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Matson Intermodal System, Inc. v. Kubis Enterprises, Ltd.

385 N.J. Super. 105, 895 A.2d 1242 (Law Div. 2005) (Unpublished)

CHECKS; UCC—The use of “c/o” in a vertical alignment of a payee’s name on a check is ambiguous and could allow a bank to pay any party named on that party’s sole endorsement.

A freight company engaged another company as its local agent to procure freight transportation business. A customer engaged the freight company to transport the freight of the transportation company’s client. The customer issued a series of checks made payable to the freight company “c/o” the agent company. The checks were drawn by the customer, endorsed by the agent, deposited into the agent’s account, and paid by the customer’s bank. The freight company instituted a cause of action against the payor bank, and the bank moved to dismiss the claims asserted against it. The motion was denied without prejudice. The bank renewed its motion and the freight company filed a cross-motion for summary judgment.

At the outset, the Court held that resolution of the pending motions was governed under statutory law by reference to the Uniform Commercial Code (UCC) since a check is a negotiable instrument. Also, the tort of conversion requires an unauthorized act of dominion over the property to the exclusion of the other person’s rights.

The checks at issue were delivered to the agent of the freight company, not the freight company itself. Case law and the statute are clear that a payee or endorsee may bring a cause of action for conversion where delivery of the instrument is made to an agent. As such, the freight company had standing to assert a cause of action for conversion against the payor bank.

Next, the Court considered whether a check made payable to multiple payees is negotiable individually; jointly; or alternatively, requiring the endorsement of any of the named payees. The resolution of this issue was required because if the check was payable alternatively, then a claim of conversion will fail as a matter of law since the agent would be entitled to payment. Likewise, if the Court found that the use of the symbol “c/o” was ambiguous, then the application of statutory law would require a finding that the check was payable to either party. If an instrument is to be payable jointly, all of the payees must participate in any negotiation of the check. But if the instrument is found to be payable in the alternative, any one of the payees may negotiate the check.

In construing the language of the UCC, the Court found that where any ambiguity between joint or alternative payees is present, the ambiguity should be resolved in favor of alternative construction. Furthermore, the issuer’s subjective intent is irrelevant. Rather, it is the objective intent set forth on the check by the issuer that is controlling as to the endorsements required. The Court reasoned that the issuer of the check, through the use of “c/o” in a vertical alignment of payees, did not make it unambiguously clear that endorsement by a single payee was unacceptable. The Court found that the use of “c/o” in a vertical alignment did not objectively identify whether the checks were payable to the freight company, its agent, jointly or in the alternative. Additionally, there were no cases in the State of New Jersey discussing the import of the use of the symbol “c/o.” Given the complete absence of any indication as to whether the checks were intended to be payable alternatively or jointly, the Court found that the checks were ambiguous as to whether they were payable to the freight company, its agent, or both. Accordingly, the Court held that the bank did not convert the checks when it paid them with only the agent’s endorsement.


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