114 Misc. 2d 491 | N.Y. City Civ. Ct. | 1982
OPINION OF THE COURT
A bank’s right to charge back a customer’s account when the bank has made provisional settlement for items that are subsequently dishonored is codified in section 4-212 of the Uniform Commercial Code. The issue before this court is the applicability of section 4-212 of the Uniform Commercial Code to accounts held in the name of a partner when the dishonored items were the subject of banking transactions conducted by one partner allegedly acting outside the scope of the partnership business. May a bank avail itself of the charge back remedy against accounts in the name of the individual nonparticipating partner? And if so, is the “innocent” partner entitled to indemnification from the wrongdoer?
Plaintiff, a New York banking corporation, commenced this action against defendants, Michael De Santis (hereinafter De Santis), James K. Noonan (hereinafter Noonan) and De Santis and Noonan Realty Co. (hereinafter D/N Realty), to recover for an overdraft in the account of D/N Realty maintained at a branch of plaintiff’s bank.
The partnership certificate and authorization provided in pertinent part “You [plaintiff] are authorized to honor, to receive and/or pay all instruments signed in accordance with the terms of this instrument even though drawn or endorsed to the order of any partner signing the same and/or tendering for cashing, or in payment of the individual obligation of such partner or for deposit to his personal account and you are not required or obligated to inquire as to the circumstances of the issuance or use of any instrument signed in accordance herewith or the application or disposition of such instrument or the proceeds thereof.”
On December 15, 1980, Noonan deposited into the D/N Realty account two checks drawn on the Bergen State Bank in Bergenfield, New Jersey, each in the sum of $6,000. Both checks were drawn on the account of Robert J. Mallon, Esq. Noonan testified that he deposited the checks as an accommodation to a friend, and that he was simply acting as a check cashier.
Check No. 979 was payable to Bak Air Freight Co., and the reverse side was indorsed Bak Air Freight Inc., Allen Krauss and was stamped:
FOR DEPOSIT ONLY
DE SANTIS & NOONAN REALTY CO.
Check No. 980 was payable to Allan Krauss and the reverse side was indorsed Allan Krauss, Noonan and stamped with the same stamp as Check No. 979.
On December 23, 1980, defendant Noonan drew two checks on the partnership account, one in the amount of $9,000 for cash and the other for $3,000 to be deposited in his own personal bank account. In belief that the items deposited on December 15 had been collected, since more than five business days had elapsed, Robert N. De Chillo,
The following day, December 24, 1980, De Chillo was notified by the main office of his bank that they had been informed by the drawee bank that the two checks drawn on it were being returned unpaid because of a “stop payment”. When the checks were returned, the amount of $12,000 was charged to the partnership account thereby creating an overdraft for the amount.
The overdraft was reduced to approximately $9,000 when the bank reapplied the $3,000 deposit in Noonan’s personal account to the partnership overdraft.
Subsequent attempts to have the partnership and Messrs. De Santis and Noonan pay the overdraft were unsuccessful and this suit was commenced.
The summons and verified complaint were served on each of the partners by substituted service in April and May, 1981. Both defaulted and a judgment was entered thereon on July 14, 1981.
Proceedings to enforce the judgment were largely unsuccessful although the bank did restrain bank accounts of De Santis at several banks in which he had nominal balances.
In February, 1982, De Santis moved by order to show cause to vacate the default judgment as against him. The bank consented to the application on condition that the judgment and restraining notices remain as security. De Santis served an answer which put into issue the material allegations of the complaint, raised an affirmative defense of negligence and cross-claimed against Noonan for any amount the bank recovers from De Santis.
De Santis’ first argument is that the transactions described herein were conducted solely by Noonan without the authority of De Santis, that Noonan was acting outside the scope of the partnership business, and therefore that De Santis’ individual assets may not be used to satisfy the overdraft. De Santis does not dispute that he signed the “Partnership Certificate and Authorization”. His defense rests on the theory that he did not cash or consent to the
It is undisputed that the transactions herein were conducted by Noonan without the knowledge or consent of De Santis. De Santis predicates his defense on the premise that because he neither knew of, nor condoned Noonan’s actions that Noonan was acting outside the scope of the partnership business. Subdivision 1 of section 20 of the Partnership Law states: “Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.”
