New York Law Review

Tag: Marine Midland Bank

  • Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20 (1995): Deceptive Acts Under General Business Law § 349

    Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20 (1995)

    To state a claim under New York General Business Law § 349 for deceptive acts or practices, a plaintiff must demonstrate that the defendant’s conduct was consumer-oriented, deceptive or misleading in a material way, and that the plaintiff was injured as a result.

    Summary

    Oswego Laborers’ Local 214 Pension Fund sued Marine Midland Bank alleging deceptive practices under General Business Law § 349. The Funds claimed the bank failed to inform them that their commercial savings accounts, though held by not-for-profit entities, were treated as for-profit accounts subject to interest limitations under federal Regulation Q. The New York Court of Appeals held that while the bank’s conduct was consumer-oriented, factual disputes remained regarding whether the bank’s actions were materially deceptive and whether the Funds could reasonably have obtained the relevant information. The Court reversed the grant of summary judgment for the bank.

    Facts

    The Pension Fund and Welfare Fund, not-for-profit associations, had a long-standing relationship with Marine Midland Bank. In 1976 and 1977, Robert Bradshaw, administrator for both Funds, opened savings accounts at Marine Midland Bank through Bruce Whitney, a bank vice-president. Whitney provided blue signature cards, typically used for for-profit commercial accounts, rather than green cards used for nonprofit entities. Federal Regulation Q limited the amount of interest paid on commercial accounts exceeding $100,000 (later $150,000), but not-for-profit entities were exempt. The Funds were allegedly not informed of this distinction and the limitation on interest. In 1984, the bank informed the Funds that it had not been paying interest on principal exceeding the regulatory cap, resulting in lost interest.

    Procedural History

    The Funds sued Marine Midland Bank, alleging a violation of General Business Law § 349. The Supreme Court granted summary judgment to the bank, finding that the conduct did not rise to the level of a deceptive business practice. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the bank’s conduct constituted a “deceptive act or practice” within the meaning of General Business Law § 349.

    Holding

    Yes, because the plaintiff’s allegations meet the threshold of consumer-oriented conduct. However, the order of the lower court is modified to deny the defendant’s motion for summary judgment, because there are triable issues of fact as to whether a reasonable consumer in the plaintiffs’ circumstances might have been misled by the Bank’s conduct.

    Court’s Reasoning

    The Court of Appeals analyzed General Business Law § 349, noting its purpose is to protect consumers from deceptive acts and practices. The Court stated that, “as a threshold matter, plaintiffs claiming the benefit of section 349…must charge conduct of the defendant that is consumer-oriented.” Consumer-oriented conduct requires a broader impact on consumers at large, distinguishing it from private contract disputes unique to the parties. The Court clarified that “Plaintiff, thus, need not show that the defendant committed the complained-of acts repeatedly…but instead must demonstrate that the acts or practices have a broader impact on consumers at large.”

    A prima facie case requires showing that the defendant engaged in deceptive or misleading acts in a material way and that the plaintiff was injured. While intent to defraud is not required, a plaintiff seeking damages must show that the deceptive act caused actual harm. The Court adopted an objective definition of deceptive acts, limiting them to those “likely to mislead a reasonable consumer acting reasonably under the circumstances.” This objective test is modeled after the Federal Trade Commission’s antifraud provision.

    In cases involving omissions, a business is not required to ascertain individual consumer needs, but the scenario changes “where the business alone possesses material information that is relevant to the consumer and fails to provide this information.” Here, the bank’s actions were deemed consumer-oriented because they involved standard banking documents presented to customers. However, the Court found the record inconclusive as to whether a reasonable consumer in the Funds’ circumstances might have been misled. There were disputes over whether Bradshaw received bank rules or other documentation and whether those rules adequately conveyed the different treatment of for-profit and not-for-profit entities. The bank’s liability depended on whether the Funds possessed or could reasonably have obtained the relevant information.

  • Marine Midland Bank, N.A. v. Wickwire, 78 N.Y.2d 182 (1991): Statute of Limitations and Guarantor Liability on Installment Debt

    Marine Midland Bank, N.A. v. Wickwire, 78 N.Y.2d 182 (1991)

    When a promissory note is payable in installments and the creditor has the option to accelerate the entire debt upon default of an installment, the statute of limitations begins to run on each installment separately unless the creditor exercises its option to accelerate; a guarantor’s liability is coextensive with the debtor’s, absent acceleration.

