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Triffin v. Third Federal Savings Bank


December 17, 2008


On appeal from Superior Court of New Jersey, Law Division, Special Civil Part, Mercer County, Docket No. DC-2968-07.

Per curiam.


Argued: October 8, 2008

Before Judges Lihotz and Messano.

On cross motions for summary judgment, the Law Division granted defendant's motion and dismissed plaintiff's complaint. Additionally, plaintiff's motion to amend his complaint was denied. Plaintiff appeals from these orders asserting the court erroneously interpreted the applicable law. Following our review, we affirm for the reasons stated below.

The facts are undisputed. Plaintiff Robert J. Triffin is in the business of purchasing dishonored checks. Plaintiff entered into separate assignment agreements with Richmond Financial Services, Inc., a check cashing company (Richmond), to purchase Richmond's rights and interests in five dishonored checks drawn on defendant Third Federal Savings Bank. More specifically, the checks at issue were drawn on the account of defendant's depositor, Veterans of Foreign Wars Post 22 (Veterans).

The five checks uttered on Veterans' account were presented to Richmond, which cashed them. Richmond deposited the checks into its account at Wachovia Bank (Wachovia). Wachovia credited Richmond's account and presented the checks to the Federal Reserve Bank, Philadelphia, PA (the Fed) branch for transmittal to defendant. The Fed presented electronic images of the checks to defendant for payment. Defendant paid Wachovia through a debit of defendant's Fed account and also debited Veterans' depository account.

After Veterans informed defendant it executed affidavits attesting the checks were forgeries, defendant printed an electronic copy of each check. On the face of each check, defendant stamped, "RETURNED UNPAID," with the additional notation "OTHER FORGERY." A different stamp appears on the back of the electronic copy of each check, which states:

This is a photographic facsimile of the original check, which was endorsed by the undersigned and reported lost, stolen or destroyed, while in the regular course of bank collection. All prior endorsements and any missing endorsements and the validity of this facsimile are hereby guaranteed, and upon payment hereof in lieu of the original check, the undersigned will hold each collecting bank and payor bank harmless from any loss suffered, provided the original check is unpaid and payment is stopped thereon. Third Federal Savings Bank 2313-7218-3.

Below the stamp is a signature of defendant's authorized representative, who appears to be Junita John. The checks were sent to the Fed to reverse the prior account debit. The Fed credited defendant's account and debited Wachovia's account. Defendant credited Veterans' account. It can be assumed Wachovia debited Richmond's account.

Plaintiff purchased the dishonored checks from Richmond, pursuant to the terms of an assignment agreement. Plaintiff filed this action, solely against defendant, seeking payment on the instruments.*fn1 In his complaint, plaintiff alleges liability based on a "breach of contract/warranties." Plaintiff argues the copies of the checks returned to Richmond, plaintiff's assignor, "do not constitute legally enforceable dishonored checks" because the copies failed to include the legend: "THIS IS A LEGAL COPY OF YOUR CHECKS YOU CAN USE IT THE SAME WAY YOU WOULD USE THE ORIGINAL CHECKS." Plaintiff also contends defendant received funds from Richmond's account in an amount equal to the amount of the dishonored checks, triggering warranties extended to depositors. Citing 12 C.F.R. 229.56(a), plaintiff claims defendant is obligated to satisfy the face amount of the dishonored checks, pay prejudgment interest, and reimburse the return check fees.

Plaintiff moved and defendant cross-moved for summary judgment. Plaintiff also filed a motion to amend his complaint, asserting that without defendant's provision of legally enforceable substitute checks, he can not sue the forger for recovery. Finally, plaintiff voluntarily dismissed, with prejudice, the "Sixth Claim" of his action. The parties' motions were determined without benefit of oral argument.

The Special Civil Part judge denied plaintiff's motion to amend his complaint with this notation on the June 25, 2007 order: "Plaintiff is free to file a complaint against the alleged 'endorser' of the checks, or the forger of the checks. However, there is no reason to continue the case as to the defendant bank." In a second order dated June 25, 2007, the judge denied plaintiff's motion for summary judgment and granted defendant's cross-motion for summary judgment.

In making his determination, the motion judge provided no conclusions of law, as required by Rule 1:7-4(a). We undertake a de novo review, Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995), to determine whether the competent evidentiary materials presented, when viewed in the light most favorable to the plaintiff, are sufficient as a matter of law to resolve the alleged disputed issue in favor of defendant. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

On appeal, plaintiff states his assignor did not get what he paid for, namely[,] legally equivalent copies of dishonored checks from [defendant]. The focus of plaintiff's theory of liability is that, although [defendant] received 'consideration' - and as defined in 12 C.F.R. 229.2(ccc) - . . . [defendant's] return of . . . legally non-conforming facsimile check[] copies constitutes a material breach of . . . statutory warranties to the depositor of the . . . original check.

Plaintiff argues that he, standing in the shoes of the original depositor, may recover damages for breach of the warranties set forth in 12 C.F.R. 229.52.

Additionally, plaintiff includes a legal discussion, suggesting defendant's untimely recovery of payment on the returned items and the dishonor of the instruments occurred beyond the midnight deadline enunciated in N.J.S.A. 12A:4-301.*fn2

This issue was not affirmatively pled, but mentioned in plaintiff's opposition to defendant's summary judgment motion. Nevertheless, we will address the issue. See Neider v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1972) (generally, appellate courts "decline to consider issues not properly presented to the trial court").

