Case Law Summaries

Triffin v. Somerset Valley Bank

• Opinion Date: July 17, 2001
• Business Law
• E-Mail

CHECKS; UCC—The purchaser of a dishonored check remains a holder in due course and is not barred from pursuing collection just because the check was invalid when purchased from the prior holder.

An individual in the business of purchasing dishonored negotiable instruments purchased eighteen such checks from various check cashing companies. The eighteen checks were all issued by the same company. After the check cashing companies had presented the checks for collection, the checks were returned marked by the issuing bank as “stolen check - do not present again.” The check cashing companies stated that they cashed the checks in good faith, without notice of any claims or defenses to the checks, without knowledge that the signatures on the checks were unauthorized or forged, and with the expectation that the checks would be paid upon presentment to the issuing bank. The check purchaser filed suit to enforce the issuer’s liability on the checks claiming that the issuing company was negligent in failing to safeguard its payroll checks and its authorized facsimile signature stamp. The lower court granted summary judgment in favor of the purchaser on the basis that there was no genuine issue of fact as to the authenticity of the eighteen checks. It reasoned that because each of the check cashing companies took the checks in good faith, the check purchaser was a holder in due course as assignee. The issuing company appealed, arguing that the court failed to properly address the fact that the checks were invalid negotiable instruments and therefore erred in finding that the individual was a holder in due course. The Appellate Division began by recognizing that the checks were “negotiable instruments” as defined in N.J.S. 12A:3-104 because each check was payable to a bearer for a fixed amount, on demand, and did not state any other undertaking by the person promising payment, aside from the payment of money. In addition, each check was signed by the president of the issuing company through the use of a facsimile stamp. Having concluded that the checks were negotiable instruments, the Appellate Division then explored whether the checks were unenforceable by a holder in due course where the signature on the checks was forged or unauthorized. The Court reviewed the provisions of N.J.S. 12A:3-203 and 12A:3-302 which govern the rights of a holder in due course and the rights of a transferee of a holder in due course. It then concluded that the check cashing companies were holders in due course and that the check purchaser was a transferee of a holder in due course. The Court relied on affidavits of the check cashing companies that they cashed the checks in good faith and had no knowledge that the checks were unauthorized or fraudulent, and that each check cashing company transferred the dishonored checks to the purchaser for consideration. The Court dismissed the issuing company’s argument that the checks were per se invalid because they were fraudulent and unauthorized. The Court reasoned that in order to preclude liability from a holder in due course, “it must be apparent on the face of the instrument that it is fraudulent. Here, the issuing company failed to introduce any evidence that the appearance of the checks would give notice that the checks were not valid.

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