County Concrete Corp. v. Smith

317 N.J. Super. 50, 721 A.2d 34 (App. Div. 1998)
  • Opinion Date: December 16, 1998

UCC; CHECKS—Even though a drawee bank is absolutely liable for conversion of a check, the measure of its liability is not necessarily the same as the face amount of the check.

A concrete supplier was supposed to be paid with a check that was to be jointly written to three payees, including itself. After the first payee endorsed the check, the second payee added its endorsement and then forged the concrete supplier’s endorsement. The check was then deposited into a bank account owned by the second endorsee. The check writer, anxious to have the concrete supplier continue its deliveries, issued a replacement check directly to the concrete supplier. After much litigation and a settlement among the drawee bank, the depository bank, and the check writer, the concrete supplier sued the drawee bank under N.J.S. 12A:3-419 for conversion. Under subsection (1) of that statute, the measure of a drawee’s liability is the face amount of the instrument. The concrete company contended that this section imposes absolute liability upon the drawee bank, against which there can be no defenses, credits or set-offs and that, therefore, it was entitled to a judgment despite it having received a replacement check from the check writer. The commentary to subsection (2) permits the entry of evidence to show that the value of an instrument may be less than its face value. That same comment, however, expressly states “[i]n the case of the drawee, however, the presumption is replaced by a rule of absolute liability.” Therefore, the Court, was faced with a question as to what the notion of absolute liability means. After analyzing cases from many jurisdictions, the Court was convinced that subsection (2) establishes the measure of liability of the drawee, but “liability” is not the equivalent of the “measure of damages.” The Court then found that there was nothing in the language of the Act or the accompanying comments, that would preclude a drawee bank from claiming a credit against a defrauded payee’s damages if the monies that the instrument was intended to transfer had been received by the payee. Consequently, it refused to read the statute so narrowly as to prevent a set-off in the amount already recovered by the payee. Here, because the concrete supplier received the monies that the converted check was intended to transfer to it, it was entitled to no more from the defendant bank.