Defendant maintains it did not and had no obligation to issue substitute checks because the instruments were dishonored due to forgery. Defendant also advances forum non conveniens in support of its summary judgment motion.*fn3 There is no need to review this latter argument because we affirm the Special Civil Part orders, based upon our review of the applicable law.*fn4 Thus, we determine whether plaintiff, as the assignee of the rights and interests in the checks dishonored as forgeries, is entitled to enforce statutory warranties such that the payor bank is liable for payment on the check. We first address plaintiff's argument asserting untimely dishonor, pursuant to N.J.S.A. 12A:4-301.

The statute provides the circumstances under which a payor bank that has settled on an item may return the item, revoke settlement, and recover funds paid. The statute states in pertinent part:

(a) If a payor bank settles for a demand item . . . the payor bank may revoke the settlement and recover the settlement if, before it had made final payment and before its midnight deadline

(1) returns the item; or

(2) sends written notice of dishonor or nonpayment if the item is unavailable for return.

(b) If a demand item is received by a payor bank for credit on its books, it may return the time or send notice of dishonor and may revoke any credit given or recover the amount thereto withdrawn by its customer, if it acts within the time limit and in the manner specified in subsection (a).

Plaintiff argues defendant's failure to revoke settlement and return the item before the midnight deadline results in an obligation for final payment. We are satisfied plaintiff's contention lacks merit.

Despite plaintiff's suggestions to the contrary, "the action pursued . . . is not based on a contractual right," but a statutory one that "consequently [] is not assignable." Triffin v. TD Banknorth, N.A., 190 N.J. 326, 329 (2007). Plaintiff took the checks, following their untimely return, with full knowledge of their dishonor due to forgery. He "'has no vested interest in the timely payment or return of these checks . . . . It is a cause of action for a breach of statutory duty, not an action for collection of a negotiable instrument.'" TD Banknorth, supra, 190 N.J. at 329 (quoting Triffin v. Bridge View Bank, 330 N.J. Super. 473, 478 (App. Div. 2000)).

Next, we turn to the plaintiff's argument suggesting defendant breached its obligation to return the original dishonored checks or provide legally enforceable electronic substitutes. The "Check Clearing for the 21st Century Act" (the Act), allows banks to "truncate," or "remove [] original paper check[s] from the check collection or return process and send to the recipient, in lieu of such original paper check, a substitute check or, by agreement, information relating to the original check." 12 U.S.C.A. § 5002(3)(18). The Act was passed:

(1) To facilitate check truncation by authorizing substitute checks.

(2) To foster innovation in the check collection system without mandating receipt of checks in electronic form.

(3) To improve the overall efficiency of the Nation's payments system.

[12 U.S.C.A. § 5001(2)(b).]

Section 5003(4)(b) of the Act, states:

A substitute check shall be the legal equivalent of the original check for all purposes including any provision of any Federal or State law, and for all persons if the substitute check -

(1) accurately represents all of the information on the front and back of the original check as of the time the original check was truncated; and

(2) bears the legend: "This is a legal copy of your check. You can use it the same way you would use the original check.

Here, the electronic check images at issue do not bear the requisite legend to constitute substitute checks, but were stamped to identify their return as forgeries.

We reject plaintiff's argument that defendant held an affirmative obligation to return the original documents pursuant to the regulations promulgated to effectuate the Act. First, the Act makes clear, although a bank may return the original documents, electronic substitutes may be used instead to facilitate expeditious commercial paper transactions. 12 U.S.C.A. § 5001(2)(b).*fn5 The regulation on which plaintiff relies, 12 C.F.R. § 229.51, reiterates a substitute check is "the legal equivalent of an original check for all persons and all purposes . . . ." Ibid. The regulation does not provide a cause of action available to plaintiff.

Second, in this matter, defendant never received the original checks. At all times it utilized electronic copies of the checks received from the Fed. The originals, if they exist, were in Wachovia's possession and may have been presented to the Fed. However, it is more likely the originals were destroyed when the electronic copies were made. Defendant has no responsibility to plaintiff or his assignor to return the original instruments, which it never possessed.

Third, notice of dishonor may be given by any commercially reasonable means, including an oral, written, or electronic communication; and is sufficient if it reasonably identifies the instrument and indicates the instrument has been dishonored or has not been paid or accepted. Return of an instrument given to the bank for collection is sufficient notice of dishonor. [N.J.S.A. 12A:3-503(b).]

The notation stamped on the front of all five checks adequately complies with the statutory requirements.

Finally, the regulations promulgated under the Act provide adequate alternatives when an original document is unavailable. Section 229.31(f) of Title 12 of the Code of Federal Regulations, entitled "Notice in Lieu of Return," provides:

If a check is unavailable for return, the returning bank may send in its place a copy of the front and back of the returned check, or, if no copy is available, a written notice of nonpayment containing the information specified in § 229.33(b). The copy or notice shall clearly state that it constitutes a notice in lieu of return. A notice in lieu of return is considered a returned check and is subject to the expeditious return requirements of this section and to the other requirements of this subpart.

The stamped notation on each of the five checks at issue adequately complies with this regulation. The bank guarantees the copies were used in lieu of the original. Nothing more is necessary.

The remaining arguments asserted by plaintiff are without sufficient merit to warrant discussion in a written opinion.

R. 2-11-3(e)(1)(E).


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