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Triffin v. Pomerantz Staffing Services, LLC

370 N.J. Super. 301, 851 A.2d 100 (App. Div. 2004)

CHECKS; LIABILITY—A check cashing company acts unreasonably if it fails to examine and take advantage of anti-fraud features on a check and the contract between a maker and its bank allocating risk of loss between them does not inure to the benefit of a check cashing company.

A check cashing company cashed eighteen counterfeit checks. Each of the checks contained the following warning: “THE BACK OF THIS CHECK HAS HEAT SENSITIVE INK TO CONFIRM AUTHENTICITY.” The check casher did not examine the checks as warned. The bank returned each check unpaid, labeling each as “counterfeit.” The check cashing company then sold its rights in the checks to an assignee who filed suit against the victimized maker. In response, the maker of the checks claimed that it did not sign the checks and the checks did not come from its own stock. The lower court dismissed the assignee’s claim.

On appeal, the Appellate Division ruled that since a person is not liable on an instrument unless the person has signed it, it would be necessary to examine the Uniform Commercial Code (UCC) to determine what constitutes a signature that would obligate a drawer to pay an instrument. The UCC provides that a document is “signed” when it includes any symbol executed by a party with a present intention to authenticate a writing. Authentication may be printed, stamped or written. The Court held that the question is always whether the symbol was executed or adopted by the party with the intention to authenticate the writing. Accordingly, a forged signature cannot convey the intention of the drawer to authenticate a writing. Only the malefactor can be held liable on a forged instrument. For that reason, the Court affirmed the lower Court’s decision to dismiss the assignee’s suit.

The Court added that even if the law placed liability on the company whose signature had been forged, it would still have to be shown that the cashing agency was a holder in due course. A holder in due course is one who cashes a check without evidence of forgery or alteration. Here, that was not the case. The evidence indicated that the checks were counterfeit and appeared to be so. Therefore, since the victimized company disputed the validity of the signatures on the checks, the burden of proof shifted to the assignee to show that the signatures were valid by showing an absence of evidence of forgery or alteration. Also, a holder in due course must satisfy both a subjective and objective test of good faith, requiring a consideration of the holder’s honesty in fact and observance of reasonable commercial standards.

Specifically, each check directed the holder to touch the check to confirm its authenticity, advising that, because of the heat sensitive ink, the logo “should fade when touched.” The assignee did not dispute the company’s assertion that the counterfeit checks did not contain heat sensitive ink and that simply touching the checks would have revealed their bogus nature. Finally, the Court pointed out that the company claiming to be a holder in due course was a check cashing company. While the failure to follow the directions on the checks would have likely precluded any holder from claiming such status, certainly it precluded a company in the business of cashing checks. Consequently, according to the Court, it was commercially unreasonable for a check cashing agency not to utilize the heat sensitive test.

Finally, the assignee argued that the victimized bank customer’s contract with its bank impacted on the issues at hand. Specifically, it noted that this contract authorized the bank to honor and pay, without limit and without inquiry, checks drawn on the account “regardless of by what means the actual facsimile signature may have been written, if such a signature resembles the signature filed with the bank.” The Court ruled, however, that its bank customer’s contract only governed the relationship between the account holder and the bank, and placed the risk of loss on the account holder if the bank were to pay a check containing a signature resembling the filed facsimile specimen. In this case, the rights and liability of the bank’s customer and its bank governed by the contract were never triggered because the bank dishonored all the checks.

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