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Robert J. Triffin v. Progressive Freedom Insurance Company A/K/A Progressive Direct


November 18, 2011


On appeal from the Superior Court of New Jersey, Law Division, Burlington County, L-3056-09.

Per curiam.


Argued October 18, 2011

Before Judges Payne and Reisner.

Plaintiff Robert Triffin appeals from the dismissal, on summary judgment, of his complaint against defendant Progressive Freedom Insurance Company (Progressive).*fn1 For the reasons that follow, we remand this matter to the trial court.


Triffin is in the business of buying dishonored checks from check cashing companies and trying to collect on them. See Triffin v. Somerset Valley Bank, 343 N.J. Super. 73, 78 (App. Div. 2001). Because he knows that the checks are dishonored at the time he buys them, Triffin himself is not a holder in due course. Rather, his enforcement rights derive from the status of the check cashers from whom he takes the assignments. Triffin v. Liccardi Ford, Inc., 417 N.J. Super. 453, 456-57 (App. Div. 2011). If the check cashers are holders in due course, then Triffin can enforce the checks free of the makers' defenses, other than those limited defenses that can be asserted against a holder in due course. Id. at 457. If a check casher did not act in a commercially reasonable manner, it is not a holder in due course and Triffin is subject to all of the maker's defenses. Ibid.; N.J.S.A. 12A:3-308(b).

In this case, Triffin took by assignment from a check casher, Zaver Financial Services Inc., two documents that were not checks but were drafts issued by an insurance company upon itself, payable through a bank. Although Triffin asserts that the documents were "check-like," he and Zaver's managers were both well aware that the documents were not checks. According to the deposition of Zaver's manager, the company's usual practice was to call the "pay through" bank before accepting an insurance draft. However, in the case of the two drafts at issue, Zaver decided to take the risk of paying without inquiring first. It turned out that Progressive had stopped payment on both drafts, and hence Zaver could not collect on them. Significantly, before the trial court, Triffin repeatedly conceded that the two insurance drafts were not "negotiable instruments."

On this appeal, Progressive asserts the following reasons for stopping payment on the drafts. With respect to each draft, the insured had reported to Progressive that the draft never arrived. Concerned that the draft may have been lost in the mail, Progressive stopped payment on the original draft and issued a new one. However, the insured apparently obtained the original draft and cashed it at Zaver's establishment.

Although Progressive articulates this defense, in the trial court Progressive did not prove its defense with legally competent evidence. Instead, it submitted only a certification from its attorney, attesting that attached to his certification were some adjusters' notes. There was no certification from the adjusters or any other Progressive employee, and the notes, which were somewhat cryptic in any event, were not authenticated as business records. Progressive's statement of material facts in support of its summary judgment motion did not refer to any facts or evidence concerning its underlying defense to enforcement of the drafts.

In granting summary judgment, the trial judge considered that the drafts were not negotiable instruments. Second, she considered that even if they were negotiable instruments, Zaver was not a holder in due course because it failed to call the bank to confirm that the drafts were in fact payable. She did not address Progressive's challenge to the validity of the assignment from Zaver to Triffin, or Progressive's asserted reasons for stopping payment on the drafts.


We review the trial court's summary judgment decision de novo, employing the Brill standard. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Based on our review of the record, and the applicable law, we first conclude that Triffin, having specifically conceded before the trial court that the documents in question were not negotiable instruments, and having also stipulated that the trial court should apply the UCC in deciding the case, is estopped from asserting a different position on this appeal. See N.J. Div. of Youth & Family Servs. v. M.C. III, 201 N.J. 328, 340-41 (2010)(explaining the doctrine of invited error). Under the UCC, the holder in due course rule only applies to a negotiable instrument. N.J.S.A. 12A:3-302.

It could certainly be argued that the dishonored drafts, which Progressive issued and which Triffin took by assignment from Zaver, were not checks but were negotiable instruments, within the meaning of N.J.S.A. 12A:3-104a. That section provides:

a. Except as provided in subsections c. and

d. of this section, "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

(1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) is payable on demand or at a definite time; and

(3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain an undertaking or power to give, maintain, or protect collateral to secure payment, an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or a waiver of the benefit of any law intended for the advantage or protection of an obligor. [N.J.S.A. 12A:3-104a.]

Subsection b explains that for purposes of the UCC, the term "'[i]nstrument' means a negotiable instrument." N.J.S.A. 12A:3-104b. However, a document need not be a check in order to qualify as a negotiable instrument. A draft can also be a negotiable instrument.

An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within the definition of both "note" and "draft," a person entitled to enforce the instrument may treat it as either. [N.J.S.A. 12A:3-104e.]

