Continental Insurance v. J. Henry Schroder Bank & Trust Co.

OPINION OF THE COURT Harold Baer, Jr., J. Third-party defendant Schmid’s Forwarding, Inc. (SFI) moves pursuant to CPLR 3211 (a) (7) to dismiss the third-party complaint for failure to state a cause of action. The main action brought by the Continental Insurance Company, as SFI’s assignee, seeks to recover over $80,000 in checks made payable to SFI which were presented by defendant Russell Barton and deposited by defendant J. Henry Schroder Bank & Trust Company (Schroder) into the account of Schmid’s Forwarding of New Jersey (SFNJ) contrary to the restrictive indorsement on each check. That indorsement called for deposit into the SFI account. Barton thereafter withdrew the money from the SFNJ account. Schroder seeks [702] in its third-party complaint indemnification or contribution from SFI on the grounds that SFI is responsible for all or part of the loss due to the misconduct of its officer — Barton—and the confusion SFI created by sharing officers and offices with SFNJ. On a motion addressed to the sufficiency of a third-party complaint, the court is constrained both to construe the allegations liberally and to accept those allegations as true. (Blitman Constr. Corp. v Kent Vil. Hous. Co., 91 AD2d 173 [1st Dept 1983].) Minimally, as a party to a contract with Schroder, its depositing bank, SFI is chargeable with exercising reasonable care and control over its accounts, including avoiding overt acts which would create confusion as to the separate identity of any related entities. (See generally, Federal Ins. Co. v Groveland State Bank, 37 NY2d 252 [1975] [collecting bank permitted to assert drawer’s negligence as defense].) A breach of that duty, if proven, would warrant an apportionment of liability for causing the loss due to Barton’s misconduct. (Cf. UCC 3-406 [negligence contributing to alteration or unauthorized signature].) A motion for summary judgment made following some discovery may put Schroder to its proof, but at this juncture in the lawsuit, the motion to dismiss must be denied. This constitutes the decision and order of the court.