    Summary

    Marine Midland Bank loaned Campcore $500,000, secured by a promissory note with an acceleration clause. Wickwire guaranteed $105,000 of the loan. Campcore defaulted on an April 1983 payment, but Marine did not accelerate the debt. Campcore made partial payments until 1987. In 1990, Wickwire sought a declaration that Marine’s claim against his guaranty was time-barred, arguing the statute of limitations began running on the entire debt upon the initial default in 1983. The New York Court of Appeals reversed the lower courts, holding that separate causes of action accrued as each installment became due, and the statute of limitations did not bar Marine’s claim because it never accelerated the debt. The guarantor’s liability extended only to amounts due and payable.

    Facts

    In July 1978, Marine Midland Bank loaned Campcore, Inc. $500,000, secured by a promissory note. The note allowed Marine the option to accelerate the entire balance upon nonpayment of principal or interest. Wickwire guaranteed $105,000 of Campcore’s debt, promising “full and prompt payment to Bank when due, whether by acceleration or otherwise.” Marine agreed to notify Wickwire of any default within 30 days. On April 1, 1983, Campcore defaulted on a $6,000 principal payment plus interest. From October 1983 to October 1987, Campcore made partial payments but never became current. In January 1988, Marine notified Campcore that the loan had matured and demanded full payment.

    Procedural History

    In August 1990, Phoenix Acquisition Corp. and Dome Corp. sued to rescind the mortgage securing the loan. In October 1990, Wickwire cross-claimed, seeking a declaration that Marine’s claim against his guaranty was time-barred. The Supreme Court granted Wickwire’s motion for summary judgment. The Appellate Division affirmed. Marine appealed to the New York Court of Appeals.

    Issue(s)

    Whether Campcore’s default on one installment payment triggered the Statute of Limitations accrual against the entire debt, even though Marine Midland Bank chose not to exercise its option to accelerate the balance of the indebtedness?

    Holding

    No, because separate causes of action accrued as installments of the loan indebtedness became due and payable and the creditor-Marine did not exercise their right to accelerate the loan.

    Court’s Reasoning

    The court reasoned that the contractual language of the promissory note and guaranty dictate the scope of the guarantor’s legal obligation. Because Marine Midland Bank did not accelerate the entire debt, Wickwire was only liable for the installment that was due and payable and in default. The Statute of Limitations began to run only for that specific amount. The court stated, “The fact that Marine had a bargained-for, exclusive acceleration option to call the entire indebtedness due immediately upon any default does not, by operation of law, trigger the accrual of a cause of action for portions of the indebtedness which neither the debtor nor the guarantor were then liable to pay.”

    The court rejected Wickwire’s argument that his obligation as guarantor was broader than the debtor’s, finding that the guaranty obligated him to make payments “when due, whether by acceleration or otherwise,” meaning his liability was coextensive with Campcore’s, up to $105,000 plus interest. The court interpreted the phrase “to the extent above provided” in conjunction with the primary guaranty obligation clause, “when due, whether by acceleration or otherwise” to refer only to amounts due and payable to the limit of $105,000.

    The court also addressed the policy implications, stating that if a creditor’s action against a guarantor accrues wholly and immediately at the point of the first default in payment, creditors would be left with no alternative or incentive but to accelerate the entire debt or risk losing all opportunity to pursue the guaranty. This would disincentivize flexible arrangements between debtors and creditors to resolve issues amicably. Finally, the court addressed the issue of whether the notice requirement in the guaranty was a condition precedent to the enforcement of the guaranty and found that it was not.

  • Marine Midland Bank v. Triple A Resources, Inc., 66 N.Y.2d 687 (1985): Enforceability of Guarantees Based on SEC Filings

    Marine Midland Bank, N.A. v. Triple A Resources, Inc., 66 N.Y.2d 687 (1985)

    Corporate officers’ guarantees of company debt may be enforced based on the company’s filings with the Securities and Exchange Commission (SEC), even if the officers claim the guarantees were incomplete when signed, if the filings suggest the guarantees were validly completed and delivered.

    Summary

    Marine Midland Bank sought to recover $500,000 under notes issued by NRX Technologies, Inc., and guaranteed by its officers Anderson, Tribble, and Gluck. The officers admitted signing the guarantees but claimed they were incomplete and they lacked knowledge of their subsequent handling. The bank presented SEC filings (Forms 8-K and 10-Q) signed by Tribble, detailing the notes and guarantees. The Court of Appeals affirmed the Appellate Division’s decision to grant summary judgment against the officers, finding no triable issue of fact given the information contained in the SEC filings which suggested valid completion and delivery of the guarantees.

