Opinion
DOCKET NO. A-3795-10T2
03-01-2012
ROBERT J. TRIFFIN, Plaintiff-Appellant, v. APOLLO GROUP, INC., Defendant-Respondent, and JENNIFER HARRIS, Defendant.
Robert J. Triffin, appellant, argued the cause pro se. Daniel E. Orr argued the cause for respondent (Morgan Lewis & Bockius LLP, attorneys; Mr. Orr, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Axelrad and Ostrer.
On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Essex County, Docket No. DC-17289-10.
Robert J. Triffin, appellant, argued the cause pro se.
Daniel E. Orr argued the cause for respondent (Morgan Lewis & Bockius LLP, attorneys; Mr. Orr, on the brief). PER CURIAM
Plaintiff Robert Triffin appeals from the trial court's order granting the cross-motion for summary judgment of defendant Apollo Group Inc. (Apollo). Plaintiff sued to recover on a dishonored check that Apollo issued to the order of co-defendant Jennifer Harris. The trial court found that the check bore evidence of forgery or alteration that defeated any claim by plaintiff to be a holder in due course. We reverse.
I.
It is undisputed that Apollo issued check number 3620309 in the amount of $2,366, to the order of Harris, dated October 20, 2008, and drawn on its account at Wells Fargo Bank in Phoenix, Arizona. One Stop Mt. Holly (One Stop), apparently a licensed check casher, presented it for payment, but the check was dishonored on October 31, 2008. Through a written agreement of April 28, 2010, One Stop, by its general manager, Jo Anne Barlieb, assigned all its rights in this check to plaintiff.
Plaintiff attached a copy of the "Assignment Agreement" to his complaint, which included certain warranties of the seller. Although preceded by language prescribed by Rule 1:4-4(b), seller stated "to the best of its knowledge" that it cashed the check for Harris herself. "Seller gave value for the referenced check by cashing it for the payees who [are] identified on the referenced checks." However, One Stop further certified, without the "best of its knowledge" qualifier, that "at the time it cashed the referenced checks," One Stop "had no notice of any defense or claims in recoupment," no notice that the check was "overdue or had been dishonored," and the check "did not bear any evidence of forgery or alteration" and was "neither irregular nor incomplete as to call into question [its] authenticity."
One Stop assigned plaintiff rights to four checks under the Assignment Agreement. Interestingly, among them was another check, from a different drawer, with Jennifer Harris as the apparent payee.
Also undisputed are aspects of the appearance of the instrument that plaintiff purchased, which are evident from the copy attached to plaintiff's complaint. On the face of the check, Apollo is described as a subsidiary of the University of Phoenix, Inc. Harris's name appears on the "to the order of" line along with a seven digit number. A New Jersey address is listed under her name. There is no memo line indicating the purpose of the $2,366 payment. Next to the pre-printed "DATE" is the insertion "20-OCT-08," but to the left, stamped at angle is the date, "OCT 28 2008" apparently reflecting a stage in the processing of the check. Next to drawer's signature, which appears to be Joseph L. D'Amico, is another stamp which is partly illegible. Lastly, in large block letters, stamped on the left side of the check appear the words, "RETURN REASON - S" and "REFER TO MAKER."
What appears to be Jennifer Harris's signature is found on the first line of the indorsement area on the back of the check directly below the pre-printed words "ENDORSE CHECK HERE" and to the right of an "X." "Jennifer" is written in cursive, with most letters identifiable. "Harris" is stylistically written with a prominent "H" which is extended into a sweeping, generally horizontal line to the right, in place of the letters "arris."
On the next pre-printed line appears another signature, which is illegible. It appears to have another hand-written mark or letter superimposed on it, creating the appearance of two horizontal lines, but it is unclear whether they are flourishes that are part of the signature, or at least one is a cross-out. To the right of that signature, on the same line, is what appears to be a cursive "H," somewhat similar in appearance to the "H" on the first line.
To the right of the single "H" are the initials "JH" in block letters. The block letter "H" bears some resemblance to the cursive "H" in "Harris" on the line above. The crossbars in both the cursive "H" and the block letter "H" begin in the lower right of the letter and proceed on an angle up to the left, as opposed to crossing at the same point on both vertical lines.
