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Triffin v. Progressive Freedom Insurance Company

A-5990-09T1 (N.J. Super. App. Div. 2011) (Unpublished)

DRAFTS — A draft, unlike a check, is not a negotiable instrument and the assignee of a draft has no greater rights than its assignor had.

An individual was in the business of buying dishonored checks from check cashing companies and then seeking to collect on them. This time, he bought two documents that were not checks. They were drafts issued by an insurance company upon itself, and payable through a bank. The check casher and the buyer, as an assignee, were both aware that the documents were not checks, and the buyer even conceded that the documents were not “negotiable instruments.” The check casher never inquired about the drafts prior to paying. When the insurance company placed a stop payment on both drafts, the check casher could not collect on either. The lower court granted summary judgment, finding that the drafts were not negotiable instruments. Even if they had been negotiable instruments, the check casher was not a holder in due course because it did not call the bank to inquire whether the drafts were in fact payable.

The buyer appealed. In the appeal, the insurance company asserted that it stopped the drafts because the drafts never arrived and they were concerned that they may have been lost in the mail on the way to its insured. Its insured, in fact, did receive them and cashed them at the check casher. Even though the insurance company used this defense in the lower court, it never furnished any legally competent evidence proving that.

The Appellate Division first concluded that the buyer, having conceded before the lower court that the documents in question were not negotiable instruments, and having stipulated that the lower court should apply the Uniform Commercial Code, was estopped from asserting a different position in his appeal. The insurance drafts were clearly contracts, not checks or notes, and they did not bear any notation that they were not assignable. When the check casher paid the insured and the buyer took an assignment from the check casher, the right to enforce the drafts passed to the buyer, but still subject to the insurance company’s defenses. On the other hand, because the insurance company did not establish its defenses by legally competent evidence, it was not entitled to summary judgment. Thus, the Court remanded the matter to the lower court for the limited purpose of determining whether the insurance company could prove its defenses to enforcement, and thus its challenge to the validity of the assignment.

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