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The Money Stop Financial Services v. AFT Trucking, LLC

A-5371-05T2 (N.J. App. Div. 2007) (Unpublished)

UCC; CHECKS — Even if a party that cashed a check exercised good faith, such good faith does not vitiate the language of the Uniform Commercial Code making an unauthorized signature on a check ineffective against all parties except the forger.

A recently hired administrative assistant stole eight company checks from a trucking company and a realty company, respectively. The checks were then made out in the administrative assistant’s name and cashed at a check cashing agency. The checks were dishonored by the two companies, and the check cashing agency sued to recover the funds it had disbursed. The lower court found that the check cashing agency was a holder-in-due course under Article 3 of the Uniform Commercial Code, and had exercised due care for six out of the eight checks cashed.

The trucking company and realty company appealed on the grounds, alleging that under N.J.S.A. 12A:3-305 the check cashing agency could not assert holder-in-due course status because the checks were forged and thus unauthorized. Moreover, they argued that under N.J.S.A. 12A:3-403(a) “an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or take it for value.” The Appellate Division agreed with appellants and reversed. The Court, following the holding in Triffin v. Pomerantz Staffing Services, LLC, 370 N.J. Super. 301, 306 (App. Div. 2004), concluded that “only the malefactor can be held liable on a forged or counterfeit instrument.” Additionally, the Court noted that even accepting the lower court’s finding that the check cashing agency exercised good faith, good faith does not vitiate the language of N.J.S.A. 12A:3-403(a) making the unauthorized signature ineffective against all parties except the forger. Thus, the loss must be borne by the check cashing agency, which still maintained its right to pursue recourse from the administrative assistant.

The Court was mindful of the fact that the check cashing agency was also an innocent party to the transaction, and therefore, expressly preserved all claims against the administrative assistant so that it would not be foreclosed, by the principles of the entire controversy doctrine from collecting from the forger.

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