    Facts

    NRX Technologies, Inc. issued notes for which Marine Midland Bank sought repayment. Robert Anderson (Chairman), Joseph Tribble (President), and Joseph Gluck (Vice-President) of NRX signed written guarantees for the notes. The bank produced Forms 8-K and 10-Q filed with the SEC, signed by Tribble, outlining the notes and guarantees. Anderson received stock and stock options as inducement for providing his guarantee.

    Procedural History

    Marine Midland Bank commenced an action for summary judgment. Special Term granted summary judgment against NRX but ordered a trial to determine the validity of the guarantees. The Appellate Division modified the order by granting summary judgment against the individual guarantors. The guarantors appealed to the Court of Appeals.

    Issue(s)

    Whether summary judgment was appropriately granted against the corporate officers who guaranteed the notes, given their claim that the guarantees were incomplete when signed and the existence of SEC filings suggesting valid completion and delivery.

    Holding

    Yes, because NRX’s SEC filings revealed that NRX accepted the proceeds of the notes and Anderson received stock and stock options for his guarantees, suggesting the guarantees were completed and delivered in accordance with authorization, even if incomplete when signed.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division, emphasizing that no triable issue of fact existed. The court relied heavily on NRX’s SEC filings, noting that these filings indicated that NRX had received the proceeds from the notes and that Anderson received stock and stock options as consideration for his guarantee. This evidence strongly suggested that the guarantees were completed and delivered as authorized, even if they were initially incomplete when signed by the officers. The court found the officers’ allegations of unauthorized completion and delivery, along with their other conclusory assertions, insufficient to raise a material question of fact that would necessitate a trial. The court referenced Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106, 110-112, indicating a precedent for granting summary judgment even without a cross-appeal when appropriate. The decision emphasizes the weight given to official corporate filings with the SEC as evidence of corporate actions and obligations. The court implied that corporate officers have a duty to ensure the accuracy of SEC filings and cannot later disavow the implications of those filings to avoid personal liability. Essentially, the SEC filings served as a powerful form of estoppel against the officers’ claims. The case underscores the importance of accurate and consistent reporting to regulatory bodies and the potential consequences for corporate officers who attempt to contradict these filings in subsequent litigation. The court did not explore dissenting or concurring opinions, as this was a memorandum decision.

  • Marine Midland Bank v. Price, Miller, Evans & Flowers, 57 N.Y.2d 220 (1982): Supplying Missing Indorsement & Holder in Due Course Status

    Marine Midland Bank v. Price, Miller, Evans & Flowers, 57 N.Y.2d 220 (1982)

    A bank that stamps a check “credited to the account of the payee” without verifying if the payee has an account, and then wire transfers the funds, does not give value consistent with the indorsement and thus cannot claim holder in due course status when payment is stopped.

    Summary

    Marine Midland Bank cashed checks made out to Leo Proctor Construction without Proctor’s endorsement, stamping them “credited to the account of the payee” and wire transferring the funds. Proctor had no account at Marine Midland. When the drawer, Price, Miller, Evans & Flowers (a law firm), stopped payment due to Proctor’s default, Marine Midland sued, claiming holder in due course status. The Court of Appeals held that while the bank could supply the missing indorsement, it failed to give value consistent with the indorsement because it wire-transferred funds instead of crediting an account, and thus could not be a holder in due course.

    Facts

    The defendant, a law firm, made progress payments to Leo Proctor Construction via checks totaling $36,906.54. The checks were drawn on a trust account at First National Bank of Jamestown, payable to Proctor. A Proctor employee presented the checks to Marine Midland Bank, requesting a wire transfer to Proctor’s account in Oklahoma. The checks lacked Proctor’s endorsement. Marine Midland stamped the checks “credited to the account of the payee herein named/Marine Midland Chautauqua National Bank” and wire transferred the funds. Proctor did not have an account with Marine Midland. The law firm, upon learning of Proctor’s default, stopped payment on the checks.

    Procedural History

    Marine Midland sued the law firm to recover on the stopped checks. The case was submitted directly to the Appellate Division on an agreed statement of facts. The Appellate Division ruled in favor of Marine Midland, holding that the bank had properly supplied the missing indorsement and was a holder in due course. The law firm appealed to the New York Court of Appeals.

    Issue(s)

    Whether a depositary bank that cashes a check without endorsement, stamps it “credited to the account of the payee,” and wire transfers the funds, can claim holder in due course status under the Uniform Commercial Code when the payee has no account with the bank and payment on the check is stopped.

    Holding

    No, because the bank did not pay or apply value given for the instrument consistently with the indorsement. The bank’s actions were inconsistent with the restrictive indorsement it supplied, preventing it from achieving holder in due course status.