On the third pre-printed line is written "for deposit only" followed by "acct" and an eight-digit number. The words "for deposit only" are stricken with a single horizontal line. The "JH" on the second line appears clearly above the stricken language. At the other end of the back of check, appears the pre-printed message, "THIS DOCUMENT IS PROTECTED BY ARTIFICIAL WATERMARKS HOLD AT AN ANGLE TO VIEW." The check was apparently deposited at Beneficial Savings Bank of Philadelphia, as its name is imprinted on the back of the check.
On June 3, 2010, plaintiff filed his complaint against Apollo and Harris in Special Civil Part. He alleged that One Stop had no notice of any defenses or claims by any party to the check, and was a holder in due course, and plaintiff was assigned One Stop's rights. He alleged that Harris indorsed the check and cashed it with One Stop. He sought payment, plus pre-judgment interest and certain costs.
The record before us does not indicate whether Harris was properly served. Plaintiff alleged she did not file an answer.
In December 2010, Apollo filed an answer. Apollo generally denied plaintiff's allegation that he had purchased all of One Stop's rights in the dishonored check "that the defendants respectively drew and cashed with assignor." But, Apollo asserted a lack of knowledge or information sufficient to form a belief as to the truth or falsity of plaintiff's allegation that "[a]s evidenced by the back of the attached dishonored check, on the date identified thereon the defendant payee [Harris] endorsed the referenced check, and in exchange for such endorsement, assignor gave value by cashing the referenced check for said payee." Apollo also denied plaintiff's allegation that when One Stop cashed the check, it "had no knowledge of any defenses or claims by any party to the referenced check." Apollo alleged as affirmative defenses the statute of limitations, and failure to state a claim. Apollo also "reserve[d] the right to pursue additional affirmative defenses as they become known."
In January 2011, apparently before either side engaged in discovery, plaintiff filed a motion for summary judgment. In his statement of material facts, plaintiff alleged that Harris personally cashed the check with One Stop. However, as noted above, the only record proof of that claim was the certification of One Stop's general manager, who qualified her claim "to the best of her knowledge." Plaintiff also alleged that One Stop cashed the check in good faith and for consideration; and Apollo stopped payment on the check. He alleged the check was dishonored after One Stop presented it, and he was assigned One Stop's rights. He also alleged that when One Stop cashed the check, he also was unaware of any claims or defenses to payment of the check. He also asserted, "It is crucial to note that Apollo does not allege in its answer that the underlying dishonored instrument is not a negotiable instrument, or that any signature appearing thereon is forged."
This does not constitute cognizable evidence on the motion. See R. 1:6-6; Stowell v. N.J. State Ass'n of Chiefs of Police, 325 N.J. Super 512, 520-21 (App. Div. 1999) (stating that allegations in an affidavit that were "true and correct to the best of my knowledge and belief" did not comply with the rule); State of N.J. v. One (1971) Datsun, 189 N.J. Super. 209, 211 (App. Div. 1983)(stating that verification that statements were "true to the best of my knowledge and belief" was a nullity).
Apollo cross-moved for summary judgment, initially supported solely by a certification of counsel who apparently lacked personal knowledge of relevant facts. Apollo disputed that Harris was the person who cashed the check at One Stop, and asserted that the check plaintiff possessed was a "fraudulent photocopy of the real check." Apollo asserted that Harris indorsed the check with the restrictive indorsement "deposit only" with her account number, and she deposited it at USAA Federal Savings Bank (USAA FSB) on October 27, 2008. Apollo claimed payment was made after the check was deposited at USAA FSB.
This also does not constitute cognizable evidence on the motion. See R. 1:6-6; Sellers v. Schonfeld, 270 N.J. Super. 424 (App. Div. 1993) (reversing grant of summary judgment where trial court relied on exhibits attached to certification of counsel who lacked first-hand knowledge of facts).
Defense counsel certified as true and accurate copies: the check as deposited at USAA FSB on October 27, 2008, "the forged check cashed at One Stop" on or about October 29, 2008," and the check as apparently re-submitted by One Stop on October 30, 2008. The attributes of the face of the check that Apollo asserted was deposited at USAA FSB on October 27, 2008 were identical to those of the check that plaintiff possessed, as described above, except that plaintiff's check contained the stamped date, the "REFER TO MAKER" stamp, and the illegible stamped characters.
