On appeal from Superior Court, Chancery Division, Essex County.
Botter, Antell and Furman. The opinion of the court was delivered by Botter, P.J.A.D.
[186 NJSuper Page 56] The general question posed in this case is what relief, if any, can plaintiff obtain against a bank whose cashier's check, issued in 1978 to plaintiff's order, has not been presented for payment and apparently has been lost. Implicated in the case is the holding in National Newark & Essex Bank v. Giordano, 111 N.J. Super. 347, 351 (Law Div. 1970), cited with approval in dictum in Bruno v. Collective Fed'l S. & L. Ass'n, 147 N.J. Super. 115, 122
n. 2 (App.Div.1977), that a bank cannot stop payment on or refuse payment of its cashier's check because it is a draft accepted by the bank when issued and is like cash. Defendant relies on this rule as the basis for its demand for security against loss in the event the check is later presented by someone for payment. The trial judge ordered defendant to replace the check only if plaintiff posts security in the full amount of the check, namely, $15,514.46, the security to be in force for seven years from the date the check was issued. Other relief sought by plaintiff, including interest on this amount while held by the bank, was denied. The trial judge did not decide whether defendant can refuse to pay the check if it is presented. For reasons that are later stated, we modify the judgment to afford plaintiff much of the relief he sought.
The judgment on appeal stems from cross-motions for summary judgment which were considered as if the following facts had been stipulated.*fn1 On June 17, 1978 plaintiff withdrew all the funds in a savings account which he maintained at defendant's bank amounting to $15,514.46, and, apparently at plaintiff's request, the bank issued its cashier's check for that amount to plaintiff's order. (Defendant's pretrial memorandum states that plaintiff said he was planning to return to Puerto Rico.) Plaintiff told a bank employee that he intended to mail the check to his father in Puerto Rico. Defendant asserts that its employee advised plaintiff against putting a cashier's check in the mail; that plaintiff was told the funds could be transferred to Puerto Rico by cable, but that plaintiff rejected this suggestion and the cashier's check was then issued. Plaintiff mailed the check to his father in Coamo, Puerto Rico. Eleven days later, on June 28, 1978, plaintiff advised the bank that the check had been lost in the mail and he asked for a substitute check. The bank demanded an indemnification bond or other security, N.J.S.A. 12A:3-804, and see N.J.S.A. 12A:3-603, but plaintiff could not
get a bond since he was unemployed and had no other assets. The bank also tried to assist plaintiff in obtaining a bond but was unsuccessful. The check has never been presented for payment.
The record does not establish whether plaintiff indorsed the check before putting it in the mail or, if indorsed, how it was indorsed. Plaintiff's attorney asserted at oral argument below that plaintiff would deny that he had indorsed the check. However, the trial judge inferred that he probably indorsed the check so that it would be of some use to his father when it arrived in Puerto Rico.*fn2
Plaintiff started this action in February 1980. The relief sought in the trial court was a judgment compelling the bank to issue a duplicate check or credit his account with $15,514.46, without security. Alternatively, the complaint sought to compel defendant to establish an interest-bearing account in trust for plaintiff, paying him interest periodically, with the principal to be turned over to plaintiff after six years from the date the check was issued or on another date fixed by the court. In addition, plaintiff sought interest from the date the check was issued, contending that the bank has been unjustly enriched by the use of plaintiff's money since that time.
