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Caytas v. Farah

97-4429 (U.S. Dist. Ct. D. N.J. 1999) (Unpublished)

BANKS; ACCOUNTS; MULTIPLE PARTIES—Although a bank normally may release funds upon the instructions of any owner of a multi-party account, this rule does not apply to partnership or joint venture accounts or to accounts held for a business purpose.

An individual and a company entered into a contract for project financing which obligated the company to use its best efforts to generate investment income from funds deposited in a bank account. In connection with the agreement, the individual and the company’s principal opened a joint passbook savings account at a bank by depositing $2,500,000. The company’s principal withdrew the entire account balance about a month after the account was opened. The individual depositor was surprised because he held a passbook that bore an imprint reading, “no money will be paid without the presentation of this passbook.” When the money was not returned, the individual sued the bank and the company with whom he had the project funding agreement. The bank’s employees testified that both the individual and the company had been told that funds in the account may be paid to either account holder on the order of either and that it would not be necessary to present the passbook because the bank had a record of their signatures. In the suit, the bank moved for summary judgment on the ground that it was obligated to honor a withdrawal order by either the company or the individual. It cited the New Jersey Multiple-Party Deposit Account Act, N.J.S. 17:16I-1 et seq. which provides that financial institutions are immune from claims arising from amounts paid to one of the owners of a multi-party account without authorization of the other owners of the account. The Court, however, disagreed with the bank, pointing to the section of the Act that said that it did not apply to “accounts established for deposit of funds of a partnership, joint venture, or other association for business purposes… . ” According to the Court, the individual and the company opened the joint passbook savings account for business purposes and the facts so indicated. Therefore, it appeared from the plain language of the Act that its protections did not apply in this case. The bank, failing to meet its burden of demonstrating that no genuine issues of material fact remained for trial, was denied summary judgment.


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