On appeal from Superior Court, Law Division, Burlington County.
Halpern, Larner and King. The opinion of the court was delivered by Larner, J.A.D.
[158 NJSuper Page 198] After a plenary nonjury trial the judge entered judgment in favor of plaintiff against defendant drawee bank in the sum of $123,313.06, representing the
balance due on nine checks cashed by plaintiff for the bank's depositor which were returned because of insufficient funds. The factual background of this litigation is both interesting and essential for an understanding of the determination of the legal issues involved.
Pennsylvania National Turf Club, Inc. (Turf Club) is engaged in the operation of a race track in Dauphin County, Pennsylvania. As part of its business enterprise it established a check cashing service for the owners and trainers who did business at the track. Eugene Zeek was a horse trainer who engaged in extensive activities at plaintiff's track and availed himself of the check cashing service established by the Turf Club. This entailed cashing of checks for thousands of dollars on a regular daily basis. The checks were written by Zeek as maker and drawn on the Zeek account in defendant Bank of West Jersey (bank) located in Mt. Laurel, New Jersey. Plaintiff deposited the checks in its bank in York, Pennsylvania, and in due course the checks were processed through the clearing house for payment by defendant bank.
Zeek's checking account with defendant Bank was established in April or May 1973. Soon afterwards Zeek indicated to Frank Pine, branch manager of defendant's Mt. Laurel office, that he would soon be completing a major business deal which would generate six-figure balances in his bank accounts. As a result of this potential future windfall, the bank agreed to a special arrangement for the handling of Zeek's checks, whereby he would be permitted to cover his checks as presented on a daily basis.
Each morning Zeek would call Pine to ascertain to what extent his account was overdrawn because of checks presented for payment the previous day. Zeek would then arrange to cover the overdraft, usually by dispatching his pilot in his private plane with sufficient cash to pay the checks. The cash sums often approached $100,000 (including funds to cover checks cashed by other parties not involved in this litigation). This procedure continued until mid-December,
although an occasional delivery in November or December was delayed, apparently by weather conditions.
Manifestly, this regular arrangement for handling payment of checks was unusual and not in accordance with the bank's normal practice. However, Pine and the bank president felt it was potentially profitable to engage in this unorthodox practice because of the expectation of the large account balances in the near future. (To cover the administrative expenses of the arrangement, the bank eventually imposed service charges of $5 for processing each check in this fashion and $5 for counting each cash deposit.) Furthermore, Zeek and Pine developed a close relationship, nourished by frequent entertainment of Pine at the track, which often included placing Pine's wagers on unrevealed horses which frequently finished in the money.
On December 20, 1973 deposits ceased while checks continued to arrive. However, Zeek and his purported wife continued to call Pine on a daily basis, informing him that they were putting the finishing touches on the "big deal" and would be covering the checks within a few days. The total accumulated overdraft in Zeek's account had risen to almost a million dollars by New Year's Eve, when Mrs. Zeek called Pine at home to say that things had been progressing more slowly than anticipated and that the necessary cash deposit would be made January 2.
When January 2 came and went with no word from Zeek, Pine began to get uneasy for the first time. He informed his superiors, who decided to protect the bank's interests by returning Zeek's checks. On Friday, January 4, 1974, the bank returned to the Federal Reserve Bank in Philadelphia 29 checks made by Zeek and cashed by the Turf Club which had been presented for payment between December 20, 1973 and January 3, 1974. The actual return of the checks was preceded by a telephone call to the Federal ...