    Court’s Reasoning

    To attain holder in due course status, a party must be a holder of a negotiable instrument, taking it for value, in good faith, and without notice of defenses. Under UCC § 4-205(1), a depositary bank may supply a missing indorsement of its customer. While Proctor was arguably a “customer” because Marine Midland agreed to collect the checks, the bank failed to satisfy all requirements for holder in due course status. The stamp served as an effective indorsement under UCC § 4-205(1), but the bank did not give value consistent with the indorsement. UCC § 3-206(3) requires a transferee under a restrictive indorsement (such as “for deposit”) to pay or apply value consistently with the indorsement. Because the bank wire-transferred the funds rather than crediting an account (which didn’t exist), it failed to give value as required. The court rejected the bank’s argument that no indorsement was required when the check is presented by the payee, stating that such an exception cannot be reconciled with the UCC’s requirement for predictable results. The court quoted UCC § 4-205 comment 1 that the purpose of the section is “to speed up collections by eliminating any necessity to return to a non-bank depositor any items he may have failed to indorse”. The court further observed: “It hardly seems unfair to penalize the bank when it fails to perform such a simple act and then seeks the unusual shelter of the holder in-due-course status”.

  • Aspen Industries, Inc. v. Marine Midland Bank, 52 N.Y.2d 575 (1981): Garnishee’s Liability and Right of Setoff After Restraining Notice

    Aspen Industries, Inc. v. Marine Midland Bank, 52 N.Y.2d 575 (1981)

    A garnishee bank that honors transactions on a judgment debtor’s account after receiving a restraining notice is not liable to the judgment creditor if the account balance remained at least twice the judgment amount, or if the bank had a superior right of setoff that exceeded the account balance.

    Summary

    Aspen Industries, a judgment creditor, sought to hold Marine Midland Bank liable for violating a restraining notice served on the bank regarding the account of judgment debtor J.D. Whiting, Inc. Marine allowed transactions on the account after receiving the notice, but the account balance always exceeded twice the judgment amount. Subsequently, Marine exercised its right of setoff against the account due to Whiting’s pre-existing debt to the bank. The New York Court of Appeals held that Marine was not liable because the account balance never fell below twice the judgment amount, and because Marine’s superior right of setoff meant no funds were available to satisfy Aspen’s judgment.

    Facts

    Aspen Industries obtained a judgment against J.D. Whiting, Inc. for $6,838.80, later reduced to $4,838.80. Aspen served a restraining notice on Marine Midland Bank, where Whiting had an account. At that time, the account balance was $838.51. After receiving the notice, Marine allowed deposits and withdrawals on the account. The balance always remained above twice the outstanding judgment amount. Marine then exercised its right of setoff for $27,622.32, applying the remaining balance toward Whiting’s $124,597.64 debt to the bank from a defaulted note.

    Procedural History

    Aspen initiated a proceeding against Marine Midland Bank for violating the restraining notice. Special Term dismissed Aspen’s petition, holding that Marine’s right of setoff was superior and Aspen was not damaged. The Appellate Division reversed, finding Marine liable. The New York Court of Appeals reversed the Appellate Division and reinstated the Special Term’s order, dismissing Aspen’s claim.

    Issue(s)

    1. Whether a garnishee bank violates a restraining notice by disbursing funds from a judgment debtor’s account when the account balance remains above twice the judgment amount.
    2. Whether a garnishee bank is liable to a judgment creditor for violating a restraining notice when the bank has a superior right of setoff that exceeds the account balance.

    Holding

    1. No, because CPLR 5222 stipulates that a restraining notice is not effective as to other property or money if the garnishee withholds twice the amount due on the judgment.
    2. No, because under Section 151 of the Debtor and Creditor Law, a bank’s right of setoff is superior to the rights of a judgment creditor under a restraining notice; therefore, the judgment creditor cannot demonstrate damages resulting from the bank’s actions.

    Court’s Reasoning

    The Court of Appeals reasoned that CPLR 5222 requires a garnishee to retain only twice the judgment amount, recognizing the commercial reality that a debtor’s large assets should not be frozen for a small judgment. Since the balance in Whiting’s account always exceeded twice the judgment amount, Marine did not violate the restraining notice by allowing account activity.

