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MENTHOR, S.A. v. SWISS BANK CORP.

October 15, 1982

MENTHOR, S.A., Plaintiff,
v.
SWISS BANK CORP., and MANUFACTURERS HANOVER TRUST COMPANY, Defendants; MANUFACTURERS HANOVER TRUST CO., Defendant and Third-Party Plaintiff, vs. BANCO DI NAPOLI, BANCO POPULAR DE PUERTO RICO and CHEMICAL BANK, Third-Party Defendants



The opinion of the court was delivered by: LASKER

LASKER, D. J.

This action, which raises a number of complicated and technical questions of banking law, concerns a dispute between Manufacturers Hanover Trust Co., Swiss Bank Corp., Chemical Bank, Banco di Napoli and Banco Popular de Puerto Rico as to who is liable for the loss of seven checks in the totalling $52,059.72, which disappeared somewhere in the international banking system. The facts are as follows: *fn1"

In late December, 19711, Walter N. Rojas, an employee of Menthor, S.A. ("Menthor"), received from Exprinter Casa Bancaria ("Exprinter") seven checks drawn on Exprinter's account at Manufacturers Hanover Trust Co. ("MHT"). The checks were payable to various payees and all of the checks were endorsed in blank by the payees. At the time, Menthor maintained an account at Swiss Bank Corp. ("Swiss"), with whom Rojas transacted business on behalf of Menthor, using the name Herman R. Gfeller. Rojas restrictively endorsed each of the checks by stamping them "Only for deposit" in the account number assigned to Menthor, and signing the name Herman R. Gfeller. On December 23, 1977, Rojas sent the checks to Swiss by registered mail.

 On January 18, 1978, Menthor sent a telex to Swiss inquiring as to the status of the checks. On January 23, 1978, Swiss telexed Menthor that the checks had been credited to its account as of January 20, 1978. In fact, the checks were not credited to Menthor's account then or at any other time.

 In the meantime, four of the checks showed up at the New York City branch of Banco di Napoli ("BDN"). They were deposited in an account in the name of Alberto Enrique Esteban. At the time of the deposit, the checks were altered in that the stamp affixed by Rojas had been covered with black ink and the checks bore the signature "Esteban". BDN presented the checks through Chemical Bank ("Chemical") to MHT, which paid the checks and transmitted the proceeds through Chemical to BDN. The other three checks were deposited in Banco Popular do Puerto Rico, ("BPPR") also in an account in the name of Alberto Enrique Esteban. The three BPPR checks had been altered in the same manner as the BDN checks. BPPR presented the checks directly to MHT, and they were also paid by MHT without dispute. "Esteban" later withdrew the entire proceeds of all seven checks from both BDN and BPPR.

 Menthor brings this action against MHT on grounds of wrongful conversion, pursuant to Section 3-419 of the Uniform Commercial Code, N.Y. Uniform Commercial Code (McKinney 1964) ("UCC"), and against Swiss for breach of contract to repay monies deposited. MHT has brought a third-party action against, BDN, BPPR and Chemical for breach of warranties.

 On the basis of the facts stipulated in the Joint Pre-Trial Order, motions for summary judgment pursuant to Fed. R. Civ. Pr. 56 have been made by Menthor against MHT and Swiss, and by MHT against BDN, BPPR and Chemical. Swiss has cross-moved for summary judgment against Methor, and DBN has cross-moved for summary judgment against MHT.

 (1) Methor v. MHT

 MHT does not dispute Menthor's contention that MHT paid on checks bearing forged endorsements, and that, under UCC § 3-419, the owner of the holder of a check is entitled to recover from the drawee bank for conversion if the bank pays on a check bearing a forged endorsement. However, MHT contends that Menthor is no longer the holder of the checks and therefore does not have standing to bring an action against MHT. MHT argues that Menthor negotiated the checks to Swiss by delivery to Swiss with the necessary endorsement, and that, upon negotiation, Swiss, the transferee, became the holder. UCC § 3-202.

 In response, Menthor and Swiss argue that Swiss was not the holder1a of the checks, but merely Menthor's agent for their collection until Swiss received "settlement" or payment on the checks from the drawee bank, MHT, which never occurred.

 Section 4-201(1) of the UCC provides that:

 "prior to the time that a settlement of an item is or becomes final . . . the bank is an agent or subagent of the owner and any settlement given for the item is provisional."

 Section 4-213(3) specifies that the provisional credit referred to in section 4-201(1) "becomes final" "[i]f a collecting bank receives a settlement for an item." (emphasis added).

 The Official Comment to § 4-213 explains:

 "If previously [the collecting bank] gave ot its customer a provisional credit . . . its receipt of final settlement for the item "firms up" this provisional credit and makes it final. When this credit given by it so becomes final . . . its agency status terminates . . ."

 Thus, it appears that Menthor was at all times holder of the checks and Swiss was merely its agent for collection because Swiss never received a "final settlement" for the checks from MHT.

 MHT argues that the agency relationship terminated when Swiss sent the telex to Menthor advising it that the checks had been received. However, MHT cites no authority for this argument, and we are unable to find any. To the contrary, it appears that under § 4-213(3), the question whether agency status had terminated depends on what transpired between the collecting bank and the drawee bank, not on transactions between the collecting bank and its customer.

 It is arguable that the Article 4 sections of the Code relied on by Menthor are inconsistent with the Article 3 sections concerning negotiation relied on by MHT. However, the possible conflict presents no difficulty, because the Code explicitly provides that in case of conflict between Article 4, which governs bank deposits and collections, and Article 3, which states the general law of commercial paper, the provisions of Article 4 control. See U.C.C.S. § 4-102 ("In the event of conflict, the provisions of this Article govern those of Article 3.")

 Accordingly, Menthor, as the owner of the checks, has standing to sue MHT for conversion under UCCS § 3-419. There being no other defenses raised to Menthor's conversion claim, Menthor's motion for summary judgment against MHT is granted.

 (2) MHT v. BDN

 MHT's claim against BDN is based on U.C.C. § 4-207(1) (a) and (c), the statutory warranties of transfer or presentment. The read:

 "Each . . . collecting bank who obtains payment or acceptance of an item . . . warrants to the payor bank . . . that

 (a) he has good title to the item or is authorized to obtain payment or acceptance on behalf of one who ...


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