On certification to the Superior Court, Appellate Division, whose opinion is reported at 176 N.J. Super. 101 (1980).
For affirmance -- Justices Sullivan, Clifford and Pollock. Concurring in part and dissenting in part -- Justices Pashman and Handler. Handler, J., concurring in part, dissenting in part. Justice Pashman joins this opinion.
The judgment is affirmed substantially for the reasons expressed in the opinion of the Appellate Division, reported at 176 N.J. Super. 101 (1980).
HANDLER, J., concurring in part, dissenting in part.
We are confronted in this petition for certification with the paradoxical but narrow issue of whether and under what circumstances a bank, known in the terminology of the Uniform Commercial Code as a non-payor depository bank or collecting bank, see N.J.S.A. 12A:4-105, can be liable to a non-customer, drawer of a check for having cashed that check based upon an indorsement forged by the drawer's agent and employee.*fn1
As reflected in the decision below, 171 N.J. Super. 101, such a determination within the commercial code involves a painstaking analysis of varied statutory provisions and policies. In barest essence, unencumbered by textual embellishment and contradistinction, the uniform code provides that forged indorsements are ineffective, and allocates the ultimate loss, accordingly, upon the party who has supplied the forger with monetary compensation in exchange for the forged instrument -- in this case the collecting bank. Such a result is predicated upon the commercial construct which provides that an instrument is to be payable only according to its terms. N.J.S.A. 12A:3-404(1).
White & Summers, Uniform Commercial Code (1972) § 16-18. The Code, however, provides a number of mechanisms for shifting the loss to a party other than the entity which first rewarded the forger for his or her efforts. Id. Thus, liability will generally spring to a party whose negligence has substantially contributed to the forgery, by precluding such a party from asserting that the instrument had been forged. N.J.S.A. 12A:3-406. Additionally, where an indorsement is forged by a faithless employee or agent, the loss, through the device or commercial fiction of an "effective" indorsement, is generally to lie with the employer, the party who presumptively dealt more closely with the forger and was best able to prevent the loss, and not with a banking institution.*fn2 N.J.S.A. 12A:3-405(1)(b). Added to this mix of loss-shifting mechanisms is the general Code notion which discourages direct suits against a collecting bank by a third party. See 176 N.J. Super. at 116. Conceding the weight necessarily accorded to commercial pragmatism and convenience, at bottom these provisions encapsulate a principle that the party most responsible for a resultant loss should be held liable.
In the peculiar facts of this case, we are presented with a situation wherein the collecting bank handled many checks that it cashed personally for the faithless employee, over differing forged payee indorsements, at one branch of a collecting bank, involving the payment of substantial sums, and often cashed on one day.*fn3 Commercial misconduct of this kind would under
normal commercial code situations render a bank institution liable for negligence.
Even in this egregious factual setting, however, I concur with Judge Morgan's determination below, for the reasons thoroughly explicated in her opinion, that the mechanical application of the varied Code provisions in cases of this sort would yield a result of non-liability for a collecting bank. The literal mandate of the Code in normal commercial transactions, even those negligently executed, is for the loss due to an indorsement forged by a faithless employee to fall upon the party who most frequently dealt with the forger and was best able to prevent the forgery -- the employee's employer. A collecting bank generally is not subject to a direct suit by a third party, and, although a bank's negligence is normally sufficient to provide for bank liability, the Code provision which establishes that principle is not applicable to this faithless employee-forged indorsement situation.
The literal application of these rules in this case, however, would produce anomalous and unjust results, for the collecting bank would escape from liability despite horrendous commercial dereliction. As the court below recognized, placing the loss upon the forger's employer, who, comparatively, was significantly less able than the collecting bank to prevent the loss, would do violence to the basic underlying principles of the commercial code. 176 N.J. Super. at 120-121. In such a situation, commercial common sense, as evinced in the underlying policy of the Code, must necessarily thrust liability upon a collecting bank, the commercial misconduct ...