    Even if Marine had violated the restraining notice, Aspen could not recover because it could not prove damages. Section 151 of the Debtor and Creditor Law gives a garnishee bank the right to set off any debt owed to it by the judgment debtor. This right is superior to that of an intervening judgment creditor, even after the creditor begins enforcement efforts. The court noted, “[E]very debtor shall have the right upon … the issuance of any execution against any of the property of; the issuance of a subpoena or order, in supplementary proceedings, against or with respect to any of the property of; or the issuance of a warrant of attachment against any of the property of; a creditor … to set off and apply against any indebtedness…” Because Whiting’s debt to Marine exceeded the account balance, Marine’s setoff extinguished any funds available to satisfy Aspen’s judgment. The court effectively gives priority to the bank’s setoff rights over the restraining notice. As the court stated, the rights conferred under a restraining notice are subject to the superior right of setoff under section 151 of the Debtor and Creditor Law.

  • Marine Midland Bank v. United States, 46 N.Y.2d 758 (1978): Establishing “Buyer in Ordinary Course” Status

    Marine Midland Bank v. United States, 46 N.Y.2d 758 (1978)

    A party claiming to be a “buyer in the ordinary course of business” under UCC § 9-307(1) must present evidentiary material demonstrating that the seller was in the business of selling goods of that kind.

    Summary

    Marine Midland Bank sought summary judgment against the United States, claiming priority as a buyer in the ordinary course of business. The New York Court of Appeals affirmed the Appellate Division’s decision denying the bank’s motion. The court held that the bank failed to provide sufficient evidence that the seller was actually in the business of selling the type of goods purchased, a requirement to qualify as a buyer in the ordinary course of business under UCC § 9-307(1). The court also noted that it could not grant summary judgment to the defendant (United States) because the defendant had not filed a cross-appeal.

    Facts

    Marine Midland Bank purchased goods from a seller. The bank then claimed priority over the United States’ security interest in the goods, arguing it was a buyer in the ordinary course of business. The bank moved for summary judgment based on this claim. The seller involved in the case was also the seller in the prior case, Tanbro Fabrics Corp. v. Deering Milliken.

    Procedural History

    The lower court denied Marine Midland Bank’s motion for summary judgment. The Appellate Division affirmed that decision. Marine Midland Bank appealed to the New York Court of Appeals.

    Issue(s)

    Whether Marine Midland Bank presented sufficient evidence to demonstrate that the seller was in the business of selling goods of the kind purchased, thereby entitling the bank to the status of a “buyer in the ordinary course of business” under Uniform Commercial Code § 9-307(1), and thus priority over a prior security interest.

    Holding

    No, because Marine Midland Bank failed to provide evidentiary material supporting its claim that the seller was in the business of selling goods of the kind purchased. The court also could not grant summary judgement for the defendant as it had not filed a cross-appeal.

    Court’s Reasoning

    The court emphasized that to succeed on a motion for summary judgment, the moving party must present evidentiary proof to support its allegations. In this case, Marine Midland Bank presented only a conclusory assertion that the seller was in the business of selling such goods, which was insufficient to establish its status as a buyer in the ordinary course of business under UCC § 9-307(1). The court referenced UCC § 1-201, subd [9] and § 9-307, subd [1] regarding the definition of “buyer in ordinary course of business.” The court distinguished this case from Tanbro Fabrics Corp. v. Deering Milliken, noting that the finding that the seller was a seller in the ordinary course in Tanbro was a factual finding supported by sufficient evidence in that specific case. The court stated, “In this motion for summary judgment there is no evidentiary material in the record to support plaintiff’s allegation, and conclusory assertion, that the seller from whom he purchased the goods was in the business of selling goods of that kind (Uniform Commercial Code, § 1-201, subd [9]; § 9-307, subd [1]), or that the defendant was unjustly enriched. This alone is sufficient to sustain the Appellate Division’s determination that the plaintiff is not entitled to summary judgment.” The court also noted it could not grant summary judgement to the defendant because it had not filed a cross-appeal, citing precedent: “Finally we note that we are unable to grant summary judgment to the defendant because the defendant has not taken a cross appeal to this court (City of Rye v Public Serv. Mut. Ins. Co., 34 NY2d 470, 474; People v Consolidated Edison Co. of N. Y., 34 NY2d 646, 648; Kelly’s Rental v City of New York, 44 NY2d 700, 702).”

  • Marine Midland Bank v. John E. Russo Produce Co., Inc., 50 N.Y.2d 31 (1980): Permissible Inference from Invoking Fifth Amendment in Civil Cases

    Marine Midland Bank v. John E. Russo Produce Co., Inc., 50 N.Y.2d 31 (1980)

    In a civil case, the jury may draw an adverse inference from a party’s invocation of the Fifth Amendment privilege against self-incrimination.

