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Triffin v. JEM Mechanical

A-6873-99T5 (N.J. Super. App. Div. 2001) (Unpublished)

CHECKS—A transferee’s knowledge that an instrument had been dishonored does not invalidate its right to be a holder in due course because the transfer of an instrument, even if not by negotiation, vests on the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course.

A retail store purchased merchandise from a distributor and paid with a check. When the store deemed the merchandise unacceptable, its representative made a number of attempts to contact the distributor, including leaving a message on his answering machine warning him that payment would be stopped on the check unless he contacted them. The store received no response, and had its bank stop payment. The distributor, however, brought the check to be cashed at a check cashing firm, and the firm, with no notice of the stop payment and no basis to believe the check would not be honored, cashed it. When the check cashing firm presented the check for payment, the store’s bank dishonored it and on it stamped “Payment Stopped”/“Do Not Redeposit.” Later that year, the check cashing firm assigned its rights under the check to an individual. The individual brought action against the store, and the lower court judge dismissed the complaint, determining that the individual “was not a holder in due course because when he obtained the check it was plain on the face of the instrument that it was dishonored [and therefore he] was not an innocent good faith purchaser.” The Appellate Division agreed on that point, but pointed out that “under the shelter provision of the Uniform Commercial Code the [t]ransfer of an instrument, whether or not the transfer is a negotiation, vests on the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course . . . .” Because the check cashing firm was a holder in due course, so therefore was the individual. The Court reversed and remanded.


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