The third check was not included in the appendix before us.
The indorsement area of the check is identical in some ways, but different in others. The first indorsement line, with "Jennifer Harris" written in cursive, is identical. The illegible signature on the second line appears to have just one horizontal line or flourish, as opposed to two; the single cursive "H" appears identical. However, the block letters "JH" do not appear on the second line, and the words "for deposit only" along with the word "acct" and the same eight-digit number appear without a line striking through them. In the center of the back of the check, USAA FSB is imprinted instead of Beneficial Savings Bank. The pre-printed language regarding the watermark is also present.
In a later-filed additional certification, Apollo's accounting director, Ben Cilek, presented another copy of the check as allegedly deposited at USAA FSB, stating it was a "true and accurate copy of a report from Wells Fargo." He stated, "According to Apollo's records, funds were drawn from Apollo's Wells Fargo account to pay check 3620309 on October 27, 2008." He further stated "Apollo believes that the checks alleged by the plaintiff in this case . . . were photocopied forgeries of the actual check paid on October 27, 2008." Cilek maintained "any subsequent checks numbered 3620309 from Apollo's Wells Fargo account were not authorized by Apollo and used unauthorized signatures."
The trial judge apparently prompted Cilek's certification that Apollo did not authorize the signatures on the check plaintiff purchased. The judge inquired of counsel, pre-argument, whether the motions were governed by his unpublished written decision in another case involving plaintiff and One Stop. In that case, a payroll check allegedly went lost, a replacement check was sent and cashed by the payee, and then the original was cashed with One Stop, purportedly indorsed by the named payee. Without deciding whether the payee's indorsement on the original check was forged, the judge held that the "improper and fraudulent" indorsement was "unauthorized" and therefore ineffective. N.J.S.A. 12A:3-403(a).
The court denied plaintiff's motion and granted Apollo's cross-motion for summary judgment. The court found the check presented to One Stop was unquestionably a forgery.
On October 20th, 2008 Apollo Group Inc drew check 3620309 in the amount of $2,366 to the order of Jennifer Harris. Ms. Harris endorsed the check for deposit only with the account number and deposited it at USAAA Federal Savings Bank on October 27th, 2008. That is the for deposit only even reflected on P1 which is the check for which Mr. Triffin is seeking payment here. One Stop — the check P1 is the check presented per plaintiff to One Stop which on the face of it includes for deposit only, and with the crossed out endorsement. One Stop despite these crossed out endorsements and for deposit only entry cashed the check. The forgery was refused by Beneficial Savings twice dishonoring the check on the 29th and the 30th of October.
The court held, based on N.J.S.A. 12A:3-302a(2), that plaintiff was not a holder in due course in his own right, because he obtained the check aware that it had been dishonored. The court recognized that one can be assigned another's status as a holder in due course. However, the court found that One Stop was not a holder in due course because the condition of the check as presented made it obvious that it was forged, and altered in such a way as to raise questions about its authenticity. "[W]here the face of the check[] proffered . . . [has] cross outs of for deposit only and of the signatures of the persons on the back of the check, there is apparent evidence of forgery or alteration on two alternative grounds."
Alternatively, the court held that even if One Stop paid the check in good faith, the indorsement was unauthorized, and One Stop therefore could only recover against the unauthorized signor, citing Triffin v. Am. Int'l Group, Inc., 372 N.J. Super. 517, 522 (App. Div. 2004) and N.J.S.A. 12A:3-403, comment 2 (2004).
On appeal, plaintiff does not challenge the court's denial of his motion for summary judgment, but argues the court erred in granting summary judgment to Apollo. He raises the following points:
POINT ONE
THE TRIAL COURT COMMITTED REVERSIBLE ERROR OF LAW WHEN IT ASSUMED FACTS NOT IN EVIDENCE AND DECIDED PREEMPTIVE DEFENSES THAT APOLLO HAS NOT PLEAD
POINT TWO
THE TRIAL COURT COMMITTED REVERSIBLE ERROR WHEN IT FOUND THAT THE HOLDER IN DUE COURSE DOCTRINE APPLIES TO TRIFFIN'S CLAIM AGAINST APOLLO
POINT THREE
THE TRIAL COURT COMMITTED REVERSIBLE ERROR WHEN IT ASSUMED MATERIAL FACTS NOT IN EVIDENCE
II.
