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D&S Check Cashing Company, Inc. v. Herzog Associates

A-3204-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

CHECKS—If a commercial check cashing business has a good history of cashing a particular drawer’s checks, it isn’t an unreasonable commercial practice to cash other checks from the drawer without first verifying that there are funds in the checking account.

Three businessmen formed a partnership. After the business soured, two of the partners told the third that they wanted to settle up their accounts and quit the partnership. The third partner then wrote various checks, some of which he conceded were for amounts owed by him. Others, he testified, were written under duress at the insistence of an enforcer who allegedly threatened him at gunpoint. After the third partner stopped payment on those checks, a check cashing company brought suit.

After a trial, the lower court found that the check cashing company was the holder in due course of the checks. It noted that the third partner took three days to stop payment on the checks that he claimed were written under duress, and only after one partner had cashed a $30,000 check. A holder in due course’s right to recover on a negotiable instrument is subject to the defense of duress. Here, however, the lower court found that the third partner had not acted in a fashion consistent with any continuing duress during the days before the stop payment was issued. Further, the lower court found that although the checking company had not investigated whether there were funds in the first partner’s account to cover the $30,000 check, it had prior good experience cashing checks for the partners. As a result, the lower court concluded that the check cashing company’s practices in this case were commercially reasonable.

The Appellate Division agreed, adding that even if the check cashing company had been diligent, it would not have discovered the stopped payment, which had been issued only the day after the check was negotiated. There was no evidence at trial of insufficient funds in the third partner’s account to cover the checks, and no evidence of notice of a potential defense to payment. Thus, the Appellate Division affirmed the lower court’s decision to award the check cashing company the value of the check it had legitimately cashed.

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