Skip to main content



First Atlantic Federal Credit Union v. Perez

391 N.J. Super. 419, 918 A.2d 666 (App. Div. 2007)

CHECKS — A depository bank may have a breach of warranty claim against a check cashing business where the check casher received money from the bank even though the check in question was not properly endorsed, but recovery of attorney’s fees is not one of the statutory remedies available for such claims.

A borrower took out a secured automobile loan through a credit union. The borrower later was involved in an accident and the car was considered a total loss. The insurance company issued a check to both the borrower and the credit union. The borrower cashed the check at a check cashing business and kept the money for himself even though the credit union’s endorsement was not on the check. The credit union brought an action against the borrower for keeping the entire proceeds and also brought an action against the depositing bank for negotiating the improperly endorsed check. The bank brought a cross-claim against the check cashing business, alleging fraudulent transfer and breach of warranty. The bank claimed that the check cashing business’s answer to the charges was filed in bad faith and, as a result, the check cashing business should pay the bank’s attorney fees. Subsequently, the check cashing business and the credit union entered into a settlement and all of the remaining claims were dismissed. The bank still sought attorney fees from the check cashing business and ultimately filed a motion for summary judgment against the business for attorney fees. The lower court found that since the check cashing business entered into a settlement that was satisfactory to the credit union, the bank did not suffer any damages. Therefore, there was no unjust enrichment or fraudulent transfer.

On appeal, the Court rejected all of the bank’s arguments for claims of attorney fees. The Court acknowledged that the check cashing business violated the law, but held that there were statutory means available to take action against the check casher and that since the bank was not a payee that it could not claim to be an aggrieved party under the law. It also rejected the bank’s claims of breach of presentment warranties. Even though the bank had a legitimate claim of breach of warranty against the check cashing business, recovery of attorney’s fees is not one of the statutory remedies available for such claims. The bank also argued that it should have been permitted to recovered the attorney fees under a law that allows the recovery of expenses in excess of the face value of an instrument if a party’s bad faith results in such expenses. The Court rejected this argument and refused to broaden the meaning of the term “expenses,” as found in the law, to include attorney fees. In addition, the Court pointed out that since the matter was settled, no bad faith on the part of the check cashing business was ever established or proven.

The Court also rejected the bank’s claims that it should have been able to recover attorney fees because it was forced to defend itself as a result of the fraudulent transfer on the part of the check cashing business. Since such a claim was never proven or adjudicated in court, the bank could not rely on it. Finally, the Court found that the law which allows an award of attorney fees as a remedy for a frivolous claim did not apply. Under the Uniform Commercial Code’s applicable provisions, attorney’s fees are recoverable only by a prevailing party. Here, the bank was not a prevailing party in this matter and none of the defenses maintained by the check cashing business were found to be frivolous. Therefore the Court also refused to grant attorney fees to the bank under frivolous litigation statutes.


MEISLIK & MEISLIK
66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 • info@meislik.com