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Demos v. Lyons

Decided: June 24, 1977.

GEORGE DEMOS AND CHRISTINE DEMOS, HIS WIFE, PLAINTIFFS,
v.
RAYMOND T. LYONS, JR., A/K/A R. T. LYONS, JR., DEFENDANT, AND SUMMIT SQUIRE, INC. A CORPORATION OF THE STATE OF NEW JERSEY, CRANFORD HALL NURSING HOME, A PARTNERSHIP, ANNA L. PIZZI, AND RAYMOND C. ZELTNER, PARTNERS, INTERVENORS. SOMERSET TRUST COMPANY, A BANKING COMPANY OF THE STATE OF NEW JERSEY, PLAINTIFF, V. GEORGE DEMOS, CHRISTINE DEMOS, RAYMOND T. LYONS, JR., A/K/A R. T. LYONS, JR., AND SUMMIT SQUIRE, INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANTS



Brody, J.J.D.R.C., Temporarily Assigned.

Brody

This litigation arises out of the failure of George and Christine Demos (buyers) to go through with the purchase of the Summit Squire Restaurant -- the business from Summit Squire, Inc. and the realty from Anna L. Pizzi and Raymond C. Zeltner, trading as Cranford Hall Nursing Home (sellers). Sellers contend that the terms of sale are embodied in a signed contract. Buyers characterize the writing as merely a memorandum of intent, subject to approval by their attorney who had not seen it before they signed. When the document was signed, and in accordance with its terms, buyers gave sellers' attorney Raymond T. Lyons, Jr. a $25,000 check drawn on Somerset Trust Company (the bank) to hold in escrow as a deposit. Bank paid the check even though doing so produced a $9,638.28 overdraft against buyers' account.

The dispute between the buyers and sellers over disposition of the deposit must be resolved at trial. Now before the court for summary adjudication are the bank's claims against the buyers for reimbursement and against the stakeholder Lyons for return of the $9,638.28. I granted the bank partial summary judgment against the buyers for reasons given in an oral opinion. See N.J.S.A. 12A:4-401(1), which permits a bank to charge an overdraft against its customer's account. More troublesome is the question of whether the bank should have judgment as well against the stakeholder. Sellers resist the bank's motion and make their own against the bank, seeking to foreclose it from retrieving the $9,638.28.

It appears from the bank's evidence that the check was presented to it for payment late in the afternoon of June 2, 1976. One of the buyers, George Demos, had been in the bank that morning and advised its personnel that he was buying the Summit Squire, a substantial restaurant business in downtown Summit. He requested the bank to prepare an amortization schedule of payments to be used, he said, in connection with private financing he had arranged to complete the purchase. When the check arrived the bookkeeper's

records disclosed that the buyers' account lacked $9,638.28 to cover it. It was too late in the day to learn from the bank's computer whether Demos had made a deposit to his account that morning to cover the check, and the bank was unable to reach him by telephone to determine whether he had done so. The check bore a notation "Deposit Summit Squire," which, with what they learned from Demos's appearance earlier that day, correctly led officers of the bank to conclude that it was the deposit on the buyers' purchase of the restaurant.

The bank had to decide whether to hold the check until the following day, dishonor it, or pay it. Because the check was for a large sum, the officers felt obliged by custom to advise Lyons' depositary bank that afternoon if it was going to dishonor it. So as not to embarrass their customer in this important transaction, the bank officers decided to pay the check. In fact, Demos had made no deposit to cover the check.

The bank contends that its claim is governed by Maplewood Bank and Trust Co. v. F.I.B., Inc. , 142 N.J. Super. 480 (App. Div. 1976), where the court, dealing with a strikingly similar set of facts, gave the bank judgment because it had paid the check by mistake. The court applied N.J.S.A. 12A:3-418, which reads in pertinent part, that "* * * payment or acceptance of any instrument is final in favor of a holder in due course, or a person who has in good faith changed his position in reliance on the payment." The issue in Maplewood Bank was whether the stakeholder was a holder in due course. The court held he was not and therefore the bank was entitled to restitution because it had mistakenly paid the check.

The sellers have conceded that, as was the case in Maplewood Bank , they were not holders in due course and did not change their position in reliance on the payment. They contend, however, that Maplewood Bank does not control because that court did not consider the effect of N.J.S.A. 12A:4-213(1), which reads in part, "An item is finally paid by a payor bank when the bank has done any of the following,

whichever happens first: (a) paid the item in cash; or [etc.] * * *." The sellers argue that this provision bars restitution absolutely because of the absence of § 3-418 language that applies the bar only to protect a holder in due course or a person who relied on the payment.

Given the asserted conflict between the chapter 3 ("Commercial Paper") section and the chapter 4 ("Bank Deposits and Collections") section, the sellers contend that the chapter 4 section should prevail in accordance with N.J.S.A. 12A:4-102(1), which provides in part, "In the event of conflict the provisions of this Chapter govern those of Chapter 3 * * *." Their position is supported in White and Summers, Uniform Commercial Code (1972), §§ 16-2 and 16-3 at 519-529.

The word "final," as used to describe a payment, embraces two distinct concepts: one, a rule of law; the ...


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