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Triffin v. American International Group, Inc.

A-0513-06T5 and A-0514-06T5 (N.J. Super. App. Div. 2008) (Unpublished)

BANKS; CHECKS — The holder of an instrument, such as a check, does not have the duty to confirm the instrument’s validity from the party presenting it under ordinary or non-suspicious circumstances in order to enjoy the status as a holder in due course.

An insurance company issued a check. The payee cashed the check at a check cashing company. A company representative noticed afterwards that the check had not been endorsed by the payee. After unsuccessfully attempting to contact the payee that same afternoon, the representative printed the payee’s name on the check and deposited the check. The bank returned the check to the company after it received an affidavit from the payee denying having cashed the check. An investor, who was in the business of purchasing dishonored checks through assignment from check cashing companies, purchased the check and then sued the insurance company for the amount of the check. The lower found that the investor had no claim to collect payment on the check.

The investor also purchased two dishonored checks from a real estate agency. The agency’s owner had written the checks that were to be given to an employee. The owner, for an undisclosed reason, decided not to give the checks to the employee and placed them in his desk. The checks were removed and cashed at a second check cashing company. According to the agency owner, the employee removed the checks and cashed them. Before this second check cashing company received payment from the real estate agency’s bank for the two checks, the agency issued a stop payment order. The investor brought a separate action against the agency and the employee for the amount of the checks plus interest and a returned check fee. The lower court found that the investor had no claim for payment from the real estate agency.

The investor appealed both decisions. The appeals were consolidated by the Appellate Division. The Court agreed with the lower court that the investor had no claim against the insurance company for the amount of the check issued to the first payee. To do so, it found that the first check cashing company was never a holder in due course because it altered the check and attempted to receive payment for the checks with the knowledge that the check had not been properly endorsed. The Court pointed out that an assignee cannot derive rights from an assignor that is not a holder in due course. The Court rejected the investor’s argument that the insurance company had waived its defense by not asserting forgery on the part of the first check cashing company and found that the investor still had the burden of proving that he was a holder in due course. Thus, the Court affirmed the lower court’s finding that he was unable to do so.

As to the real estate agency’s checks, the Court agreed with the investor that the second check cashing company acted in good faith when it cashed the two checks presented by the agency employee since there were no signs of forgery or alteration and that there was no reason to question the validity of the checks. The Court disagreed with the lower court that the second check cashing company was not a holder in due course at the time it transferred the checks to the investor. It pointed out that the holder of an instrument does not have the duty to confirm the instrument’s validity from the party presenting it under ordinary or non-suspicious circumstances. It also found that the real estate agency presented no evidence for its argument that the second check cashing company usually dealt with checks for smaller amounts and should have been suspicious of the checks cashed by the agency’s employee. The Court also found that there was no indication that the employee did not have authorization to cash the checks at the time they were cashed.


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