The trial court's grant of summary judgment is subject to de novo review. Lapidoth v. Telcordia Tech., Inc., 42 0 N.J. Super. 411, 417 (App. Div. 2011). We apply the same standard as a trial court under Rule 4:46, and "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational fact finder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). Issues of law are also subject to our plenary de novo review. Regarding "the review of legal conclusions reached on summary judgment . . . '[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference.'" Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 382-83 (2010) (quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).
When plaintiff moved for summary judgment, he apparently was unaware that payment on the check had been made. He apparently believed, mistakenly, that he possessed the only copy of the check, and this was a simple stop-payment case. Plaintiff concedes that Apollo's cross-motion for summary judgment, disclosing the earlier deposit to USAA FSB, demonstrated the existence of genuine issues of material fact precluding summary judgment for him. However, plaintiff argues that issues of fact also preclude summary judgment for defendant. We agree.
The trial court erred in finding as fact, based on this sparse record, that the instrument presented to One Stop was a forgery or contained unauthorized signatures, and therefore was unenforceable against anyone except the indorser, Jennifer Harris. The trial court also erred, as a matter of law, in concluding that an instrument with a stricken restrictive indorsement, accompanied by what appears to be the payee's signature, as presented here, is "such apparent evidence of forgery or alteration" or is "so irregular" as to call into question its authenticity, thereby denying holder in due course status to the transferee, One Stop. See N.J.S.A. 12A:3-302(a)(1).
We first address the burdens of proof regarding an indorsement's validity, the impact of a forged or unauthorized indorsement, and whether the record supports the trial court's finding that the signature was forged or unauthorized. We will then consider whether, even if the indorsee's signature were genuine and authorized, the obliteration of the restrictive indorsement under the circumstances barred One Stop, and plaintiff by assignment, from holder in due course status.
A.
It was Apollo's initial burden to deny the validity of the signature on the instrument plaintiff purchased, and to present proof to overcome presumptions of validity favoring plaintiff. The validity of a signature on an instrument is deemed admitted "unless specifically denied in the pleadings." N.J.S.A. 12A:3-308. If validity is denied, then the proponent bears the burden to prove validity, but the signature is presumed authentic and authorized. Ibid. A transferee of an instrument is entitled to this presumption of authenticity and authorization, upon proof of the transfer. Triffin v. Somerset Valley Bank, 343 N.J. Super. 73, 84 (App. Div. 2001) (citing N.J.S.A. 12A:3-203, Comment 2). "The defendant is therefore required to make some sufficient showing of the grounds for the denial before the plaintiff is required to introduce evidence" to prove a signature's validity. N.J.S.A. 12A:3-308, comment 1. "Until proof of a defense or claim in recoupment is made, the issue as to whether the plaintiff has rights of a holder in due course does not arise." N.J.S.A. 12A:3-308, comment 2.
Plaintiff's status as a transferee of One Stop's rights was not genuinely disputed. Plaintiff attached a copy of his assignment agreement, reflecting that he had acquired the rights of One Stop. However, One Stop's status as a holder and as a holder in due course was disputed.
Whether One Stop was a holder depends in part on the validity of the indorsement. "A holder is one who receives an instrument which is indorsed to his order or in blank." Salsman v. Nat'l Community Bank, 102 N.J. Super. 482, 492 (Law Div. 1968) (citing N.J.S.A. 12A:1-201(20)), aff'd o.b., 105 N.J. Super. 164 (App. Div. 1969). One cannot be a holder, let alone a holder in due course, without a valid indorsement. Ibid.; see also 5A Ronald A. Anderson, Uniform Commercial Code, § 3-202:51 (3d ed., 1998 rev.) (stating "[w]hen the defendant claims that an indorsement is a forgery and the plaintiff fails to prove that it is genuine, the plaintiff is not a holder").