    Summary

    Marine Midland Bank sued John E. Russo Produce Co. and Canestraro Produce, Inc., along with their officers, alleging a check-kiting scheme. During the trial, John and Rita Russo invoked their Fifth Amendment rights when questioned about the checks. The trial court instructed the jury that no adverse inference could be drawn from this. The jury found the defendants not liable, but also fixed the bank’s loss at $309,800. The Appellate Division reversed in part, finding the Fifth Amendment charge erroneous. The Court of Appeals held that in civil cases, an adverse inference can be drawn from a party’s invocation of the Fifth Amendment, and that the error was not harmless, warranting a new trial against Canestraro.

    Facts

    John E. Russo Produce Co., Inc. (Produce) and Canestraro Produce, Inc. (Canestraro) were closely related produce businesses. John and Rita Russo owned Produce; their sons, Joseph and Andrew Russo, controlled Canestraro. They shared office space and storage, and Canestraro was a supplier to Produce. Rita was Canestraro’s part-time bookkeeper and a signatory on its bank account with Marine Midland Bank. Produce allegedly engaged in check kiting, covering overdrafts at Marine Midland with checks from Citibank, where the Citibank account was then covered by checks drawn on Marine Midland. Citibank eventually dishonored Produce’s checks, leaving Marine Midland with a $309,800 deficit.

    Procedural History

    Marine Midland sued the defendants for fraud and conversion. During the trial, John and Rita Russo invoked their Fifth Amendment privilege against self-incrimination. The trial court instructed the jury that no adverse inference could be drawn from the invocation. The jury found no liability but determined the bank’s loss at $309,800. The Appellate Division reversed the judgment in favor of John, Rita, and Produce and ordered a new trial, holding the Fifth Amendment charge was erroneous, but affirmed as to Canestraro and Joseph. Marine Midland appealed the affirmance as to Canestraro.

    Issue(s)

    1. Whether, in a civil case, an adverse inference may be drawn from a party’s invocation of the Fifth Amendment privilege against self-incrimination.

    2. Whether the trial court’s erroneous charge regarding the Fifth Amendment was harmless error with respect to Canestraro.

    Holding

    1. Yes, because the policy of the Fifth Amendment, designed as a safeguard in criminal prosecutions, should not be extended to civil cases where the parties are on equal footing.

    2. No, because Canestraro’s exculpation might have been based on the jury’s conclusion that Rita was unaware of the deficit balances, a determination they might not have reached had there been a correct charge on the Fifth Amendment.

    Court’s Reasoning

    The Court of Appeals reasoned that the Fifth Amendment privilege, designed to protect individuals from state oppression in criminal investigations, should not shield them in civil cases where parties are on equal footing. The court likened the situation to a party’s failure to produce a material witness under their control, which allows the jury to assess the strength of the opposing party’s evidence. Therefore, the trial court’s instruction that no adverse inference could be drawn was erroneous.

    Regarding Canestraro, the court held that the erroneous charge was not harmless. The jury might have concluded that Rita Russo, Canestraro’s bookkeeper, was unaware of the deficit balances in the accounts, which would have exculpated Canestraro. A correct charge on the Fifth Amendment might have led the jury to a different conclusion. The court emphasized that “an error is only deemed harmless when there is no view of the evidence under which appellant could have prevailed.”

    The court also addressed the imputation of knowledge from agent (Rita) to principal (Canestraro). While knowledge is generally imputed, this is not the case when the agent has an interest adverse to the principal. The court found that whether Rita’s interests were adverse to Canestraro was a factual issue for the jury. The court noted Canestraro’s corporate liability could also arise from an unjust enrichment theory. “A principal that accepts the benefits of its agent’s misdeeds is estopped to deny knowledge of the facts of which the agent was aware.”

    Finally, the court affirmed the Appellate Division’s ruling regarding Joseph Russo’s individual liability. Corporate officers are not liable for fraud unless they personally participate in the misrepresentation or have actual knowledge of it. The jury found that Joseph lacked such knowledge, and this finding was supported by the evidence. The court noted, “Since the theory that Joseph actually knew of the misrepresentation was necessarily encompassed by the case as presented to the first jury…the answers in his favor must be deemed a finding that he had no such knowledge.” The court also held that any error related to the Fifth Amendment instruction regarding John and Rita would not have affected the determination of Joseph’s knowledge.

  • Marine Midland Bank v. New York State Tax Comm., 42 N.Y.2d 79 (1977): Perfecting a State Tax Lien

    Marine Midland Bank v. New York State Tax Comm., 42 N.Y.2d 79 (1977)

    A State tax warrant, upon docketing with the county clerk, constitutes a perfected lien on the taxpayer’s property without the necessity of a further levy.

