300 Broadway Healthcare Center, L.L.C. v. Wachovia Bank, A-5023-10T3; Appellate Division; opinion by Yannotti, J.A.D.; decided and approved for publication March 27, 2012. Before Judges Yannotti, Espinosa and Kennedy. On appeal from the Law Division, Essex County, L-6075-05. DDS No. 06-2-5694 [11 pp.]

Defendants TD Bank (TDB), formerly Commerce Bank (Commerce), and PNC Bank, N.A. (PNC), were granted leave to appeal from orders entered by the trial court denying their motions for summary judgment on conversion claims asserted against them by plaintiff 300 Broadway Healthcare Center, L.L.C., an entity doing business as New Vista Nursing and Rehabilitation Center.

New Vista, a nursing home, employed Peter Leus as controller and later as its chief financial officer. Leus reported to Steven and Brian Kleiman, the administrators of the nursing home. New Vista maintained checking accounts at Wachovia Bank, N.A., and its predecessor, First National Bank.

New Vista alleges that Wachovia arranged for and paid Garden State Check Cashing to provide check-cashing services to its employees. It also alleges that Leus maintained a personal checking account at TDB, and a checking account at PNC in the name of Comic World. According to New Vista, Leus issued illegitimate checks drawn on New Vista’s accounts at Wachovia, by forging the name of an authorized signatory on the checks, and cashing or depositing those checks into his account at TDB and the Comic World account at PNC. New Vista claims that some of the checks also had forged endorsements. It appears that TDB and PNC presented the checks to Wachovia, which paid TDB and PNC with monies drawn from New Vista’s account.

New Vista filed a complaint in which it asserted claims against Wachovia, TDB, PNC, Leus and others. New Vista alleged that TDB and PNC violated the Uniform Commercial Code (UCC) by receiving payment on checks with unauthorized signatures; negligently failed to adhere to reasonable, usual and customary banking practices; converted its funds; and were negligent in the supervision of their respective employees.

TDB and PNC filed motions for summary judgment. The motion judge granted the motions for all claims with the exception of the the conversion claims. The court rejected TDB’s and PNC’s argument that New Vista’s claims for conversion were barred by the UCC. The motion judge concluded that N.J.S.A. 12A:3-420(a) precludes an action for conversion for checks that the Kleimans signed, regardless of the circumstances under which the checks were obtained, because New Vista was the “issuer” of those checks under the statute. The motion judge determined, however, that the statute does not preclude New Vista from asserting a claim for conversion for checks on which Leus forged the maker’s signature because, according to the judge, New Vista was not the “issuer” of those checks. The motion judge stated that this interpretation of the statute was consistent with the “basic concept of conversion.”

Held: Under the Uniform Commercial Code, the “issuer” of a check includes the person identified on the check ordering its payment, regardless of whether that person’s signature was forged, and is barred from asserting a conversion claim regarding the check.

TDB and PNC argue that the motion judge erred by finding that N.J.S.A. 12A:3-420(a) does not preclude New Vista from asserting a claim against them for conversion when an instrument bears a forged drawer’s signature. The appellate panel agrees. N.J.S.A. 12A:3-420(a) provides in pertinent part that an action for conversion may not be brought by an “issuer” of the check. Here, the motion judge incorrectly determined that where a person forges the signature of a person authorized to sign a maker’s check, the maker cannot be considered the “issuer” of that check under N.J.S.A. 12A:3-420(a).

The code defines the term “issuer” to mean the “maker or drawer of an instrument.” The term “drawer” is defined in the code as “a person who signs or is identified in a draft as a person ordering payment.” Therefore, the “issuer” of a check includes the person “identified as a person ordering payment” of the instrument, regardless of whether the signature of that person is forged.

It is undisputed that New Vista was the “person identified as the person ordering payment of the checks.” Thus, New Vista was the “issuer” of the checks, regardless of whether Leus forged the name of a person authorized to sign the checks on New Vista’s behalf. Consequently, N.J.S.A. 12A:3-420(a) precludes New Vista from asserting conversion claims based on the forged checks. The motion judge also stated that a conversion can occur when the maker’s name is forged on a check because, under these circumstances, the maker did not voluntarily part with and give up its right to the funds represented by the check. However, this analysis is inconsistent with the official comment to UCC 3-420, which states that a check is an obligation of the maker rather than the maker’s property.

Therefore, the issuer of a check may not assert a conversion claim for unauthorized payment of a check, including a conversion claim based on an unauthorized payment made on a forged maker’s signature. The issuer’s remedy is to have the payor bank re-credit its account for any such payment.

The matter is reversed and remanded to the trial court for entry of orders granting summary judgment in favor of TDB and PNC.

— By Debra McLoughlin

For appellants: PNC Bank, N.A. — Gregg S. Sodini; TD Bank, N.A. — William T. Marshall Jr. (Zeichner Ellman & Krause; Marshall and Kerry A. Duffy on the brief). For respondent — Frederick C. Biehl III (Soriano, Henkel, Biehl & Matthews).