On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Burlington County.
Approved for Publication February 7, 1997.
Before Judges Dreier, D'Annunzio and Villanueva. The opinion of the court was delivered by Dreier, P.j.a.d.
The opinion of the court was delivered by: Dreier
The opinion of the court was delivered by
Plaintiff, Robert J. Triffin, appeals from a Special Civil Part summary judgment dismissing his complaint for payment of a draft of defendant Cigna Insurance Company transferred to plaintiff by a holder in due course after Cigna had stopped payment on the instrument.
The facts appear to be uncontroverted. The defaulting defendant, James Mills, received a draft in the amount of $484.12, dated July 7, 1993 from one of Cigna's constituent companies, Atlantic Employers Insurance Company. The draft had been issued for workers' compensation benefits. Mills falsely indicated to the issuer that he had not received the draft due to a change in his address and requested that payment be stopped and a new draft issued by defendant. The insurer complied and stopped payment on the initial draft. Mills nevertheless negotiated the initial draft to plaintiff's assignor, Sun Corp. t/a Sun's Market, before the stop payment notation was placed on the draft. All appear to agree that Sun Corp. was a holder in due course. Sun Corp. presented the draft for payment through depositary and collecting banks. The issuer's bank dishonored the draft in accordance with its customer's direction, stamped it "Stop Payment," and returned the draft to Sun Corp. There is no question that had Sun Corp. at that point pressed its claim against the insurer as the issuer of the instrument, Sun Corp. would have been entitled to a judgment because of its status as a holder in due course. *fn1
Thereafter, plaintiff, who apparently is in the business of purchasing dishonored instruments, obtained an assignment of Sun Corp.'s interests in this instrument and proceeded with this law suit. Plaintiff does not contend that he is a holder in due course of the instrument by virtue of it being negotiated to him for value, in good faith, without notice of dishonor, under the former holder in due course statute, N.J.S.A. 12A:3-302(1), nor under the present statute, N.J.S.A. 12A:3-302a(2).
Such negotiation is, of course, only one way for a holder to claim the status of a holder in due course. There exists a second method by which one may become a holder in due course. The shelter provisions of former N.J.S.A. 12A:3-201(1), which was in effect when plaintiff obtained his assignment of this instrument, state clearly that "transfer of an instrument vests in the transferee such rights as the transferor has therein...." Official Comment 3 to that section sets to rest any question of whether this section applies to the transfer by assignment of the rights of a holder in due course. The Comment reads: "A holder in due course may transfer his rights as such.... [The former Negotiable Instruments Law section's] policy is to assure the holder in due course a free market for the paper, and that policy is continued in this section." Example (a) following this comment could have been drawn from this case, but is even stronger because it adds an element of fraud and posits a gratuitous transfer rather than a purchase, as in our case:
(a) A [Mills] induces M [Cigna] by fraud to make an instrument payable to A. A negotiates it to B [Sun Corp.], who takes as a holder in due course. After the instrument is overdue B gives it to C [plaintiff], who has notice of the fraud. C succeeds to B's rights as a holder in due course, cutting off the defense.
If the 1995 amendments are to be given retroactive effect, *fn2 the law governing the rights of a transferee who merely has accepted the transfer of the instrument is now found in N.J.S.A. 12A:3-203b. It restates the principle of the former Official Comment 3, example (a), as substantive law. This section states:
Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course....
The Uniform Commercial Code Comment 2 to this section ...