Commerce Bank, N.A. v. Rickett

329 N.J. Super. 379, 748 A.2d 111 (App. Div. 2000)
  • Opinion Date: March 31, 2000

UCC; CHECKS; DUE COURSE—A bank’s status as a holder in due course is preserved if it accepts a misdated check within ninety days after it was issued even if the check bears a much earlier date.

This appeal questioned whether a bank can be a holder in due course when it makes payment on a check dated a year before it was presented, but which was presented within ninety days after the date of its actual issuance. On January 5, 1998, an auto dealer presented a check that had been issued on January 3, 1998 to a bank. The check was dated January 3, 1997, deposited in the dealer’s checking account, and credited to that account. There was a dispute about the condition of the vehicle for which the check represented the purchase price, and the dealer that had purchased the car issued a “stop payment” on the check. By the time the check was returned to the depositor’s bank as unpaid, eight days after it had originally been deposited, the funds had been drawn upon. The bank could not find the depositor and sought to recover against the company that had written the check. It asserted that it was a “holder in due course” and, therefore, entitled to payment from the drawer. The company that wrote the check contended that the erroneous date of “January 3, 1997,” placed the bank on notice that the check may be overdue, and the bank “accordingly cannot be a holder in due course because ‘holder-in-due-course’ status attaches at the time the transaction is made.” The lower court found that the bank was a holder in due course, largely relying on the fact that the company that had written the check admitted that it was actually issued on January 3, 1998, not January 3, 1997, and on the bank’s proof that “checks presented for negotiation are often misdated in the first few days of a new year with the prior year still being written on the check.” Under UCC Sections 3-302a(2), a holder who takes an instrument for value is a “holder in due course” if it takes the instrument “without notice that the instrument is overdue.” Further, UCC Section 3-304 provides that a check is overdue ninety days after its date. UCC Section 3-113 provides that “an instrument may be antedated or postdated. The date stated determines the time of payment if the instrument is payable at a fixed period after date.” The Court found that reliance on UCC Section 3-113 was misplaced. A check is not an instrument payable at a fixed period of time; rather, it is a demand instrument. Therefore, the issue was whether a check becomes overdue ninety days after the date on the face of the check, or ninety days after its date of issue. The Court construed UCC Section 3-304a(2) to mean that a check becomes overdue ninety days after it is actually issued. It looked at case law and treatises that indicated that the section in question was meant to be read to mean that “a party can now take a check up to 90 days after its issue.” Further, although the date on an instrument is presumed to be correct, “this presumption is not conclusive, and may be overcome by parole evidence that it was in fact made on another date.” Here, the company that wrote the check admitted that the check had been issued in 1998 and such parole evidence is admissible to prove or disprove a party’s status as a holder in due course. Because it was admitted the check was actually issued in 1998, the bank was held to be a holder in due course.