Thus, if Harris's indorsement were forged, then Apollo would not be liable, as "only the malefactor can be held liable on a forged or counterfeit instrument[.]" Triffin v. Pomerantz Staffing Serv., LLC, 370 N.J. Super. 301, 306 (App. Div. 2004) (citing N.J.S.A. 12A:3-403(a)). An unauthorized signature is likewise ineffective "'except as the signature of the unauthorized signer in favor of a person who in good faith pays the instrument or takes it for value.'" Ibid. (quoting N.J.S.A. 12A:3-403(a)). An "unauthorized" signature is defined to include forgeries and other signatures made in excess of one's agency. See N.J.S.A. 12A:1-201(43) ("'Unauthorized' signature or indorsement means one made without actual, implied or apparent authority and includes a forgery."); Anderson, supra, § 3-404:3 (noting that non-forged unauthorized signatures are those "made by persons without the requisite agency authority"). For example, in Triffin v. Traveler's Express Co., 370 N.J. Super. 399, 404 (App. Div. 2004), thieves' signatures on the purchaser line of stolen money orders were deemed unauthorized. The instruments were issued and drawn by Traveler's Express, which required its purchasers to sign the front of the instruments as a "purchaser, signer for drawer." Traveler's Express obviously did not authorize the thieves to sign for it.
Apollo in its answer did not specifically deny the validity of the signature on the instrument plaintiff purchased. Apollo generally denied that it and Harris "respectively drew and cashed [the check] with assignor [One Stop]," although the denial was apparently directed only at the allegation that Harris cashed the check with One Stop. Apollo professed a lack of information sufficient to enable it to admit or deny, among other things, "the defendant payee [Harris] endorsed the referenced check." However, without amending its answer, Apollo clearly alleged in summary judgment papers that the check plaintiff purchased was a photocopy of the original check, and a forgery. Even if we deem Apollo's allegation in its summary judgment papers sufficient as a denial of the validity of Harris's signature, the presumption of validity still governs, absent cognizable proof of forgery. See Somerset Valley Bank, supra, 343 N.J. Super. at 86 (stating that even if drawer's general denial was sufficient as a denial of validity, drawer must satisfy evidentiary requirements of N.J.S.A. 12A:3-308).
In this case, Apollo has not presented sufficient cognizable evidence in the motion record to prove the check plaintiff purchased was a forgery. Particularly on a motion for summary judgment, where we afford the non-moving party "all legitimate inferences" from the record evidence, Rule 4:46-2, we cannot agree with the trial court's finding that the striking of the restrictive indorsement, and the possible striking of the second signature, is conclusive evidence of forgery, particularly in view of the block letters "JH," which may be read to approve those strike-throughs and constitutes an additional indorsement.
For example, Apollo has not presented a certification of Harris denying that she crossed out the restrictive indorsement, initialed it, and presented it to One Stop for cash. Cf. Pomerantz Staffing Serv., LLC, supra, 370 N.J. Super. at 306-07 (drawer presented sworn statement that checks contained forged signatures). Nor has Apollo presented a handwriting expert's opinion that the "JH," which apparently approved the cross-out, was forged. There also is no admissible evidence to prove that One Stop received a photocopy and USAA FSB received the original, as opposed to the other way around. The record is barren of any evidence regarding the identity of the signature on the second line. Nor is there evidence, for example in the form of a certification from USAA FSB, that Harris had an account with the bank and she was the one who deposited the check there (as opposed to, for example, the person who apparently signed the second line).
Apollo, and the trial court, apparently concluded that since the check in one form or another was presented twice — apparently first to USAA FSB on October 27, 2008 and second to One Stop on October 28, 2008 — the original necessarily was presented to USAA FSB, and a photocopy to One Stop. Yet, there is no basis in the record for that conclusion. Neither party presented an original instrument to the court. In this case, where there is a genuine question as to a document's authenticity, presentation of the original may be indispensable. See N.J.R.E. 1003.
Conceivably, the check presented to USAA FSB was a photocopy, created after the two signatures and restrictive indorsement were placed on the original. Such a photocopy would apparently constitute an unauthorized duplication, and therefore a forgery, of the signature of D'Amico, who signed as drawer for Apollo. See N.J.S.A. 2C:21-1a(2) (a person commits forgery if, with a fraudulent purpose or knowledge, he or she "makes . . . any writing so that it purports to be the act of another who did not authorize that act"). If a photocopy had been presented to USAA FSB, then Harris could have retained the original, and personally presented it to One Stop after striking the "for deposit only" restriction, initialing the strike-out, and presenting proof of her identity. Also, the anti-counterfeiting watermark would have been visible to One Stop.