The official comments to the UCC state that "[i]nstruments are divided into two general categories: drafts and notes" and further explain that a "check" is a type of draft. Comment 4 to N.J.S.A. 12A:3-104. According to the comment, "a draft drawn on an insurance company payable through a bank is not a check because it is not drawn on a bank." Ibid. However, the comment does not thereby imply that an insurance company draft cannot be an instrument. In using the term "draft" the comment plainly implies that such a document is an instrument. See Mandelbaum v. P & D Printing Corp., 279 N.J. Super. 427, 432 n.1 (App. Div. 1995)(finding that an insurance company draft was an "instrument"); Gast v. Am. Cas. Co., 99 N.J. Super. 538 (App. Div. 1968)(referring to an insurance company draft as an instrument under the UCC); 55th & Ashland Currency Exchan. v. City Mut. Ins. Co., 420 N.E. 2d 780 (Ill. App. 1981); Lialios v. Home Ins. Cos., 410 N.E. 2d 193 (Ill. App. 1980). Comment 2 to N.J.S.A. 12A:3-103 also states that insurance company drafts drawn on the insurer but "payable at or through a bank" are "also treated as drafts."*fn2

In pertinent part, the UCC defines "holder in due course" as the holder of "an instrument" who takes it "for value and in good faith": "holder in due course" means the holder of an instrument if:

(1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

(2) the holder took the instrument for value, in good faith, without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, without notice that the instrument contains an unauthorized signature or has been altered, without notice of any claim to the instrument described in 12A:3-306, and without notice that any party has a defense or claim in recoupment described in subsection a. of 12A:3-305. [N.J.S.A. 12A:3-302a (emphasis added).]

As we explained in Triffin v. Liccardi Ford, Inc., supra, 417 N.J. Super. at 456, "'[g]ood faith' includes 'the observance of reasonable commercial standards of fair dealing.' N.J.S.A. 12A:3-103(a)(4)." Further "a holder in due course must satisfy both a subjective and an objective test of good faith, requiring a consideration of the holder's honesty in fact and observance of reasonable commercial standards." Triffin v. Pomerantz Staffing Servs., 370 N.J. Super. 301, 308 (App. Div. 2004) (internal citations omitted). "A party who fails to make an inquiry, reasonably required by the circumstances of the transaction, so as to remain ignorant of facts that might disclose a defect cannot claim to be a holder in due course." Id. at 309.

We set forth this discussion in part because we are somewhat puzzled by Triffin's concession that the documents were not negotiable instruments and in part to explain our conclusion that Triffin cannot assert the rights of a holder in due course.*fn3

Triffin is no novice to this type of litigation, and we will not permit him to abuse the judicial process by conceding in the trial court that the documents he seeks to enforce are not negotiable instruments and then attempting to avoid the consequences of that concession on appeal. See N.J. Div. of Youth & Family Servs. v. M.C. III, supra, 201 N.J. at 340-41. Moreover, by conceding that the documents were not negotiable instruments, he prevented Progressive from creating a complete factual record addressing that issue.

Under the UCC, which all parties agreed the trial court would apply in this case, the holder in due course rule only applies to an "instrument," a term the UCC defines as synonymous with "negotiable instrument." An instrument need not be a check; it can be a different kind of "draft" or it can be a "note." See N.J.S.A. 12A:3-104e and Comment 4. Holders of any of those instruments can be holders in due course if they otherwise satisfy the requirements of N.J.S.A. 12A:3-302. However, this analysis is irrelevant here because Triffin conceded that the insurance documents at issue are not negotiable instruments.

Nonetheless, even if a document is not a negotiable instrument and the holder is not a holder in due course, "all choses in action arising on contract shall be assignable." N.J.S.A. 2A:25-1. See Triffin v. Liccardi Ford, supra, 417 N.J. Super. at 457. The insurance documents at issue here were clearly contracts in that they were, in effect, promises to pay money to the insured in exchange for the release of the insurance claim. And they did not bear any notation that they were not assignable. Therefore, when Zaver paid the insureds for them, and Triffin took an assignment from Zaver, the right to enforce the drafts passed to Triffin. In that process, of course, he took assignment of his predecessors' rights subject to Progressive's defenses against enforcement. See N.J.S.A. 1A:25-1; N.J.S.A. 12A:3-308(b); James Talcott, Inc. v. H. Corenzwit & Co., 76 N.J. 305, 309-11 (1978).*fn4

However, because Progressive did not establish its defenses by legally competent evidence, it was not entitled to summary judgment dismissing Triffin's complaint. We therefore remand this matter to the trial court for the limited purpose of determining whether Progressive can prove its defenses to enforcement relating to the stopped payments, and its challenge to the validity of the assignment.

Triffin's remaining arguments on this appeal, including his challenges to all of the interlocutory orders that preceded the summary judgment order, are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).


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