## Facts

- William and Carol Leeds retained attorney Louis Egnasko for a foreclosure-related real estate transaction and resale.
- Sale proceeds were issued as an $87,293.56 teller’s check payable to William Leeds, Carol Leeds, and Isabel Gibbs, drawn by United Jersey Bank (later succeeded by Summit Bank).
- Without the payees’ knowledge or authorization, Egnasko typed “Louis Egnasko, as attorney for” above the payee line, creating the appearance that his sole endorsement could negotiate the check.
- Egnasko alone endorsed the check “for deposit only” and deposited it into his attorney trust account at Chemical Bank (later succeeded by Chase Manhattan Bank); the depositary bank guaranteed the endorsement and presented the check for collection.
- Summit, as the drawer/drawee/payor of the teller’s check, honored the check presented through the collection process.
- Weeks later, Egnasko issued the Leedses a separate trust-account check for $92,050 from another bank, which the Leedses received and which was later alleged to be funded by misappropriated client money.
- A later lawsuit by the bank that honored the $92,050 check sought recovery from Egnasko and the Leedses; while that litigation was pending, the Leedses sued Chase and Summit in New Jersey, asserting strict-liability conversion based on payment of the altered teller’s check.

## Issues

1. Whether the depositary bank was liable for conversion under N.J.S.A. 12A:3-420 for obtaining payment on an altered instrument for a person not entitled to enforce it.
2. Whether the payor bank that issued and honored its own teller’s check was liable for conversion to the named payees under N.J.S.A. 12A:3-420.
3. Whether asserted defenses (including unclean hands and the Uniform Fiduciaries Law) or statutory limits (including N.J.S.A. 12A:3-420(c)) barred the payees’ conversion claims.

## Decision

- The appellate court reversed summary judgment for the depositary bank and held it could be strictly liable for conversion under N.J.S.A. 12A:3-420 because it obtained payment on the check for Egnasko, who was not entitled to enforce the instrument.
- The court affirmed summary judgment for the payor bank, concluding it was protected from conversion liability under N.J.S.A. 12A:3-420(c) based on its good-faith payment of the instrument and the absence of a pleaded negligence or bad-faith theory against it.
- The case was remanded for further proceedings against the depositary bank, including determination of damages.

## Legal Principles

- Under N.J.S.A. 12A:3-420(a), a bank converts an instrument by making or obtaining payment for a person not entitled to enforce the instrument or receive payment.
- A depositary bank that takes an altered check for deposit and then obtains payment through collection may face strict conversion liability when the depositor lacked entitlement to enforce the instrument, even if the bank acted in the ordinary course.
- An unauthorized alteration that purports to confer authority on an attorney to negotiate a payee’s instrument, followed by negotiation based solely on the attorney’s endorsement, supports a conversion claim by the named payees.
- Equitable defenses such as unclean hands, and reliance on the Uniform Fiduciaries Law, do not defeat strict conversion liability where the payees did not authorize or participate in the alteration and the fiduciary theory does not fit the unauthorized act.
- N.J.S.A. 12A:3-420(c) limits conversion liability of a payor bank in circumstances where it pays the instrument in good faith; absent a separate negligence or bad-faith theory, the payor bank may be shielded from conversion claims by the payees.

## Conclusion

The court held the depositary bank potentially strictly liable for conversion for collecting on an altered teller’s check negotiated by an unauthorized attorney, but affirmed dismissal of conversion claims against the payor bank because statutory protection under N.J.S.A. 12A:3-420(c) applied and no alternative theory of liability was pursued.


Leeds v. Chase Manhattan Bank, N.A., 752 A.2d 332 (N.J. Super. Ct. App. Div. 2000)