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DOCKET NO. A-1921-04T11921-04T1














Argued November 28, 2005 - Decided

Before Judges Lintner, Parrillo and Gilroy.

On appeal from the Superior Court of New Jersey, Law Division, Camden County,


Joseph F. Fabian argued the cause for appellant (Jehl & Fabian, attorneys; Mr. Fabian, on the brief).

M. Murphy Durkin argued the cause for respondent (Durkin & Durkin, attorneys; Mr. Durkin, of counsel; Gregory F. Kotchick, on the brief).


Denise Labbee and Irvin Johnson, Jr. were married in 1979 and divorced in 1993. They had three children, plaintiff Irvin Johnson, III, and his younger siblings, Marcel and Kelly Johnson. Denise died in an automobile accident on August 19, 1998, following which the three children went to live with Irvin, Jr. Denise's net estate, totaling $267,604, was divided equally between the three children. At the time of Denise's death, Irvin, Jr. was married to Joanna R. Johnson. Irvin, Jr. retained Thomas Earp to represent him and his children in the probate of Denise's estate. In October 1998, Irvin, Jr. set up a trust account with defendant South Jersey Savings and Loan (South Jersey) in the name of Irvin Johnson, Jr. and Joanna R. Johnson in trust for Irvin, III, Marcel, and Kelly Johnson.

On June 6, 2000, the Administrator of Denise's estate prepared a letter, enclosing a check in the amount of $89,201.33 representing one-third of the estate, to plaintiff, who had reached his majority. The letter indicated that the two-thirds balance of the estate was deposited with the Surrogate of Camden County to be held for Marcel and Kelly until they reached the age of eighteen. The letter was never mailed. Instead, on June 6, 2000, Earp sent a courier to pick up the check payable to plaintiff. On the same date, plaintiff's check was deposited in the trust account set up at South Jersey.

Plaintiff denied ever receiving the check, claiming that his father forged his name, and deposited it in the South Jersey account without his knowledge. Plaintiff conceded that he was generally aware that he was entitled to money from his mother's estate. However, he claimed that whenever he asked his father about his inheritance he was told that it was put in trust until he was "older" and "more responsible." He asserted that his father also inferred that the money was tied up in court. Contrary to plaintiff's version, his father claimed that plaintiff endorsed the check and it was deposited in the South Jersey account at plaintiff's direction.

On September 26, 2003, plaintiff filed a complaint in the Law Division, alleging that his father and stepmother committed fraud, duress, and improper pressure and breached their fiduciary duties as trustees. He also alleged that South Jersey was liable to him for accepting the check for deposit with his father's unauthorized, forged endorsement. South Jersey moved for summary judgment. Following oral argument, the motion judge entered partial summary judgment dismissing plaintiff's complaint against South Jersey, finding that plaintiff had relinquished control of the check by inaction and thus ratified the forged endorsement. Plaintiff then settled with his father and stepmother. Plaintiff now appeals from the order granting summary judgment in favor of South Jersey and we reverse and remand for trial.

Because this appeal arises from the grant of a motion for summary judgment, "we must view the facts that may be inferred from the pleadings and discovery in the light most favorable to plaintiff[]." Strawn v. Canuso, 140 N.J. 43, 48 (1995). In its motion for summary judgment, South Jersey relied on Stella v. Dean Witter Reynolds, Inc., 241 N.J. Super. 55, 67 (App. Div.), certif. denied, 122 N.J. 419 (1990), and asserted that the circumstances established that plaintiff had ratified his father's endorsement as a matter of law. In Stella, an investor who intentionally entrusted his investment broker with his money was found by a jury to have ratified the broker's forgery of his name because he was aware of the forgery from his monthly statements but did not complain about it for one-and-a-half years. Significantly, in Stella, the investor knowingly entrusted the broker with his money, while here, plaintiff asserts he neither entrusted his father with the check nor knew that his endorsement had been forged.

Generally, a payee has standing to sue a depositary bank in strict liability for conversion if the payee is a person entitled to enforce an instrument. N.J.S.A. 12A:3-420 cmt. 1; Leeds v. Chase Manhattan Bank, N.A., 331 N.J. Super. 416, 422-23 (App. Div. 2000). A conversion occurs when "a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment." N.J.S.A. 12A:3-420a. The depositary bank is liable even if it acted in a commercially reasonable manner. N.J.S.A. 12A:3-420 cmt. 3; Kuhn, supra, 366 N.J. Super. at 445; Leeds, supra, 331 N.J. Super. at 422-23.

