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Fike Corporation v. Fleet National Bank

2006 WL 2621069 (N.J. Super. App. Div. 2006) (Unpublished)

CHECKS — Absent a conspiracy to steal from a payor, the recipient of a check has no duty to the payor where a payor’s employee, with authority to sign the check, used that check for personal purposes.

A corporation entrusted its chief bookkeeper to write checks drawn on the corporation’s bank accounts for business purposes. The employee used her business role to misappropriate the corporation’s funds and ultimately stole over one million dollars. On several occasions she made large personal purchases in a certain store, and paid with checks drawn on the corporation’s accounts. The employee told the storeowner that she had full authority to use the company funds. The storeowner did not attempt to find out whether she was using the funds legitimately or lawfully.

The corporation brought claims against the storeowner for negligence and conversion. The lower court found no cause of action. On appeal, the Appellate Division affirmed the judgment in favor of the storeowner.

As to the negligence claim, the Court found that the corporation did not establish that the storeowner owed it any duty. The corporation could not demonstrate that a claimant whose legally-drawn check ends up in a recipient business’ possession is owed a duty by the recipient. Since the law did not impose a duty on the storeowner, he could not be liable in negligence for the checks passed to him by the corporation’s employee. The Court noted that if the purpose of the transactions had been to launder ill-gotten gains, and the storeowner had been aware of such purpose, he would have been liable regardless of the no-duty rule. Here, since there was no showing that the employee and the storeowner engaged in any conspiracy to steal from the corporation, the Court found no reason for the storeowner to indemnify the corporation for “the consequences of [its] own misjudgments” in granting the employee the authority to draw upon business accounts.

With respect to the conversion claim, the Court found that the storeowner was not aware that the funds used by the employee were stolen. Since the corporation was unable to prove “knowledge,” which is an essential element of conversion, the claim failed. The corporation argued that a “conversion” could be proved despite a defendant’s lack of knowledge, but the Court noted that such argument did not apply to this kind of situation, where a claimant is seeking to recover the value of property as opposed to the property itself.

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