    Summary

    This case addresses the question of when a state tax lien becomes perfected against a taxpayer’s property in New York. The Court of Appeals held that the act of docketing a tax warrant with the county clerk creates a perfected lien, without requiring a subsequent levy on the property. The court clarified that the authorization for the Sheriff to proceed as with judgment executions applies only to the *enforcement* of the already-perfected lien, and not to its initial perfection. Because the state tax warrants were perfected liens before the federal lien, the bank’s collateral was impaired sufficiently to justify recovery.

    Facts

    The relevant facts are not stated in this memorandum opinion. The case concerns the priority of liens on a taxpayer’s property, specifically addressing the timing of perfection for a New York State tax warrant. The lower court held that state tax liens were perfected upon docketing but could be extinguished if a levy wasn’t made within the lifetime of a judgment execution. The Court of Appeals disagreed with this conclusion.

    Procedural History

    The Appellate Division’s order was affirmed. The Court of Appeals agreed with the result but clarified the reasoning regarding the perfection of state tax liens. The specific procedural history leading to the Appellate Division is not detailed in this memorandum.

    Issue(s)

    Whether the docketing of a tax warrant with the county clerk perfects a state tax lien on the taxpayer’s property, or whether a subsequent levy is required for perfection?

    Holding

    Yes, the docketing of a tax warrant with the county clerk perfects the lien because subdivision (b) of section 1141 of the Tax Law expressly states that the amount of the warrant becomes a lien upon docketing, without requiring a further levy.

    Court’s Reasoning

    The Court reasoned that the plain language of Tax Law § 1141(b) establishes perfection upon docketing. The statute states that “the amount of such warrant so docketed shall become a lien upon the title to and interest in real and personal property of the person against whom the warrant is issued.” The court interpreted the reference to judgment executions as pertaining only to the *enforcement* of the lien, not its perfection. This distinction is critical because it determines the priority of the state tax lien relative to other claims, such as the respondent’s security interest and a federal tax lien. The court cited other federal cases, including *Matter of United Casket Co.*, supporting the view that docketing perfects the lien. Since the state tax warrants were perfected liens prior to respondent’s interest, the respondent’s collateral was impaired.

  • Marine Midland Bank-New York v. Graybar Electric Co., 41 N.Y.2d 703 (1977): Bank’s Holder in Due Course Status and Setoff Rights

    Marine Midland Bank-New York v. Graybar Electric Co., 41 N.Y.2d 703 (1977)

    A bank does not become a holder in due course of a check merely by giving a provisional credit for the check and then unilaterally applying that credit to a debt owed to the bank when the credit is later reversed due to a stop payment order.

    Summary

    Marine Midland Bank sought to recover from Graybar Electric on a check Graybar had issued to Dynamics Corp. The bank had provisionally credited Dynamics’ account for the check and then set off the balance against Dynamics’ debt to the bank. Graybar stopped payment on the check. The court held that the bank was not a holder in due course because it had only given provisional credit, and therefore could not recover from Graybar. The court emphasized that a bank’s unilateral application of provisional credit does not constitute giving value under the UCC, especially when the credit is later reversed.

    Facts

    Dynamics Corp. had loans from Marine Midland Bank. In July 1972, Dynamics requested an extension on a $4,420,000 note, which the bank refused. The bank informed Dynamics it would set off balances in Dynamics’ accounts against the debt. Among the items deposited in Dynamics’ account on July 28, 1972, was a check from Graybar Electric for $137,989.47 payable to Dynamics’ Waring Products Division. The bank forwarded the check for payment, but Graybar had issued a stop payment order on July 31, 1972. Graybar subsequently issued a replacement check for a lesser amount. The bank then sued Graybar to collect on the original check, asserting holder in due course status.

    Procedural History

    The bank sued Graybar in Special Term, seeking payment on the check as a holder in due course. Graybar interpleaded Dynamics. Special Term denied the bank’s motion for summary judgment, dismissed its complaint, denied Graybar’s request for discharge, and denied Dynamics’ cross-motion. The Appellate Division affirmed. The Court of Appeals affirmed, but on different grounds than the lower courts.

    Issue(s)

    1. Whether a bank is entitled to set off a check payable to its customer, deposited in an account with the bank, against that customer’s indebtedness to the bank when a stop payment order is placed on the check?

    2. Whether a bank that provisionally credits a customer’s account for a check and then sets off the balance against the customer’s debt becomes a holder in due course, thus precluding a stop payment order?

    Holding

    1. No, because under the circumstances, the bank did not become a holder in due course.

    2. No, because the provisional credit given by the bank did not constitute “value” under the Uniform Commercial Code, and the bank’s unilateral action did not elevate the transaction to the level of those instances where value is considered to be given.

