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Triffin v. Ameripay, L.L.C.

368 N.J. Super. 587, 847 A.2d 628 (App. Div. 2004)

CHECKS; LIABILITY; SIGNATORIES—When one person opens a checking account for another in that other person’s name and under that person’s directions and with that person’s money, and all indications are that the payor is the named account holder, then the person who opened that account and even signed the checks is not liable for their payment.

A radio network hired a payroll service. To handle the payments, the service opened an account on behalf of the radio network. As needed, the network would wire funds to the account to cover its payroll obligations, and the payroll service would issue checks from the account to the network’s employees. No other funds were ever commingled in the employer’s account.

The payroll service’s partners opened the bank account as the radio network’s agent. As part of the bank’s standard operating procedures, the partners became authorized signatories on the account. Because all payroll functions were to be handled by the service with the radio network’s funds, no representatives of the network were signatories on the account. The bank’s signature card was titled in the name of the payroll service. The service signed other bank forms, each of which identified it as the account holder, consistent with the signature card.

The radio network’s name, address, and telephone number were printed on the checks. There was nothing on the checks identifying the payroll service. The payroll checks’ signature line did not identify the relationship of the signatory to the radio network. The identity of the payroll company was not contained anywhere on the checks. Only in a faint water-mark, intended to establish authenticity, was there any indication of the payroll company.

At the network’s request, and with the network’s money, the payroll company issued payroll checks for the network. They were signed by the payroll company’s owner. Several of the radio network’s employees cashed their checks at a particular check cashing company. Their checks were dishonored because the payroll company had stopped payment on them. It did so because the account had not received the corresponding funds from the radio network. The check cashing company then assigned its interests in the dishonored checks to an investor who was in the business of purchasing dishonored checks from licensed check cashers. The investor knew the checks had been dishonored.

The lower court found that the check cashing company was a holder in due course. Thus, under the shelter provision of the Uniform Commercial Code, the investor acquired the same status. The lower court then concluded that the signature on the checks controlled. In its view, because the payroll company’s representative signed the checks, the payroll company was liable for the amount of the dishonored checks. It considered the payroll company to be the drawer.

An appeal followed. The Appellate Division disagreed with the lower court, holding that the payroll company was not liable for the dishonored checks because it signed them solely in a representative capacity as the radio network’s agent. Even though the investor argued that it was pursuing a routine stop-payment collection action, the Court saw the issue as one dealing with agency liability. The evidence was undisputed that the payroll company and the radio network had a contractual relationship. In retaining the payroll company to administer its payroll account, the radio network had given the payroll company the authority to sign checks on its behalf and to bind it on the instruments. The payroll company’s opening of the bank account and signing payroll checks was done as an agent of the radio network. The network, not the payroll company, owed the compensation to its employees. It was obligated to provide the funds, and it was the one that ordered the payments. Thus, under agency principles, the radio network was bound for the acts that it authorized the payroll company to take. A principal is responsible for the actions of its agents who act within the scope of their authority. Similarly, an agent is not liable on a check simply because it signs it for its principal.

It didn’t matter that the payroll company opened and managed the account or that the payroll company’s representatives were the only signatories on the account. Under the Uniform Commercial Code, the radio network was the account owner and the payroll company held the funds in the account and maintained the account only to satisfy the radio network’s payroll obligations. The documents clearly identified the account as the radio network’s payroll account. The payroll company was not entitled to the funds for its own use.

The Appellate Division found that the check cashing company was not deceived into thinking that either the payroll company’s owner, as signatory on the check, or the payroll company itself, were meant to be liable. The check cashing company had ample basis to assume the checks were payroll checks from the radio network to its employees. The radio network as the only drawer identified on the checks. Accordingly, when it cashed the checks, the check cashing company had no reasonable expectation that any entity other than the ratio network would be liable. For that reason, the Court reversed the lower court’s decision and held that neither the payroll company nor its owners were liable.

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