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Merchants Express Money Order Company v. Sun National Bank

374 N.J. Super. 556, 866 A.2d 189 (App. Div. 2005)

MONEY ORDERS—Funds obtained by a seller of money orders while acting as “transmitters” are the property of the money order company under the Money Transmitters Act and a bank cannot seize those moneys from the seller to satisfy the bank’s claim against the seller.

A money transmitter sold money orders to the public through retail agents and earned a profit for every money order sold. One of its agents maintained a bank account from which money-order sales proceeds were sent to the transmitter on a weekly basis. When the agent’s line of credit became overdrawn, the bank froze the accounts and seized and applied the money in the accounts to satisfy the agent’s debts to the bank. As a result, the agent could no longer transfer money-order sales proceeds to the transmitter. The transmitter sued the bank for recovery of the money-order sales proceeds it contended were included in its agent’s seized bank funds.

The lower court granted the transmitter’s summary judgment motion which found the bank liable to the transmitter. The bank appealed from the lower court’s decision, contending that 1) “genuine issues exist as to whether and to what extent the funds it seized ... contained the proceeds of money order sales;” and 2) “the trial court applied the Money Transmitters Act without consideration of the effect of the Uniform Fiduciaries Law ..., which ... it alleges immunizes it from liability in this case.”

The Appellate Division held that the Money Transmitters Act provides for the licensing and regulation of person engaged in the business of money transmission which includes the sale or issuance of payment instruments for a fee. That Act provides, among other things, that: all funds (less fees) received by an authorized delegate of a licensee from the sale or delivery of a payment instrument issued by a licensee or received by an authorized delegate for transmission shall, from the time the funds are received by an authorized delegate until that time when the funds or an equivalent amount are remitted by the authorized delegate to the licensee, constitute trust funds owned by and belonging to the licensee. If an authorized delegate commingles any trust funds with any other funds or property owned or controlled by the authorized delegate, all commingled proceeds and other property shall be impressed with a trust in favor of the licensee in the amount equal to the amount of the proceeds due the licensee.

The Appellate Division found it unquestionable that the transmitter was an authorized licensee and the agent was an authorized delegate. The Court reasoned that this trust relationship on commingled proceeds of money order sales was created by the New Jersey legislature because it eliminated the need for policing, thus enhancing the availability of money orders at retail outlets and, by reducing the risk and cost to the money order company, reducing the cost to the consumer. The Court therefore agreed with the transmitter that the bank seized trust funds owned by it. Additionally, the Court found that those trust funds did not lose their trust nature when commingled in the agent’s bank accounts and upheld the lower court’s decision.

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