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Johnson v. Johnson

2005 WL 3276177 (N.J. Super. App. Div. 2005) (Unpublished)

BANKS; CHECKS; CONVERSION; RATIFICATION—For a payee to ratify the unauthorized endorsement of a check, the payee as if originally authorized, there must be both intent to ratify and a knowledge by the payee of all of the material facts.

Three children were the beneficiaries of their deceased mother’s estate. At the time of their mother’s death, they were each minors. Consequently, the money was held until each reached the age of eighteen. When one of the children reached that age, the administrator of his mother’s estate sent a check to him. His father’s attorney picked up the check and on the same date, the check was deposited into a trust account set up by his father at a bank. A little more than three years later, the son sued his father and his stepmother alleging that each had “committed fraud, duress, and improper pressure and breached their fiduciary duties” as trustees. The son contended that he never received the check. He claimed that his father forged his name and deposited the check into the bank account without his knowledge. He “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.” The father claimed that his son “endorsed the check and it was deposited in the [bank] account at [his son’s] direction.”

The son settled with the father, but pursued the suit against the bank for conversion. The lower court dismissed the complaint on the grounds that the son had “relinquished control of the check by inaction and thus ratified the forged endorsement.” On appeal, the Appellate Division outlined the law. “Generally, a payee has standing to sue a depository bank in strict liability for conversion if the payee is a person entitled to enforce an instrument. ... 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. ... The depository bank is liable even if it acted in a commercially reasonable manner.” Under New Jersey law, “[r]atification by a payee is an affirmative defense to a payee’s claim for compensatory damages arising from a depository bank’s acceptance of a forged instrument ... ‘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.’” For ratification to be present, there must be “intent to ratify plus full knowledge of all the material facts.” It “may be express or implied, and intent may be inferred from the failure to repudiate an unauthorized act, from an action, or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act. ... Mere negligence cannot form the basis for ratification which necessarily requires knowledge and intentional conduct.”

According to the Appellate Division, there was a factual issue as to whether the son intended to ratify his father’s actions and as to whether the son had full knowledge of all the material facts. The bank contended that the son had negligently relinquished control of the check to his father and thereby authorized the forged signature. The Appellate Division disagreed, saying that “even if it could be said that [the son’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.” For those reasons, the Court reversed the lower court’s order of summary judgment and remanded the matter for trial.

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