United States District Court, Southern District of New York
March 27, 1991
RUSSELL T. LUND, JR., LUND'S, INC., AND WARDWELL M. MONTGOMERY, PLAINTIFFS,
CHEMICAL BANK, DEFENDANT. CHEMICAL BANK, THIRD-PARTY PLAINTIFF, V. LAIDLAW ADAMS & PECK, INC., THIRD-PARTY DEFENDANT.
The opinion of the court was delivered by: Sweet, District Judge.
Defendant Chemical Bank ("Chemical") has moved pursuant to
Rules 54 and 58 of the Federal Rules of Civil Procedure for
entry of judgment in its favor in accordance with the opinion
dated February 16, 1990, which granted its motion for summary
judgment. Plaintiff Lund's, Inc. ("LI") has renewed its motion
for reconsideration of the February 16 opinion. For the
following reasons, the motion for reconsideration is granted
and on reconsideration the February 16 opinion is affirmed,
with judgment to be entered in favor of Chemical pursuant to
the earlier opinion.
The parties, facts, and prior proceedings in this case are
set forth in detail in the numerous prior opinions, familiarity
with which is assumed. Lund v. Chemical Bank, 665 F. Supp. 218,
(S.D.N.Y. 1987) ("Lund's I") and Lund v. Chemical Bank,
675 F. Supp. 815 (S.D.N.Y. 1987) ("Lund's II"), rev'd, Lund's, Inc.
v. Chemical Bank, 870 F.2d 840 (2d Cir. 1989) ("Lund's III"),
on remand, Lund v. Chemical Bank, 84 Civ. 1621, 1990 WL 17711
(S.D.N.Y. February 16, 1990) ("Lund's IV").
In Lund's IV, summary judgment was granted to Chemical
principally on the basis of the then-recent New York state
court decision in State v. Barclays Bank of New York, N.A.,
151 A.D.2d 19, 546 N.Y.S.2d 479 (3d Dep't 1989) ("Barclays I").On
March 6, LI moved for reconsideration of Lund's IV in light of
the fact that the Court of Appeals of New York had granted
review in Barclays I. On May 4, 1990 that motion was granted by
memorandum endorsement "pending the determination of the
Barclays Bank case in the Court of Appeals."
On October 18, 1990 the Court of Appeals issued its opinion
affirming Barclays I. State v. Barclays Bank of New York, N.A.,
76 N.Y.2d 533, 561 N.Y.S.2d 697, 563 N.E.2d 11 (1990)
("Barclays II"). Chemical thereupon moved for entry of judgment
pursuant to the decision in Lund's IV, and LI in response
argued in support of its original motion for reconsideration of
that decision.*fn1 Oral argument was heard on November 30,
1. The Check Was Not Constructively Delivered to LI.
In light of Barclays II, the only issue presented here is
whether or not check no. 56853 for $400,000 ("the Check"),
drawn on Chemical by Laidlaw, Adams & Peck, Inc. ("Laidlaw")
originally payable to Flight Transportation Corporation
("FTC"), was constructively delivered to LI when it was
endorsed by FTC's secretary payable to LI and given to William
Rubin ("Rubin"), FTC's president to deliver to LI.*fn2
In Lund's IV, this question was considered and decided in
Chemical's favor, on the basis of the Barclays I discussion of
the concept of constructive delivery: "[Barclays I]
contemplates that there can be 'constructive' delivery, but
such delivery occurs when the check is physically delivered
'into the hands' of a co-payee or an agent of the payee."
Lund's IV at 8 (citing Barclays I, 151 A.D.2d at 21, 546 N.Y.
So.2d at 481).
The Court of Appeals confirmed that no constructive delivery
had occurred in Barclays II, specifically distinguishing the
situations in which an instrument is given to an agent of the
payee, 76 N.Y.2d at 539, 561 N.Y.S.2d at 700, 563 N.E.2d at 14,
or to "a nonagent third party either in its capacity as sole
payee with intended delivery to plaintiff or as plaintiff's
copayee." Id. at 539 n. 4, 561 N.Y.S.2d at 700 n. 4, 563 N.E.2d
at 14 n. 4 (distinguishing Charmglow Products v. Mitchell St.
State Bank, 687 F. Supp. 448 (E.D.Wis. 1988)). As regards this
factor, Rubin was neither the payee nor co-payee of the Check,
and LI has presented no evidence — aside from its belated
ratification theory, discussed below — that he was LI's agent
and not merely its purported agent under the forged power of
LI's argument rests primarily on Wolfin v. Security Bank, 170
A.D. 519, 156 N.Y.S. 474 (1st Dep't 1915), aff'd 218 N.Y. 709,
113 N.E. 1068 (1916). In that case, the drawer of the check in
question had given it directly to the named payee after
requiring the payee to endorse the check to a third party, and
directed that the payee deliver the check to the third party.
This was held to constitute constructive delivery to the third
party which entitled that party to sue for wrongful payment of
the check. LI asserts that the Barclays II court indicated that
Wolfin is still good law, and that under Wolfin the Check here
was constructively delivered to LI.
