Production Workers Union Local 148 Welfare Fund v. Chemical Bank, 66 N.Y.2d 223 (1985)

An indorsement on a check is valid even if it identifies the transferee by bank account number rather than by name, provided the account is identifiable as belonging to a specific person, and the depositary bank follows the instructions on the check.

Summary

Production Workers Union Local 148 Welfare Fund sued Chemical Bank after the bank allowed the Fund’s attorney to deposit a check, intended for a third-party law firm, into his own account. The check was indorsed with both the payee’s name and a special account number. The attorney subsequently absconded with the funds. The New York Court of Appeals held that the bank was not liable because the indorsement, including the account number, was sufficient to identify the transferee, and the bank followed the instructions by depositing the check into the specified account. The court distinguished this case from prior rulings where banks failed to follow explicit restrictive indorsements.

Facts

Plaintiffs, as trustees of Production Workers Union Local 148 Welfare Fund, issued a check payable to Pitney, Hardin & Kipp, a law firm representing an opposing party in litigation against the Fund. The check was intended as settlement payment and was delivered to the Fund’s attorney, Robert T. Weisswasser. Weisswasser forged the payee’s indorsement and deposited the check into his own “special account” at Chemical Bank. Weisswasser then withdrew the funds and disappeared. The back of the check was marked: “Pay to Special Account #012-043478 &/ Pitney, Hardin & Kipp For Deposit Only Special Account 012-043478.”

Procedural History

The Fund sued both Manufacturers Hanover Trust Company (the drawee bank) and Chemical Bank (the depositary bank). The claim against Manufacturers Hanover was dismissed. Special Term granted summary judgment in favor of the Fund against Chemical Bank. The Appellate Division affirmed. Chemical Bank appealed to the New York Court of Appeals.

Issue(s)

Whether an indorsement on a check is valid when it identifies the transferee by bank account number rather than by name.

Holding

No, because identifying the transferee by bank account number is sufficient, provided the account is identifiable as belonging to a specific person, and the depositary bank follows the instructions on the check.

Court’s Reasoning

The court reasoned that an indorsement transfers an instrument to another party. A special indorsement specifies the person to whom the instrument is to be paid and requires further indorsement by that party. A restrictive indorsement requires the taker to apply the proceeds consistently with the indorser’s directions. Both types of indorsements can appear on the same instrument. The critical question is whether the indorsement was effective even though the customer was identified by account number rather than name. The court held that there is no requirement that a person be identified by name; identification by bank account number is sufficient when the account is identifiable as belonging to a specific person. There is also no specific requirement for the form of the signature. The court cited UCC § 3-401(2), noting that a person may use any name or mark as a means of identification. The court distinguished this case from Underpinning & Foundation Constructors v. Chase Manhattan Bank, where the depositary bank failed to deposit funds into the account named in the restrictive indorsement. Here, Chemical Bank followed the indorser’s directions by depositing the proceeds into the specified account. The court emphasized that “there are many instances in which a family member or a business may indorse for deposit funds to the credit of another and a depositary is not on notice of chicanery because of it nor is it liable if it faithfully follows such a direction.”