The judgment that was entered was termed a final judgment in favor of defendant, although not resolving all issues in the case that will be dealt with hereafter. As stated above, defendant was ordered to issue a substitute check when plaintiff posted the security, despite the knowledge that plaintiff had not
been able to satisfy this condition. The judgment provided that the security bond would remain in effect until June 17, 1985, seven years from the date of the check. The judgment also provided that plaintiff could move for a modification "if plaintiff discovers evidence as to the existence or non-existence" of the check in the future. All other relief sought by plaintiff was denied. Left unresolved was plaintiff's claim that the money be paid to him at some future time after the statute of limitations has run, although the judgment may be read to imply plaintiff's right to claim the money by reopening the judgment after seven years if he has not posted security before then and the check is still missing.*fn3
On appeal plaintiff acknowledges language in our cases to the effect that a bank cannot stop payment on a cashier's check that it has issued. National Newark & Essex Bank v. Giordano, supra. He argues, nevertheless, that payment may be "stopped" in certain circumstances, citing TPO Inc. v. Federal Deposit Ins. Corp., 487 F.2d 131 (3 Cir. 1973) (see n. 5, infra). In the case at hand he contends that so much time has passed without the check having been presented for payment that no one coming forward with the check at this late date could possibly be a holder in due course. A holder in due course must take the instrument "without notice that it is overdue . . . or of any
defense against or claim to it on the part of any person." N.J.S.A. 12A:3-302(1)(c). N.J.S.A. 12A:3-304(3) provides that a purchaser has notice that an instrument is overdue "if he has reason to know . . . (c) that he is taking a demand instrument . . . more than a reasonable length of time after its issue." The same section presumes that a reasonable time for taking a check drawn and payable in the United States and its territories is 30 days from the time it is issued. Thus, ignoring that someone may have taken the check in timely fashion in 1978 and not yet presented it for payment, plaintiff argues that anyone who presents the check now could not have taken it without notice of its staleness and could not be a holder in due course. Therefore he asks the court to determine the date when the bank would no longer be liable on the check to a holder who may present it for payment.
Unique characteristics have been attributed to cashier's checks. However, the Uniform Commercial Code (hereafter referred to as the UCC or the Code, adopted in New Jersey as N.J.S.A. 12A:1-101 et seq.) does not even mention cashier's checks in Article 3 which governs negotiable instruments.*fn4 This has created some uncertainty about the right of a bank to stop or refuse payment and to assert defenses of its own or those of its customer against payment of such checks.*fn5 Professor Lawrence,
in "Making Cashier's Checks and Other Bank Checks Cost-Effective: A Plea for Revision of Articles 3 and 4 of the Uniform Commercial Code," 64 Minn.L.Rev. 275, 285-286 (1980), has described the problem as follows:
Although the common belief is that cashier's checks are cash equivalents, the provisions of the Uniform Commercial Code give no indication of how cashier's checks are to be treated. The Code's failure to set forth the rights and liabilities of the parties to a cashier's check has created a good deal of confusion. Moreover, the concern voiced by those courts that seek to ensure the cash-like quality of cashier's checks is at odds with the assumption that these checks should be governed by existing provisions of the Code.
The problem of allocating the risks of litigation and of lost funds has been especially vexing when either the bank or purchaser has a defense arising from the purchase of a cashier's check or from its subsequent negotiation. Courts and commentators have divided sharply over which parties most deserve protection. Two general approaches to the problem have developed. The first looks upon cashier's checks as ordinary negotiable instruments, and treats them as such under the Code. The second approach looks upon cashier's checks as cash equivalents, and ignores the Code provisions that allow obligors on ordinary negotiable instruments to escape liability under certain conditions. [Footnotes omitted]*fn6 [186 NJSuper Page 62] It is not that courts have ignored the Code in determining a bank's obligation to pay a cashier's check.*fn7 Rather, in viewing these checks as cash equivalents, courts tend to focus on those sections of the Code that seem to make obligations on these instruments final and not subject to countermand. The common perception of cashier's checks as something like cash,*fn8 having at the least the credit of a bank behind them, derives from principles of law that prevent banks from countermanding such checks in certain situations. For example, the holding in Giordano, supra, can be sustained on the ground that Giordano's
defense against the holder could not be interposed as a bar to the bank's obligation to pay the check because it was merely a personal defense based upon the holder's breach of warranty in the sale of trucks. Like other negotiable instruments, payment of a cashier's check held by a holder in due course cannot be defeated by "personal" defenses. See N.J.S.A. 12A:3-305, N.J. Study Comment 1. But it is a mistake to conclude that cashier's checks are like cash in all situations. Rather, their cash-like nature depends on the extent to which various Code provisions bar the interposition of defenses to payment, including defenses of third parties. See N.J.S.A. 12A:3-306(d) and N.J.S.A. 12A:3-603(1); cf. N.J.S.A. 12A:3-804.
Section 3-804*fn9 applies to lost or stolen instruments and allows recovery by the owner from any party who is liable, subject to posting such security as may be ordered in the court's discretion to assure indemnification of an obligor against loss by reason of further claims on the instrument. However, the right to recover on a lost or stolen check, giving security to the drawer, does not advance us very far in determining the issues in this case. The first issue we must decide is whether any relief can be given to plaintiff without his posting security. Section ...