The test of apparent authority is subjective. If a third party could have been said to have reasonably relied on the apparent authority then the alleged agent’s principal is estopped from claiming lack of knowledge or consent. In light of the “Partnership Certificate and Authorization”, the plaintiff could be said to have reasonably relied upon Noonan’s apparent authority to make the banking transactions described herein. It is well settled that one partner’s actions need not be explicitly authorized, consented to, or ratified by another partner. “A partnership is a voluntary association, by which in all the affairs connected with the business an authority is impliedly given to every member to dispose of the partnership property as if it were his own personal effects. Such is the indivisable nature of their interest, and the capacity of every member to act as the authorized agent of all, that whatever one does in the course of the partnership business has the same efficacy as if all had severally and directly joined in the act.” (Mabbett v White, 12 NY 442, 455.) In essence, an action need not be actually within the scope of the partnership business, so long as it is apparently within the scope of the partnership business.
De Santis asserts that he had no knowledge of Noonan’s transactions with the plaintiff prior to his telephone con
De Santis cites section 24 of the Partnership Law in his memorandum of law. Section 24 states: “Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership, or with the authority of his copartners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act.” The applicability of section 24 of the Partnership Law to the case at hand is dubious. Section 24 of the Partnership Law deals with “wrongful act or omission” such as tort or fraud. (Halperin v Edwards, 430 F Supp 121; Guild v Herrick, 51 NYS2d 326.) The instant case is predicated upon an alleged breach of contract, i.e., the “Partnership Certificate and Authorization”, and not upon a theory of tort liability. This distinction is important because partners are jointly and severally liable for torts committed in the course of partnership business and an action may be brought against all or any of them in their individual capacities or against the partnership as an entity. (Martinoff v Triboro Roofing Co., 228 NYS2d 139; Pedersen v Manitowoc Co., 25 NY2d 412; Payne v Payne, 34 AD2d 375, revd on other grounds 28 NY2d 399.)
The liability of a partnership in a breach of contract action is more closely addressed by sections 25 and 26 of the Partnership Law. Section 25 states:
“The partnership is bound to make good the loss:
“2. Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by a partner while it is in the custody of the partnership.”
Section 26 states:
“All partners are liable
“1. jointly and severally for everything chargeable to the partnership under sections twenty-four and twenty-five.
“2. Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract.”
Subdivision 2 of section 26 of the Partnership Law suggests that partners are jointly liable on contractual obligations. New York Jurisprudence states (43 NY Jur, Partnerships, § 138, p 143): “A partner’s liability resting upon a partnership contract, and not a tort, is necessarily joint and not several. [Salem v Seigel, 126 NYS2d 214; Patrikes v J. C. H. Serv. Stas., 180 Misc 917.] However, upon each partner rests an absolute liability for the whole amount of every debt due from the partnership and although originally a joint contract, it may be separate as to its effects. [Patrikes v J. C. H. Serv. Stas., supra.] Each partner is still liable severally in equity in the event of need to reach his several estate. [Seligman v Freidlander, 199 NY 373.] This individual liability dates back to the time when the obligation was incurred and arises simultaneously with the joint liability, so that with respect to the ultimate rights of the creditor, in theory of law, the contractual obligation of a partnership is incurred by each and by all.” (Patrikes v J. C. H. Serv. Stas., 180 Misc 917, affd 180 Misc 927.)
The facts establish that the overdraft in the partnership checking account is a partnership obligation and, therefore, the obligation of each of the partners. Their individual liability arises out of the notion of a partnership and is an incident thereof. (Ruzicka v Rager, 305 NY 191.)
The second issue which the court addresses is the propriety of the plaintiff’s action in charging back Noonan’s personal account.
On December 24, 1980, the two checks deposited by Noonan on December 15, 1980, were returned by the drawee marked “Stop Payment.” The partnership account was thereupon charged $12,000. Noonan’s personal account was charged with the $3,000 he deposited in his account which $3,000 was recredited to the partnership account leaving an overdraft balance of $9,002.92, the amount claimed in the complaint.
