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Johnson v. Johnson

A-2376-02T1 (N.J. Super. App. Div. 2004) (Unpublished)

CHECKS; ENDORSEMENTS; RATIFICATION—A bank is not liable to a payee of a check with a forged endorsement where the payee turned the check over to the forger and the check was deposited into the payee’s own bank account because the payee’s acts constitute a ratification of the endorsement.

A mother was in a fatal motor vehicle accident, leaving behind an ex-husband and children. A wrongful death action led to a large settlement. The portions of the mother’s estate that belonged to her children, including the settlement, were held in trust with the surrogate’s office because the children were still minors.

When one of the sons reached age 18, he was issued a check for his share of the estate. He turned it over to his father, unsigned, expecting that his father would deposit and properly invest it for him. The check was deposited in a trust account for the three children, with the father and stepmother as co-trustees. Afterwards, the son brought suit, claiming that his father or stepmother had improperly endorsed the check.

The son told of numerous instances where his father and stepmother sought control of his inheritance to “maintain their excessive standard of living.” He stated that while his funds were still held by the surrogate’s office, his father made an application to make a withdrawal, which was denied. Also, after having deposited the son’s inheritance into the bank, despite the fact that the father and stepmother reported a gross income of $19,724, they purchased a new car worth $53,000, purchased a second car for their daughter, and paid legal fees to their attorney.

The son first learned that the funds had been deposited with the bank when his sister turned 18 and, when according to her, she was pressured into depositing her portion of the inheritance. A month later, both children filed suit against their father, alleging that he misappropriated their funds. The children obtained a temporary restraining order to prevent their father from withdrawing any of the funds from the bank. One month later, the son filed a second complaint naming the bank as a defendant, alleging that the bank accepted an improperly endorsed check, which resulted in damage to him. The son’s claims against his father and stepmother were eventually settled.

After discovery, the bank moved for summary judgment asserting ratification as a defense. In other words, it argued that the son had “voluntarily turned over” the check to his father, agreed to have it deposited in his account with the bank, and therefore the bank was not responsible if the funds were inappropriately utilized. Ratification is a defense available to a depository bank and, if successful, absolves the bank from liability for paying an instrument containing an unauthorized signature. Based on prior case law, the Court defined ratification as “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.” Ratification requires “intent to ratify plus knowledge of all material facts,” and may be expressed or implied. Intent may be implied “from inaction; or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act.” Once ratification has been effected, it cannot be revoked.

Applying the principles to the facts, the Appellate Division affirmed the summary judgment in favor of the bank, deciding that ratification had taken place. Here, the son was an adult at the time he received his check from the surrogate’s office, and he admitted that he voluntarily handed it over to his father with the understanding that his father would properly invest it for him. In addition, the son did not inquire about the status of his funds for the next eighteen months or attempt to regain control over them. In fact, he knowingly reaped some benefits from his father’s withdrawals. He admitted to withdrawals that had benefited him, including funds towards the purchase of a new car, as well as school expenses.

The Court held that by voluntarily relinquishing control of the check to his father, and by his subsequent behavior, indicated that the son had knowledge of the material facts necessary for ratification – that he intended for and knew that his money must have been deposited with a bank. It was only when the son realized his funds had been depleted that he claimed he did not have knowledge of where his money had gone. The fact that the father misused the trust funds for his own purposes was not the bank’s fault.

In addition, the Court discussed what the effect would be had they ruled against the bank. In this case, the father presented the bank with a check bearing the son’s signature and deposited it in the son’s previously established account. Allowing the son to argue that the bank had a duty to see if the signature was forged would create an overwhelming burden on depository banks to verify the signatures on checks issued to account holders and being deposited in their accounts. Consequently, the Court rejected the son’s claim on that basis as well.

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