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Keil v. National Westminster Bank Inc.

May 15, 1998


On appeal from Superior Court of New Jersey, Middlesex County, Law Division.

Before Judges Baime, Brochin and Wefing.

The opinion of the court was delivered by: Baime, P.j.a.d.

Submitted April 22, 1998

Plaintiff Arlene Keil brought this action claiming that defendant National Westminster Bank, Inc. (National Westminster) had improperly allowed her husband to withdraw funds from a passbook account she maintained for her mother. *fn1 The Law Division granted plaintiff's motion for summary judgment. National Westminster appeals. We affirm in part and reverse in part.


The material facts are not in dispute. On September 27, 1978, plaintiff opened a passbook savings account at the Bay Ridge branch of National Bank of North America (NBNA), National Westminster's predecessor, located in Brooklyn, New York. Plaintiff acted as custodian of the account for her elderly mother, Esta L. Durante, who for many years had been institutionalized as a result of severe depression. The passbook account was established for the benefit of plaintiff's mother who was entitled to receive pension benefits from the Veterans Administration. The withdrawal agreement, which was executed by plaintiff and representatives of NBNA and the Veterans Administration, stated that plaintiff was the custodian of the account for the benefit of her mother, and that the account was to be used for deposits of her mother's pension benefits. The agreement further provided that funds deposited in the account could be "withdrawn only with the written consent of the Veterans Services Officer of the Veterans Administration Regional Office . . . or [his] designee."

Plaintiff was required to file periodic reports with the Veterans Administration regarding the account showing "all deposits and withdrawals." In 1988, plaintiff's husband began performing the annual accounting and preparation of income taxes for Durante's account. As of that year, approximately $96,793 had been deposited in the account, and no funds had been withdrawn.

Beginning in November of 1988, plaintiff's husband began secretly to withdraw funds from the passbook account in order to pay his gambling debts. The record contains conflicting evidence pertaining to whether the withdrawals were made in Brooklyn, New York or New Jersey, where the Keils had moved. However, it is undisputed that plaintiff was wholly unaware of her husband's defalcations, and neither benefitted from these withdrawals nor authorized them. By late 1990, the account was depleted. Richard had withdrawn $101,150.

Plaintiff first learned of the unauthorized withdrawals from the account in March 1994 when she was questioned by the Inspector General's Office of the Veterans Administration. It soon became apparent that plaintiff was not involved. Richard ultimately admitted that he took the money, and was indicted by a federal grand jury. The indictment alleged that Keil embezzled the money "in Middlesex County, New Jersey and elsewhere." Keil pled guilty to the charge in the United States District Court for the District of New Jersey, and was sentenced to five years probation upon the condition that he make restitution to the Veterans Administration. He subsequently died.

The Veterans Administration did not remove plaintiff as a custodian of the account. After plaintiff filed her complaint, however, the Veterans Administration directed that any recovery is to be "placed in a legal custodian account with a corporate guardian for the benefit of Est[a] Durante." Other than this stipulation, the Veterans Administration has "take[n] no position" on the merits of plaintiff's lawsuit.

The parties filed cross-motions for summary judgment. Plaintiff argued that New York law applied and that its banking statutes imposed strict liability on a lending institution for losses caused by unauthorized withdrawals. National Westminster asserted that New Jersey law was controlling and that the applicable statutes insulated banks from losses resulting from unauthorized withdrawals. The bank argued, alternatively, that New York's statute of limitations barred plaintiff from recovering much of her claim. The Law Division granted plaintiff's motion for summary judgment, finding that New York banking statutes applied. The court made no determination concerning National Westminster's contention pertaining to the statute of limitations. The judgment entered recites the court's finding as to National Westminster's liability, but does not set forth a monetary award.

National Westminster argues: (1) plaintiff lacked standing and should not have been permitted to assert a claim on behalf of her mother, (2) New Jersey substantive law should have been applied, and (3) if New York law is applicable, much of plaintiff's claim is barred by reason of the expiration of the limitations period. We reject National Westminster's attack upon plaintiff's right to sue on behalf of her mother. R. 2:11-3(e)(1)(E). Although plaintiff should have brought suit in a representative capacity on behalf of her mother, and while we do not endorse her gross inattention to our rules of practice, we are satisfied that no prejudice resulted. In light of the Veterans Administration's direction that any recovery is to be placed in a custodian's account with a corporate guardian for the benefit of plaintiff's mother, we are satisfied that Mrs. Durante's rights will be fully protected. Resolution of the remaining issues requires full explication.


Were the law congruent in New Jersey and New York, we would not be confronted with a choice of law problem. We thus examine the banking laws of the two jurisdictions.

At the time of the unauthorized withdrawals, N.J.S.A. 17:9A-227 was in effect. That statute provided in pertinent part as follows:

A. No banking institution shall be liable to a depositor for any payment upon any receipt, draft or other order for the withdrawal or payment of money from the depositor's account upon which the signature of any party was forged, or which was made, drawn or indorsed without authority, or which was raised or otherwise materially altered, if payment is made upon presentation of the pass book or other evidence of credit or deposit furnished by the banking institution and if such withdrawal or payment is entered therein, unless within two years after such entry the depositor shall notify the banking institution in writing that the signature of a party to the receipt, draft or other order was forged, or that it was made, drawn or indorsed without authority, or that it was raised or otherwise materially altered.

B. This section shall apply only to savings accounts.

[Ibid. (emphasis added).]

Plaintiff formally contacted National Westminster regarding the unauthorized withdrawals on January 12, 1996. Under N.J.S.A. 17:9A-227, plaintiff's claim was barred because she did not notify the bank within two years of the dates of the unauthorized withdrawals.

We note, however, that N.J.S.A. 17:9A-227 was repealed effective June 1, 1995. See L. 1995, c. 28, § 14. At the same time, the Legislature amended N.J.S.A. 12A:4-406 to read as follows:

a. A bank that sends or makes available to a customer a statement of account showing payment of items for the account shall either return or make available to the customer the items paid or provide information in the statement of account sufficient to allow the customer reasonably to identify the items paid. The statement of account provides sufficient information if the item is described by item number, amount, and date of payment.

c. If a bank sends or makes available a statement of account or items pursuant to subsection a. of this section, the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should ...

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