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Triffin v. Mellon PSFS

372 N.J. Super. 3, 855 A.2d 2 (App. Div. 2004)

CHECKS; MIDNIGHT DEADLINE; SETTLEMENT—For the purpose of the midnight deadline check settlement rule, the term “settle” could mean a provisional settlement, and banks routinely engage in the practice of provisionally paying items subject to the receipt of additional information prior to making final payment.

Two of a bank’s customer’s fraudulently issued checks were cashed by a check cashing company. The payor bank contacted the victimized company, advising it that its account was overdrawn. After various reimbursements, the check cashing company bore the loss but it had already assigned the checks to a person in the business of buying dishonored checks. The assignee then brought suit against the payor bank, claiming that the bank had missed the “midnight deadline” for returning or dishonoring the fraudulent checks. The lower court dismissed the claim, holding that an assignee who purchases a check with notice of the dishonor lacks standing to bring any action.

The Appellate Division disagreed, concluding that a claim based upon a breach of the “midnight deadline” is assignable, and that the assignee may sue in its own name. It also held that the assignee’s knowledge of dishonor in the instrument is irrelevant because all that is relevant is what the assignor knew at the time of presentment, and not what the assignee learned later. The Court found no statute restricting who may sue following a midnight deadline violation. This deadline was designed to make checks act like cash by deterring banks from holding checks, thereby using a drawer’s money as long as possible. The midnight deadline does this by imposing liability for a delay in processing, regardless of whether the check was properly payable or not. That is why the Appellate Division held that standing to sue ought to be broadly construed.

Nonetheless, on the facts presented, the Court dismissed the assignee’s claim that the bank had violated the midnight deadline. The only witnesses were the assignor and the victimized company, neither of whom offered direct evidence about the movement of the checks from the time they were paid until the bank charged the account. The definition of what constitutes a “banking day” turns on a number of circumstances, including the hour of receipt, and whether the bank was open and “carrying on substantially all of its banking options.” In this case, there was no evidence about what time of day, or even what day, the checks were presented to the payor bank or whether the bank was open to the public and carrying on substantially all its functions at that time.

The Court also rejected the assignee’s argument that the midnight deadline rule requires a bank to either pay or dishonor a check within the time frame established by the statute. The Court found that the rule permits a bank to “settle for it” within that time. In this context, the word “settle” could mean a provisional settlement and banks routinely engage in the practice of provisionally paying items subject to the receipt of additional information prior to making final payment. Thus, the Court held that there was no reason to conclude, in light of the minuscule amount of evidence offered, that the payor bank did not provisionally pay the item subject to a timely revoking of its settlement.

Therefore, even though the Appellate Division disagreed with the lower court’s holding that the assignee didn’t have standing to bring suit, it affirmed the lower court’s decision to dismiss the claim for lack of evidence.


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