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Thermo Contracting Corp. v. Bank of New Jersey

Decided: March 12, 1976.


For affirmance -- Chief Justice Hughes, Justices Mountain, Sullivan and Clifford, and Judge Conford. For reversal and remandment -- Justice Schreiber. The opinion of the court was delivered by Conford, P.J.A.D., Temporarily Assigned. Pashman, J. (concurring and dissenting). Schreiber, J., dissenting. Justice Pashman, concurring and dissenting.

This appeal turns on the question whether plaintiff ("Thermo") ratified unauthorized indorsements by a subcontractor of checks payable to Thermo for contracting work it did so as to preclude actions by it against the collecting and drawee banks and against the drawer of the checks. The Law Division decided the issue against plaintiff and granted summary judgment against it based on that determination, at the same time dismissing various counterclaims and crossclaims by or between Thermo, the two banks involved, the drawer of the checks and the subcontractor. The Appellate Division affirmed on the trial court's opinion. We granted certification. 68 N.J. 142 (1975).

The record discloses the following essentially undisputed facts on the motions for summary judgment.

Thermo, whose president and principal stockholder was Alexander Kueller, was a general contractor doing mainly federal government work. Peter T. Kashulines was a subcontractor who had jobs under Thermo more or less continuously from about January 1970 to May 30, 1972. Most of the work was procured by Thermo. The work for Seabrook Farms Co., Inc. ("Seabrook"), the drawer of the checks here involved, was procured by Kashulines, who had done other work for Seabrook before.

The general pattern of the relationship between Kueller and Kashulines was that Kashulines would estimate his price for the total job including labor and material, then send his plans and specifications with the prices noted to Kueller. Kueller would then submit a bid reflecting Kashulines' expenses and profit and his own expenses for office work, obtaining the performance and payment bond and the bid bond, and his own profit. Thereafter the responsibility for furnishing labor, purchasing materials on the job site and supervising the work was delegated in its entirety to Kashulines. The materials purchased at the job site were normally ordered by Kashulines and charged to Thermo through charge accounts opened in the corporate name by Kashulines. There appears to be no dispute as to the scope of Kashulines' authority to purchase, to open charge accounts and to charge in the corporate name.

Although Kashulines' authority to bill and receive payment in the name of the corporation is in dispute, Kueller acknowledges that on at least one job, in Bermuda for the Navy, Kashulines was specifically authorized to do so and in fact picked up a check payable to Thermo and hand-delivered it to Kueller. Kashulines' testimony is that there were other instances where he billed and picked up money but that the normal procedure was to deliver the checks to Kueller and that he was not authorized to indorse and deposit checks on behalf of the corporation.

In the case of the Seabrook jobs it is undisputed, as noted above, that Kashulines individually negotiated the contract with Seabrook. The Seabrook contract apparently involved two separate jobs. The first was the demolition of greenhouses, and the second, the replacement of some boiler tubes. According to Kueller his first knowledge of that job was when the job order dated March 31, 1971 from Seabrook for the boiler tubes was sent to Thermo. Thermo's association with the Seabrook job was limited to ordering the boiler tubes and furnishing the insurance. Kueller testified that he had nothing to do with setting the price, either for labor or materials, and did not know when the job was begun or completed. Kueller testified that the Seabrook job was Kashulines' work "[b]ut run through my books for his convenience." He also indicated, however, that in return for this service he expected to be paid a commission of approximately 25%.

When Kueller was pressed for payment on the boiler tubes, he called Seabrook in November 1971 to find out when Thermo would be paid and was told that the job was finished and that Thermo had already been paid.

Five checks were drawn by Seabrook to the payee, Thermo Contracting Co. The first of these was mailed to Thermo and deposited by Thermo to its own account, and the entire proceeds were paid to Kashulines in a separate check from Thermo to Kashulines. There is no controversy as to this check. The other four checks, dated between March 25, 1971 and June 22, 1971, and aggregating about $13,300, were picked up personally or by employees of Kashulines from the Seabrook office and deposited either by Kashulines himself or by his wife in a checking account at the defendant The Bank of New Jersey in the name of American Boiler Co., a Kashulines firm.

All the check indorsements bore the name Thermo Contracting Corp. or the equivalent, with Kashulines signing either as a purported officer or without designation. There is no question but that Kashulines had no authority from

Thermo to indorse the checks or collect the proceeds thereof, although Kueller testified on depositions that about 75% of the amount of these checks would have been owing to Kashulines under a "pooling" arrangement with Thermo. The checks cleared the depository, defendant The Bank of New Jersey, and the drawee bank, defendant First National State Bank of New Jersey.

Kueller's testimony as to his actions upon learning of the issuance and negotiation of the four checks is as follows:

Q. So that in November 1971 you learned, presumably for the first time, that * * * the four checks which are the subject matter of our presence here today, payable to Thermo, drawn by Seabrook, were paid or issued?

A. Yes, were issued.

Q. I see. You learned that for the first time in November 1971?

A. Uh huh.

Q. I see. What did you do?

A. I immediately took it up with Kashulines.

Q. And.

A. And we talked.

Q. And what was the extent of your discussion with Kashulines concerning the matter?

A. He told me that he was pressed for cash, he had to use the money. He apologized and told me he would make it up to me as soon as he possibly could.

Q. Was that acceptable to you?

A. At the time it was.

Q. * * * you accepted his explanation as to his being sorry and he'll make it up to you.

A. Yes, I did. * * *. I had faith in the man.

Some time after May 1972 Thermo made claims against the various defendants herein and instituted this action September 13, 1972.

Although, as noted, Thermo knew by November 1971 that Kashulines had misappropriated the checks, it made no demand against either of the banks or against Seabrook for payment on them, but continued to do business with Kashulines as usual through May 1972 when Kashulines stopped

working on a Thermo job with the federal government. In that period Thermo not only paid Kashulines from $60,000 to $70,000 for subcontracting work but did not "backcharge" Kashulines for the Seabrook checks because, as Kueller testified, Kashulines "would stop working and then the jobs go into default * * *." In other words, the continuing business relationship with Kashulines was of sufficient value and importance to Thermo to ...

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