Levin v. Union National Bank

Henderson, J., delivered the opinion of the Court. The declaration in this case alleged that Howard Levin purchased from the Prudential Savings Bank of Brooklyn, New York, on October 25, 1957, a teller’s check or bank draft, payable to his order in the sum of $3,700. The check was drawn upon the Manufacturers Trust Company, Brooklyn, New York. Levin indorsed it: “In payment to City Motor Co. Inc. as per signed agreement of Nov. 4, 1957”, and signed his name thereunder.

He delivered the check to certain named individuals doing business in Westminster, Maryland, as “City Motor Co.”, one of whom indorsed the check “for Deposit Only in Union National Bank [of Westminster] City Motor Company”, where the association kept its account. This bank placed upon it the usual stamped indorsement, “pay to the order of any bank * * * prior endorsements guaranteed”, and forwarded it to the First National Bank of Baltimore where on November 12, 1957, it was similarly stamped and then paid in New York by the drawee. On May 20, 1960, Levin filed suit in assumpsit against the two Maryland banks, attaching a copy of the check and alleging that the defendant banks guaranteed the genuineness and authority of prior indorsements under Code (1957), Art. 11, sec. 121, and that the indorsement by an unincorporated association of individuals trading as City Motor Company was “defective and irregular”. The declaration further alleged that these individuals had falsely and fraudulently represented to ⁶⁰⁶ him that City Motor Company was a corporation of which they were the stockholders and that he suffered loss and damage by the banks’ action.

The plaintiff also moved for summary judgment, appending an affidavit that repeated the allegations of the declaration and particularly the claim upon a guaranty, claiming a loss of $3,700, less a credit of $778.67 realized in a subsequent equity proceeding against the persons therein mentioned. The defendant banks filed a demurrer and affidavits that the banks had a good and valid defense. The demurrer was sustained without leave to amend. Although judgment for costs was not entered at that time, it was entered subsequent to the argument of this appeal, and, by agreement of the parties, we treat the case as on appeal from that final order.

The appellees appear to concede that Levin’s indorsement was special and in legal effect a direction to pay to a nonexistent corporation, although the fact of its nonexistence was unknown to the indorser. The appellant contends that the subsequent indorsement in the name of City Motor Company was “forged, or made without authority of the person whose signature it purports to be”, and hence “wholly inoperative”, under Code (1957), Art. 13, sec. 44. He contends that the collecting banks are liable to him under Code (1957), Art. 11, sec. 121, as guarantors of the genuineness and authority of prior indorsements. We think the appellant has misconceived his remedy.

Section 121 is a part of the Bank Collection Code, a uniform law. See Code (1957), Art. 11, secs. 133 and 134. Section 121 provides that: “An indorsement ‘pay any bank or banker’ or having equivalent words shall be deemed a restrictive indorsement and shall indicate the creation of an agency relation in any subsequent bank to whom the paper is forwarded * * * such indorsement or other restrictive indorsement whether creating an agency or trustee relationship shall constitute a guaranty by the indorser to all subsequent holders and to the drawee or payor of the genuineness of and the authority to make prior indorsements and also to save the drawee or payor harmless in the event any prior indorse ⁶⁰⁷ ment appearing thereon is defective or irregular in any respect unless such indorsement is coupled with appropriate words disclaiming such liability as guarantor.” Plainly, the guaranty runs only to subsequent holders in the collection process and the drawee. For cases so holding, see First Nat.

Bank v. North Jersey Trust Co., 14 A. 2d 765 (N. J.); Railroad Bldg., Loan & Sav. Ass’n v. Bankers Mortg. Co., 51 P. 2d 61 (Kan.). The cases recognize that a drawer