The argument is somewhat complicated by the fact that LI
urges two separate theories of constructive delivery: first
from FTC to LI by conveyance to Rubin and secondly from Laidlaw
to LI by conveyance
to FTC. The latter theory (which appears to have been raised
for the first time on the present motion) must be rejected, as
there is no support for LI's assertion that Laidlaw gave the
Check to FTC with the intention that it be conveyed to LI.
Whether or not Laidlaw was aware of FTC's plan to use the Check
to satisfy FTC's own obligation to LI, it did not this a
condition to the conveyance of the Check to FTC. Compare
Wolfin, 156 N.Y.S. at 475 (drawer would not deliver check to
named payee until named payee had endorsed it over to drawer's
intended third party recipient).
As for the constructive delivery from FTC to LI, the
Barclays II court clarified its view of Wolfin: "Unlike the
case at bar . . . in Wolfin the drawer retained no control
after the Check was delivered to the named payee as a fully
negotiable instrument." 76 N.Y.2d at 540, 561 N.Y.S.2d at 700,
563 N.E.2d at 14 (emphasis added). Here the Check, as endorsed
by FTC payable to LI was not "fully negotiable" until delivery
to LI. As Rubin was not the named payee under this endorsement,
FTC's conveyance to Rubin simply does not satisfy the Barclays
II concept of constructive delivery to LI.
2. LI's Estoppel and Ratification Arguments Are
LI also advances two new theories by which it might escape
the summary judgment here: (1) Chemical is estopped from
arguing that LI never possessed the Check because its
acceptance of the Check — allegedly in violation of its own
procedures and without verifying Rubin's authority to endorse
the Check — reflected its belief that the Check had been
properly delivered to LI; and (2) LI retroactively ratifies
Rubin's action as its agent in accepting the Check, while
disavowing his subsequent endorsement of it.
In the first place, these new arguments are untimely: there
have been at least three prior decisions in this case dealing
with some aspect of the delivery question, yet LI has never
before made these arguments. Moreover, it did not do so even in
its original papers on the present motion for reconsideration,
although clearly neither new theory depends on the Court of
Appeals' resolution of Barclays II. In light of these prior
opportunities to present the arguments and the absence of any
explanation for the failure to do so, both theories must be
In the alternative, both arguments lack merit. The estoppel
argument is essentially a statement that Chemical's acceptance
of the Check indicated the bank's belief that the endorsement
was proper and that it cannot now deny this belief. As Chemical
points out, LI has not adduced any evidence to support the
allegation that the bank did not follow normal banking
procedures in accepting the Check. Moreover, accepting LI's
position would vitiate the delivery requirement of Barclays II,
as any endorsement, forged or not, necessarily implies that the
proper payee at one time possessed the instrument, so that
anyone who accepted a forged instrument would be estopped from
asserting that the instrument had not been delivered to the
As for the retroactive ratification theory, it is rather late
in this litigation for LI to claim that it is now willing to
ratify Rubin's acceptance of the Check as LI's agent,
particularly where the ratification is clearly aimed solely at
avoiding the adverse judgment here. LI claims that it is
willing to ratify Rubin's acceptance of the Check on behalf of
LI, but not his use of the forged power of attorney or his
forged endorsement of the Check pursuant to that power of
attorney. However, if in fact Rubin was purporting to act as
LI's agent when he accepted the Check from FTC, it could only
have been as agent under the forged power of attorney. While it
is at least arguable that LI could, even at this late date,
ratify the acceptance, it could only do so by ratifying Rubin's
professed position as attorney-in-fact: a principal may not
retroactively disavow a purported agency and at the same time
create and ratify a distinct, more limited agency which
suits the principal's purposes better than the purported agency
In addition, under the Barclays II analysis the delivery of
the check must occur prior to the alleged forgery and
conversion, because possession by the payee after the forgery
would almost certainly constitute the payee's ratification of
the forged endorsement. Thus in order to maintain an action
against Chemical, LI would have had to accept delivery of the
Check prior to the forgery. As provided by § 90 of the
Restatement 2d of Agency:
If an act to be effective in creating a right
against another . . . must be performed before a
specific time, an affirmance is not effective
against the other unless made before such time.
Therefore, LI would have had to ratify Rubin's authority to
accept the Check as LI's agent prior to the time of the
forgery. Because any ratification here did not occur until long
after this event, it must be found to be ineffective.
Finally, LI's ratification argument overlooks the practical
considerations underlying the delivery requirement of
Barclays II. As the Court of Appeals there explained,
Where a payee has never possessed the check, it is
more likely that the forged indorsement resulted
from the drawer's negligence, an issue which could
not readily be contested in an action between the
payee and the depositary bank.
76 N.Y.2d at 537, 561 N.Y.S.2d at 699, 563 N.E.2d at 13. The
payee's retroactive affirmance of a third party's authority to
accept the check simply cannot alleviate the difficulty of
addressing the drawer's negligence in the context of a suit by
the payee against the bank.
For the foregoing reasons, LI's arguments that the Check was
constructively delivered to LI are rejected. On the basis of
the New York Court of Appeals decision in Barclays II,
therefore, LI cannot maintain an action against Chemical for
conversion of the Check. Accordingly, Chemical's motion for
judgment is granted.
Submit judgment on notice.
It is so ordered.