Citizens National Bank of Englewood has moved for summary judgment to recover monies advanced against a check which was deposited with the bank for collection but was later dishonored. The issue is whether the bank should be protected for advances made to its depositor before the check cleared. The summary judgment is sought against the drawer and payee-indorser who stopped payment on the check.
On August 27, 1963, George P. Winter agreed to sell a house in Fort Lee, New Jersey to defendant Jean Amoroso and her husband. On the same day Amoroso requested her bank, Fort Lee Savings and Loan Association (Fort Lee Savings), to issue the bank's check to her order for $3,100 to be used as a deposit on the contract for sale. Fort Lee Savings complied by drawing the check against its account with the Fort Lee Trust Company. Later that day Amoroso indorsed and delivered the check to Winter, and he deposited the check in his account at the plaintiff bank. At that time he had a balance of $225.33. After the $3,100 check was deposited the bank cashed a $1,000 check for him against his account. In addition, on August 27 or August 28, the bank cleared and charged Winter's account with four other checks totaling $291.76.
The next day Amoroso discovered that Winter had previously sold the property to a third party by agreement which had been recorded in the Bergen County Clerk's Office. Amoroso immediately asked Winter to return her money. She claims that he admitted the fraud and agreed to return the deposit. But when Mrs. Amoroso and her husband reached Winter's office they learned that he had attempted suicide. He died shortly thereafter.
Upon making this discovery, in the afternoon of August 28, the Amorosos went to Fort Lee Savings to advise it of the fraud and request it to stop payment on the check. The bank issued a written stop payment order which was received by the Fort Lee Trust Company, the drawee, on the following day, August 29. In the meantime the $3,100 check was sent
by plaintiff through the Bergen County Clearing House to the Fort Lee Trust Company. By then the stop payment order had been received. Notice of nonpayment was thereafter transmitted to plaintiff.
Plaintiff contends that, under the Uniform Commercial Code, N.J.S. 12A:1-101 et seq., it is a holder in due course to the extent of the advances made on Winter's account and is entitled to recover these moneys from the drawer and payee-indorser of the check. Plaintiff's claim against the drawee, Fort Lee Trust Company, was voluntarily dismissed by plaintiff at the pretrial conference.
The central issue is whether plaintiff bank is a holder in due course, since a holder in due course will prevail against those liable on the instrument in the absence of a real defense. Of course, it must first be determined that plaintiff is a "holder" if plaintiff is to be declared a holder in due course. Amoroso contends that plaintiff bank does not own the check because it is only an agent of its depositor Winter for collection purposes and, consequently, plaintiff is not a "holder." It is true that a collecting bank is presumed to be an agent of the owner of the item unless a contrary intention appears, or until final settlement. N.J.S. 12A:4-201(1). Assuming that the bank was at all times an agent in this case, it does not follow that the bank cannot also be a holder. On the contrary, a collecting bank may be a holder whether or not it owns the item. N.J.S. 12A:4-201(1) and 12A:3-301. Pazol v. Citizens Nat'l Bank of Sandy Springs, 110 Ga. App. 319, 138 S.E. 2 d 442 (Ct. App. 1964); and see generally Bunn, "Bank Collections under the Uniform Commercial Code," Wis. L. Rev. 278 (1964). The definition of "holder" includes a person who is in possession of an instrument indorsed to his order or in blank. N.J.S. 12A:1-201(20). It is clear that the bank is a holder of the check notwithstanding that it may have taken the check solely for collection and with the right to charge back against the depositor's account in the event the check is later dishonored. Pazol v. Citizens Nat'l Bank of Sandy Springs, supra; accord, Citizens Bank of
Booneville v. Nat'l Bank of Commerce, 334 F.2d 257 (10 Cir. 1964).
To be a holder in due course one must take a negotiable instrument for value, in good faith and without notice of any defect or defense. N.J.S. 12A:3-302(1). Amoroso contends that plaintiff did not act in good faith or is chargeable with notice because it allowed Winter to draw against uncollected funds at a time when his account was either very low or overdrawn. Winter's account was low in funds. However, this fact, or the fact that Winter's account was overdrawn, currently or in the past, if true, would not constitute notice to the collecting bank of an infirmity in the underlying transaction or instrument and is not evidence of bad faith chargeable to the bank at the time it allowed withdrawal against the deposited check. N.J.S. 12A:1-201(19) and (25); N.J.S. 12A:3-304. See United States Cold Storage Corp. v. First Nat'l Bank of Fort Worth, 350 S.W. 2 d 856 (Tex. Civ. App. 1961), declaring the bank a holder in due course where it applied a deposited check against a large overdraft of its depositor, the court specifically holding that lack of good faith was not shown merely by the fact that the bank knew the depositor was considerably overdrawn in his account. As stated in First Nat'l Bank of Springfield v. DiTaranto, 9 N.J. Super. 246, 253 (App. Div. 1950):
"Evidence of fraud, not merely suspicious circumstances, must have been brought home to the Bank as a holder for value whose rights had accrued before maturity, in order to defeat its recovery upon the ground of fraud in the inception of the negotiable note or between the parties to it. Hudson County Nat. Bank v. Alexander Furs, Inc., supra [133 N.J.L. 256]. To constitute notice to the Bank of the alleged infirmity in the note or defect in the title of Tidey who negotiated it, the Bank ...