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Farmers and Merchants National Bank of Bridgeton v. Boardwalk National Bank

Decided: June 25, 1968.


Gaulkin, Lewis and Kolovsky. The opinion of the court was delivered by Kolovsky, J.A.D.


[101 NJSuper Page 531] Plaintiff (Farmers), claiming to be a holder in due course of seven drafts dated January 12, 1966 drawn by Reeves Motors, Inc. (Reeves) to its own order on defendant Hammonton Investment & Mortgage Co. (Himco) and "payable through Boardwalk National Bank, Atlantic City, New Jersey" (Boardwalk), recovered a judgment for $10,250, the amount of the drafts, plus interest, against Himco and Boardwalk. The order for judgment further provided that Boardwalk, which had filed a cross-claim against Himco, should "be entitled to judgment against [Himco] for any sum it may be required to pay plaintiff on account of the above judgment." Himco appeals both from the judgment

for plaintiff and the judgment entered in Boardwalk's favor on its cross-claim. Boardwalk did not appeal.

Most of the essential facts are stipulated. Himco, a finance company and a checking account depositor in the Boardwalk bank, financed sales made on conditional sales contracts or other security agreements by Reeves, an automobile dealer. Reeves was a checking account depositor in the Farmers bank.

In accordance with its prior practice, Reeves on January 12, 1966 deposited the seven drafts with Farmers, which credited the amount thereof, $10,250, to Reeves' checking account. With that credit, Reeves' balance totalled $12,345.03. On the same day, January 12, checks drawn by Reeves totaling $11,261.05 were cleared through and charged against Reeves' account, leaving a balance of $1,083.98. On January 13 Reeves made deposits totaling $7,300; a check for $7,953.05 drawn by it cleared the bank, reducing its credit balance to $430.13. Further charges against the account reduced Reeves' balance to $6.21 on January 18, 1966.

Meanwhile, Farmers had delivered the seven drafts to its correspondent bank, First Pennsylvania Banking and Trust Company. The latter delivered them at about 1:30 P.M. on January 13 to the Federal Reserve Bank of Philadelphia, which in turn mailed them to Boardwalk in the Federal Reserve's "afternoon cash letter" of January 13.

The drafts were received at Boardwalk's "operations office" on Black Horse Pike, Pleasantville, before 2 P.M. on Friday, January 14.

The drafts were received at Boardwalk's Hammonton branch office, where Himco banked, by Tuesday morning, January 18. Sometime between 10:30 A.M. and 12 noon on that day, Boardwalk notified Himco by telephone that it had the seven drafts.

It should be noted at this point that each of the drafts was on a printed form, captioned "Cash Item Payable at Par," prepared by Himco for the use of its customers. Left

to be filled in on the printed form of the draft proper were only the date, the amount, the name of the payee and the signature of the drawer (dealer), and in a data column captioned "Contract(s) covered by this draft," the last name of the purchaser of the automobile and the amount of the draft. The printed form contained the following paragraph immediately above the line provided for the signature of the drawer:

"In consideration of your immediate payment of this draft, covering your purchase of the supporting contract(s) contained in the ENVELOPE MAILED TO YOU THIS DATE bearing this draft number, Undersigned hereby agrees that if any such contract is not received by you Undersigned will repurchase the same or honor your draft upon presentation, for the amount you have paid for the same."

It is evident from the quoted paragraph that the draft contemplated immediate payment thereof on presentment to the drawee Himco instead of an "acceptance" -- "the drawee's signed engagement to honor the draft as presented," N.J.S. 12 A:3-410 -- to be followed by payment in performance of the agreement of acceptance.

The contemplated procedure was that followed when Himco's representative appeared at the Hammonton branch of Boardwalk shortly before 3 o'clock in the afternoon of Tuesday, January 18. Himco's check for $15,000 drawn on its account with Boardwalk and payable to the order of Boardwalk was delivered to Boardwalk. The seven Reeves' drafts, as well as drafts drawn by other dealers in the amount of the difference between $15,000 and $10,500, each stamped "Paid, ...

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