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Triffin v. Liccardi Ford, Inc.

417 N.J. Super. 453, 10 A.3d 227 (App. Div. 2011)

CHECKS; UCC — Even though the purchaser of a dishonored check may not be a holder in due course because the check would have been purchased with notice that it had been dishonored, that purchaser can still be a holder in due course if its seller had held that status.

A check was made payable to an auto dealer’s employee. Evidence indicated that the employee stole the check and when the disappearance was discovered, the automobile dealer immediately placed a stop payment on it. A check cashing establishment cashed the check for the employee before the stop payment had been issued and then deposited the check in its own bank account. The check was post dated. The issuing bank refused to honor the check. Subsequently, a purchase of bad checks acquired the dishonored payroll check from the check cashing establishment and sued the auto dealer for the amount of the check plus interest.

The lower court granted the automobile dealer’s summary judgment motion, finding that the cash checking establishment was not a holder in due course because the fact that the check was postdated should have put the establishment on notice that there might be a claim or defense against collection. The lower court further found the purchaser was not a holder in due course because he had acquired the auto dealer’s check, and seven other checks as part of a bulk transaction from the check cashing establishment. The purchaser appealed.

The Appellate Division affirmed, holding that the check cashing establishment was not a holder in due course because the check was post-dated and the establishment had made payment in violation of the Check Cashers Regulatory Act of 1993. The Court held that, under the New Jersey Uniform Commercial Code (UCC), to be a holder in due course, one must take an instrument for value in good faith and without notice of dishonor or of any defense against or claim to it on the part of any person. It concluded the purchaser did not take this check as a holder in due course, because he purchased the instrument with notice that it had been dishonored.

Had the check cashing establishment been a holder in due course when it obtained this check, it could have assigned its interest to the purchaser and he could have enforced these rights as an assignee. The Court, however, found that because the establishment violated the Act when it cashed this postdated check, it was not a holder in due course as it failed to follow reasonable commercial standards. The Court also found the violation of the Act showed that the establishment had not met its obligation of good faith under the UCC. Thus, the purchaser could not, by taking an assignment of this check, assert the rights of a holder in due course.

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