Under current bank practice, banks make a provisional settlement for items when they are received and then await subsequent determination of whether the item will be finally paid. Subdivision (1) of section 4-212 of the Uniform Commercial Code codifies the rights of the bank where the item being collected is not finally paid. Provision is made for the reversal of the provisional settlement, charge-back of provisional credits and the right to obtain a refund.
Subdivision (1) of section 4-212 of the Uniform Commercial Code provides that: “If a collecting bank has made provisional settlement with its customer for an item and itself fails by reason of dishonor, suspension of payments
The remedy of charge-back is conditioned on the requirement that the bank “by its midnight deadline or within a longer reasonable time after it learns of the facts returns the items or sends notification of the facts”.
Midnight deadline is defined by section 4-104 (subd [1], par [h]) of the Uniform Commercial Code as, “with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later”.
There is a factual dispute between the parties as to when the partnership was given notice of this dishonor. The branch manager testified that he orally advised Noonan of the dishonor on December 24, 1980 (the same day that plaintiff was informed of the New Jersey bank’s dishonor) and again on December 26, 1980. The Bank of Commerce debit advice is dated December 26, 1980 and reacted upon the branch on December 26, 1980. Noonan disputed the branch manager’s version indicating that oral notice was not received until the week of December 29, 1980. If Noonan’s version of the facts is assumed true, then De Santis urges that plaintiff failed to abide by the midnight deadline rule which would have obliged plaintiff to give notice of the dishonor by December 26, 1980 and that therefore plaintiff is barred from charging back the depositor’s account.
Even assuming, arguendo, that notice of dishonor was not given until the week of December 29, 1980, the court finds that plaintiff rightfully charged back the depositor’s account. Subdivision (1) of section 4-212 of the Uniform Commercial Code provides that a bank may charge back the depositor’s account if it sends notification of the dishon- or “by its midnight deadline or within a longer reasonable
De Santis contends that section 4-212 of the Uniform Commercial Code, under which the collecting bank may revoke settlement given in case of dishonor and charge-back the amount to its customer if it “sends” notification of the dishonor, requires that the notice shall be given in writing. The court disagrees with defendant’s interpretation. Defendant concedes that subdivision (4) of section 3-508 of the Uniform Commercial Code provides that notice of dishonor may be given in any reasonable matter. “Rea
Defendant urges that plaintiff failed to exercise ordinary care in allowing a cash withdrawal of $9,000 against funds drawn on an out-of-State bank on the sixth business day following the deposit when there was insufficient cash reserve for any possible charge back. Subdivision (4) of section 4-212 of the Uniform Commercial Code states:
“The right to charge-back is not affected by * * *
“(b) failure by any bank to exercise ordinary care with respect to the item”..
Allowing an overdraft generally does not constitute a failure by a bank to exercise ordinary care. In fact De Santis testified that he had withdrawn almost $8,933.34 in cash from the account on October 28, 1980.
Defendant urges that the court recognize the decision of Justice Imperato in 'the case of Manufacturers Hanover Trust Co. v Akpan (91 Misc 2d 622). Judge Imperato’s decision reviews the law as it applies to the rights of a bank to charge back a customer’s account when notice of dishon- or is not sent by the midnight deadline. In the instant case the court finds that notice of dishonor was given by the midnight deadline and as such the holding in Manufacturers Hanover Trust Co. v Akpan is not applicable. Further, assuming the right of charge-back was not available to plaintiff, that would not affect plaintiff’s right to recover its loss in a plenary action. Subdivision (5) of section 4-212 of the Uniform Commercial Code expressly provides so.
The last issue that the court addresses is De Santis’ counterclaim against his copartner Noonan for any judgment that the bank may recover of De Santis. The court finds that even though Noonan’s actions bound the partnership and De Santis, individually, that Noonan’s actions were wrongful and that De Santis should be allowed indemnification from Noonan for any part of the judgment which the plaintiff may recover from De Santis.
Judgment for plaintiff against Michael De Santis for $9,002.92 with interest from December 23, 1980 for costs and disbursements.
Judgment is in favor of Michael De Santis against James K. Noonan for the amount of plaintiff’s judgment.
