On appeal from Superior Court of New Jersey, Law Division, Monmouth County.
Matthews, Morgan and Morton I. Greenberg. The opinion of the court was delivered by Morgan, J.A.D.
This appeal presents issues, some novel to New Jersey, arising from those portions of the Uniform Commercial Code which deal with bank collection problems and the liabilities of depository and drawee banks with respect to checks drawn by a so-called "faithless employee." The matter was adjudicated summarily in favor of the banks. Plaintiffs appeal.
The facts are, in the main, uncontroverted. They focus on the activities of Norman Hirschfield, the faithless employee of the plaintiffs, a group of real estate management firms, who between 1973 and 1978 embezzled well over $300,000 from plaintiffs' accounts with several of the defendant-payor-drawee banks. The fraudulent scheme used was not complex. His employment carried with it the authority to draw checks on his employers' bank accounts. He used this authority to draw such checks, payable to actual companies and individuals who were in fact creditors of his principals but to whom no money was then owing. He would then indorse the checks in the names of those payees and obtain payment from several of the defendant banks. The depository banks would present the checks for payment at the payor-drawee banks and the appropriate account would then be debited.
Certain details concerning his methods of operation are, however, germane to the issues to be considered. Although in most instances Hirschfield signed his own name as drawer in accordance with his authority, in many instances he forged the name of a principal whose name was required on a company check as drawer. Hence, two kinds of checks are to be discussed, each giving rise to different liabilities and rights. The first kind includes checks bearing Hirschfield's authorized signature as maker, which are conceded to be genuine checks drawn by one
with authority to do so. The other kind, those with signatures of one other than Hirschfield which were forged by him, are conceded to be forged and will hereinafter be referred to as forged checks. Those checks whose irregularity depends only on a forged indorsement (those bearing Hirschfield's name as drawer) will be referred to as checks bearing forged indorsements. It should be emphasized for clarity that all of Hirschfield's checks have forged indorsements, even those whose maker's signature was forged also-the double forgeries. Forged checks bearing forged indorsements will be referred to as doubly forged checks, or double forgeries.
All checks were drawn on the various accounts plaintiffs maintained at defendant New Jersey National Bank (Jersey National), Jersey Shore Bank (Jersey Shore), and Central Jersey Bank & Trust Company (Central Jersey). Jersey Shore acted only as drawee; Hirschfield cashed no checks there. Jersey National and Central Jersey acted in both capacities; each carried accounts for a plaintiff and each also cashed at least some of Hirschfield's checks. Because of this dual capacity in which these latter banks operated, they will be referred to either as payor banks or depository banks, depending on the context.
Colonial First National Bank (Colonial), the bank at which the largest number of Hirschfield's checks were cashed, is the only defendant bank who had no bank-depositor relationship with any plaintiff which involved any checks in this matter. Colonial was sued only as a collecting-depository bank; the other banks (except Jersey Shore) were sued in both capacities.
On June 21, 1978 plaintiffs notified the drawee banks (Jersey Shore, Jersey National, and Central Jersey) that they had wrongfully debited their accounts with respect to checks bearing forged indorsements. With respect to forged checks, that is, checks bearing the forged signature of a drawer other than Hirschfield, notification was first given on July 17, 1979 although the last such check was cashed in April 1978.
We deal here with three groups of claims. The first group, pleaded in counts 1-3 of the complaint, sought recovery against the depository collecting banks (Colonial, Central Jersey and Jersey National) on theories of negligence, conversion and monies had and received. The second group, pleaded in counts 4-6 of the complaint, sought recovery from the payor-drawee banks, those with which plaintiffs maintained accounts, with respect to checks bearing forged indorsements the amounts of which were debited to plaintiffs' accounts. The third group, pleaded by amendment in counts 7-9, sought recovery from the drawee-payor group for wrongful payment of forged checks, those checks on which Hirschfield forged the name of another, predicated on theories of negligence and conversion.
Summary judgment in defendant banks' favor was entered on the following grounds:
1. As to the payor-drawee banks with respect to the claims on forged checks, action was barred as untimely by N.J.S.A. 12A:4-406(4).
2. As to the depository-collecting banks on pleaded theories of negligence, conversion and monies had and received with respect to checks cashed bearing forged indorsements, on the ground that the Uniform Commercial Code foreclosed action by a drawer against a depository-collecting bank.
3. As to the drawee banks with respect to the debiting of plaintiffs' accounts with the amounts of checks bearing forged indorsements, on the ground that N.J.S.A. 12A:3-405(1)(b), the so-called "fictitious payee" rule, has the effect of absolving the drawee banks from liability, casting the loss instead on the drawer.
Plaintiffs challenge the correctness of these rulings.
Drawees' liability for forged checks
N.J.S.A. 12A:4-406(4) provides as follows:
Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (subsection (1)) discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized
indorsement is precluded from asserting against the bank such unauthorized signature or indorsement or such alteration. [Emphasis supplied]*fn1
The one-year period limitation in § 4-406(4)*fn2 is not merely a statute of limitations, but a rule of substantive law barring absolutely a customer's untimely asserted right to make such a claim against the bank.
The purpose of the statute is to have one uniform rule throughout the country in place of the various time periods that existed prior to the U.C.C. As stated in ...