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Friendly Check Cashing v. Davich

A-0973-04T3 (N.J. Super. App. Div. 2005) (Unpublished)

CHECKS; UCC — Where a claimant seeks to enforce a check but doesn’t have possession of the original check and can’t show that its loss was not the result of its own transfer or a lawful seizure, it loses its status as a holder in due course.

A check cashing company cashed a payroll check. It was returned by the bank marked “Stop Payment.” The company then made a copy of the check and gave the actual check to the employee. The employee gave it to her employer, demanding that he replace it. The employer “gave her a replacement check, which she then apparently cashed elsewhere.” The check cashing company then sued the employer based on the copy of the check alleging that it was a holder in due course. The lower court held for the check cashing company. On appeal, the Appellate Division disagreed, pointing out that if the check cashing company “had retained the original check and presented it in evidence, the [lower court’s] ruling would have been correct.” Since the check cashing company “no longer had the original check, it had to satisfy the provisions of N.J.S.A. 12A:3-309 to maintain its status as a holder in due course.” Under that statute, the check cashing company, once not in possession of the original check, needed to show, among other things, that “the loss of possession was not the result of a transfer by [the check cashing company] or a lawful seizure.” Here, because the check cashing company’s “loss of possession of the check was the result of its own transfer of the check to [the employee], it lost its status as a holder in due course.” Its judgment against the employee was left undisturbed.

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