Ratification by a payee is an affirmative defense to a payee's claim for compensatory damages arising from a depositary bank's acceptance of a forged instrument. N.J.S.A. 12A:3-403a. "'Ratification is the affirmance by a person of a prior act which did not bind him but which was done, or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.'" Thermo Contracting Corp. v. Bank of N.J., 69 N.J. 352, 361 (1976) (quoting Restatement (Second) of Agency 82 (1957)). "Ratification requires intent to ratify plus full knowledge of all the material facts." Ibid. It "may be express or implied, and intent may be inferred from the failure to repudiate an unauthorized act, from inaction, or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act." Ibid. (citations omitted). Mere negligence cannot form the basis for ratification which necessarily requires knowledge and intentional conduct. Martin Glennon, Inc. v. First Fidelity Bank, N.A., 279 N.J. Super. 48, 60-61 (App. Div.), appeal dismissed per stipulation, 142 N.J. 510 (1995).

On appeal, South Jersey maintains that the facts here established that plaintiff ratified his father's unauthorized endorsement by giving the check to his father and doing nothing for almost four years. In support of its assertion, South Jersey points to the fact that plaintiff's brother filed a lawsuit almost two years earlier "based on exactly what [plaintiff] is claiming now . . . ." We disagree.

Here, there exists a factual issue as to whether plaintiff intended to ratify his father's actions and had full knowledge of all the material facts. Plaintiff denies giving the check to his father or authorizing his father's signature. Plaintiff also denies having knowledge that his father took the check, forged the endorsement, or deposited it in the South Jersey account. Indeed, during the post deposit period, after plaintiff became aware that his father had deposited the check, plaintiff asserts his father kept advising him that the money was tied up in court and he would get it when he was older and more responsible.

Contrary to South Jersey's contention, the facts in plaintiff's brother's suit are inapposite. There, Marcel admitted that he gained release of his check from the Surrogate's office and then gave the check to his father to deposit in the South Jersey account. The facts here, when viewed most favorably to plaintiff, establish that plaintiff did not knowingly or voluntarily give the check to his father and that his conduct in accepting his father's explanation was, at best, negligence rather than intentional behavior with knowledge of all material facts.

South Jersey maintains, for the first time on appeal, that plaintiff substantially contributed to the forgery by negligently relinquishing control of the check to his father and by failing to take action. It relies in part on the provisions of N.J.S.A. 12A:3-406, which states:

a. A person whose failure to exercise ordinary care substantially contributes to . . . the making of a forged signature on an instrument is precluded from asserting the . . . forgery against a person who, in good faith, pays the instrument . . . .

b. Under subsection a. of this section, if the person asserting the preclusion fails to exercise ordinary care in paying . . . the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.

Again, South Jersey's assertion assumes facts which are at issue, that is, that plaintiff voluntarily relinquished control of the check to his father and authorized the forged signature. Moreover, even if it could be said that plaintiff's acceptance of his father's explanation was negligence, his forbearance in filing suit did not necessarily amount to intentional behavior with knowledge of all material facts needed to establish ratification. There remains, on this record, an issue of fact as to how long plaintiff was actually aware that his father had control of his money. Whether his failure to act amounted to ratification should be the subject of a plenary hearing.

Finally, South Jersey argues that it exercised reasonable care in accepting the check for deposit. As we previously pointed out, whether a depositary bank acts in a commercially reasonable manner is not a defense to a strict liability claim based upon acceptance of a forged endorsement.

We are convinced from our review of the record that the factual circumstances surrounding the endorsement, the deposit, and maintenance of the account in question differ, depending on whose version is accepted. Thus, in our view, there is a sufficient issue of credibility presented to require resolution by a trier of fact. Brill v. Guardian Life Ins. Co. of America, 142 N.J. 520 (1995). We therefore reverse the order entering summary judgment in favor of South Jersey and remand the matter for trial.

South Jersey Savings and Loan is identified by respondent as "South Jersey Savings Bank, n/k/a South Jersey Bank, a division of New York Community Bank."

The 1995 revision of N.J.S.A. 12A:3-420 eliminated this defense for the depositary bank because it is the first solvent entity after the person who forged the endorsement and it is in the best position to guard against forged or unauthorized endorsements. Kuhn v. Tumminelli, 366 N.J. Super. 431, 446 (App. Div.), certif. denied, 180 N.J. 354 (2004); Leeds, supra, 331 N.J. Super. at 422-23. Furthermore, the drawee bank has a transfer warranty against the depositary bank absolving the former from liability on a forged endorsement. Kuhn, supra, 366 N.J. Super. at 446; Leeds, supra, 331 N.J. Super. at 423. Therefore, defendant Bank's Point IV argument that it acted in a commercially reasonable manner is immaterial.





December 6, 2005