    Court’s Reasoning

    The court reasoned that while a bank generally has the right to set off a borrower’s accounts against matured indebtedness, setting off on the day the loan is due is premature. However, the crucial point was whether the bank gave value for the check. The bank argued it gave value by acquiring a security interest in the check when it applied the credit to Dynamics’ debt. The court disagreed, finding the credit was provisional and reversed upon notice of the stop payment order. The court distinguished this situation from cases where the bank actually extinguishes the debt. “To say that the bank was doing something of advantage to Dynamics by applying the credit to that depositor’s indebtedness is to ignore what actually occurred. The bank was merely seeking to protect itself and not giving value, in any traditional sense, or under the Uniform Commercial Code.” Since the bank did not give value, it could not be a holder in due course and therefore could not recover on the check. The court emphasized that its determination was based on the conclusion that what the bank did was merely give a provisional credit for the Graybar check. “That the bank unilaterally agreed to apply this provisional credit to Dynamics’ indebtedness should not elevate the transaction to the level of those instances where value is considered to be given under the Uniform Commercial Code.” Therefore, since the bank did not give value, it is not a holder in due course and cannot recover on the check.

  • Amigo Foods Corp. v. Marine Midland Bank-New York, 39 N.Y.2d 391 (1976): Establishing Long-Arm Jurisdiction Over Out-of-State Banks

    Amigo Foods Corp. v. Marine Midland Bank-New York, 39 N.Y.2d 391 (1976)

    A correspondent bank relationship alone, without evidence explaining its essence, is insufficient to establish long-arm jurisdiction over an out-of-state bank under New York’s CPLR 302(a)(1).

    Summary

    Amigo Foods Corp., a New York wholesaler, sued E.H. Parent, Inc., a Maine potato distributor, and Aroostook Trust Company, a Maine bank, alleging breach of contract or wrongful failure to deliver payment via a letter of credit. Amigo sought to establish jurisdiction over Aroostook based on its correspondent relationship with Irving Trust Company in New York. The New York Court of Appeals held that a mere correspondent banking relationship, without further evidence of the out-of-state bank’s activities in New York, is insufficient to establish long-arm jurisdiction. The Court reversed the Appellate Division’s decision and ordered that discovery be permitted to determine the extent of Aroostook’s activities and involvement in New York.

    Facts

    Amigo Foods, a New York-based wholesaler, contracted with E.H. Parent, a Maine potato grower, to purchase potatoes. Payment was to be made via a letter of credit through Aroostook Trust Company, a Maine bank. Amigo obtained a letter of credit from Marine Midland Bank in New York, which was then delivered to Irving Trust Company, Aroostook’s New York correspondent. A dispute arose concerning whether Parent received payment, leading Amigo to sue Parent and the banks.

    Procedural History

    Aroostook moved to dismiss for lack of personal jurisdiction, arguing it conducted no business in New York. Special Term initially ordered discovery on the jurisdictional issue. The Appellate Division reversed, granting Aroostook’s motion to dismiss. The New York Court of Appeals reversed the Appellate Division’s order, remanding the case to the Supreme Court and ordering discovery to determine if jurisdiction exists.

    Issue(s)

    Whether a correspondent bank relationship, without other evidence of activity in New York, is a sufficient basis for New York courts to exercise long-arm jurisdiction over an out-of-state bank under CPLR 302(a)(1)?

    Holding

    No, because a correspondent bank relationship alone, without any other indicia or evidence to explain its essence, does not form the basis for long-arm jurisdiction under CPLR 302(a)(1).

    Court’s Reasoning

    The court reasoned that CPLR 302(a)(1) allows jurisdiction over non-domiciliaries who transact business within the state. However, the mere existence of a correspondent banking relationship, without further evidence of the out-of-state bank’s purposeful availment of New York’s laws, is insufficient. The Court distinguished the case from older precedent, Bank of Amer. v Whitney Bank, 261 US 171, noting that it was decided before the development of long-arm jurisdiction. The Court emphasized the need for discovery to determine the scope of Aroostook’s activities in New York and the precise nature of its relationship with Irving Trust. Quoting Hanson v Denckla, 357 US 235, 253, the Court stated that it is necessary to determine whether Aroostook “purposely availed itself of the privilege of conducting activities in New York thereby invoking the benefits and protections of its laws”. The Court also rejected the argument that a breach of contract automatically constitutes a tortious act sufficient for long-arm jurisdiction under CPLR 302(a)(2) and (3). Because the critical facts regarding Aroostook’s activities were still obscure or in dispute, the Court ordered discovery.