know," so Gentilhuomo said "lets go to Grobows, he should know."

Defendant Max Grobow was the president of the defendant Credit Discount Co. (hereinafter "credit company"), which had its office in Englewood and was engaged in the business of financing automobiles. By March 1951 it had extended to Champ Motors a line of credit up to $50,000.

The loans were secured by chattel mortgages and bills of sale on automobiles purchased by Champ Motors for resale.

According to Max Grobow's affidavit, Lesnevich and Gentilhuomo came to his office in early October 1951, stated that they could use additional funds to increase their stock of used cars, and offered the seven bonds as collateral security for a loan of $6,700. Grobow replied that he would accept the bonds as security, and the partners returned on October 21 with the bonds to consummate the pledge. Lesnevich received a check from credit company for $6,700, drawn on the defendant Palisade Trust Company (hereinafter "the bank"). The bank also had its office in Englewood.

Grobow stated in his affidavit that the bonds pledged were complete and regular on their face, that his company took them before they were overdue, in good faith, for value, and without notice of any infirmity in the instruments or defect in the title of the partners-pledgeors.

Near the end of July 1952 Lesnevich and Gentilhuomo advised the credit company they would not repay the collateral loan and hence would not retake the bonds. They requested the pledgee to use the proceeds of the bonds as payment on the amounts then due and return to them any difference. Accordingly, on August 1, 1952 the credit company closed out the partnership's account and issued a check to Champ Motors for the balance of $171.68. On the same day, Max Grobow personally purchased the bonds from his company. On September 9, 1952 Max sold the bonds to his son, Edward Grobow (now deceased), for $6.950. On June 16, 1953 Edward executed two forms appointing the Palisade Trust Company as his agent to collect the proceeds of the bonds. The bank in turn placed the order with its New York broker, with the results noted above. Having received net proceeds of $6,380.09 on the bonds, the bank credited Edward's account therewith on June 18, 1953. Kenneth A. Bentley, the bank's assistant vice-president, deposed in an affidavit of record that the bonds appeared to him to be genuine and that there was nothing in Edward's conduct or in any previous

association with him to cause doubt that Edward had title to and the right to sell the bonds.

Plaintiff's complaint names as converters: Lesnevich and Gentilhuomo, on the theory of receipt of stolen property and vicarious partnership liability; the credit company and Max Grobow, on the theory they had notice of suspicious circumstances and could not qualify as holders in due course; and the bank, on the theory it "knew or should have known the suspicious surroundings * * *." Edward Grobow's estate was not made a party to the suit. In support of the claim of notice of suspicious circumstances on the part of Grobow and the credit company, the complaint contains the following crucial allegations respecting the Lesnevich-to-credit company transfer:

"5. * * * Mr. Max Grobow * * * in turn had someone call the Defendant Palisade Trust Company to check the validity of the bonds.

6. A few minutes later, Mr. Max Grobow * * * said to the Defendants Lesnevich and Gentilhuomo upon information and belief, that the bonds were good, even if you found them on the street.

7. The Defendants Gus Lesnevich and Louis Gentilhuomo thereupon pledged said bonds * * *."

Lesnevich in his answer admitted the allegations in the fifth and sixth paragraphs.

The credit company, Grobow, and the bank moved for summary judgment. Although in an action for the conversion of personalty it is no defense to assert the status of a bona fide purchaser for value where the transferor (Lesnevich) had no power to transfer (Ashton v. Allen , 70 N.J.L. 117 (Sup. Ct. 1903); Prosser, Torts (2 d ed. 1955), § 15, pp. 71-72; 1 Restatement, Torts , § 229, p. 585), a commonly recognized exception to this rule is in the case of negotiable instruments where the defendant qualifies as a holder in due course. See, e.g., Prosser, supra , at p. 72, note 77 and cases ...

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