If Harris assisted in creating the photocopy in this scenario, then she would have been a knowing participant in a fraud. However, not every fraudulent indorsement is a forgery. See 6 Anderson, supra, § 3-305:289 ("[f]orgery is distinct from fraud"); cf. Century Fed. Sav. & Loan Ass'n v. Roudebush, 618 F. 2d 969, 971-72 (2d Cir. 1980) (applying Veterans Administrative regulations, fraud may not be interposed as a defense in situations where forgery may be). If the original check had been presented to One Stop, then it would not be a forgery, as it would have borne her and the drawer's genuine signatures. It also would not have been otherwise unauthorized. As there is no evidence before us that Harris was ever an agent of Apollo, there apparently was no agency authority to exceed.
We mean no disrespect to Harris in hypothesizing about what might have happened. On the sparse record before, it is impossible to determine whether she was the victim of a theft, or the perpetrator of one.
Even if Harris hypothetically presented the original check to One Stop as part of a fraudulent plan to collect twice, that would not necessarily defeat plaintiff's claim. A holder in due course, unaware of fraud, is entitled to rely on the maker's signature. Somerset Valley Bank, supra, 343 N.J. Super. at 85 ("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."); State v. Burks, 188 N.J. Super. 55, 60 (App. Div. 1983) ("Liability to a holder in due course is free from any defense of fraud. . . ."); Dubin v. Hudson Cty. Probation Dep't, 267 N.J. Super. 202, 209-10 (Law Div. 1993). A claim of theft is also not a defense to a holder in due course. See O.P. Ganjo, Inc. v. Tri-Urban Realty Co., 108 N.J. Super. 517, 521-22 (Law Div. 1969). In O.P. Ganjo, Inc., supra, the defendant issued a note payable to a subcontractor, who returned it to the defendant in exchange for a second note made payable to one of the subcontractor's suppliers. The subcontractor then stole the first note and indorsed it to plaintiff, who, as a holder in due course, took free from the drawer's defense of theft. See also N.J.S.A. 12A:3-309, comment 1 (noting "risk that a holder in due course may make a demand for payment" on a stolen instrument if the instrument was payable to bearer when it was stolen).
In sum, there is insufficient evidence in the record to support finding the indorsement was forged or unauthorized, thereby precluding recovery from Apollo.
B.
The trial court found the obliteration of the restrictive endorsement, even if not conclusive proof of forgery, was such "apparent evidence of forgery or alteration" or was so "irregular" as to raise questions about its authenticity. N.J.S.A. 12A:3-302(a)(1). We disagree.
We recognize that a purpose of a restrictive indorsement, such as "for deposit only," is to assure that the payment is made solely for that purpose. N.J.S.A. 12A:3-206. A depositary bank may be liable if its payment on an instrument "is made in conflict with the terms of a restrictive endorsement." Salsman, supra, 102 N.J. Super. at 494 (notwithstanding indorsement "Pay to the order of" of specific estate, bank misapplied funds to malfeasant attorney's trust account). However, it is not uncommon or irregular for a payee to restrictively indorse an instrument, for example "for deposit only," and then, upon a change of mind, strike the restrictive indorsement, because the payee wishes to apply the payment elsewhere.
Even if the restrictive indorsement is intact, a non-bank purchaser of the instrument may ignore its direction, without liability for conversion, if it pays the indorser directly. "A person, other than a bank, who purchases the instrument when so indorsed converts the instrument unless the amount paid for the instrument is received by the indorser or applied consistently with the indorsement." N.J.S.A. 12A:3-206(c)(1) (emphasis added). However, we have held that a check-casher is a "bank." Valley Nat'l Bank v. P.A.Y. Check Cashing, 378 N.J. Super. 406, 417 (Law Div. 2004), aff'd o.b., 378 N.J. Super. 234 (App. Div. 2005).
Although we have found no New Jersey decision expressly addressing the implications of a restrictive indorsement stricken by the payee, the court in J.M. Heinike Associates, Inc. v. Liberty Nat'l Bank, 560 N.Y.S.2d 720 (App. Div. 1990) held that a payee's obliteration of a restrictive indorsement was not the kind of alteration or irregularity that would defeat holder in due course status. In that case, a bank cashed numerous checks with obliterated "for deposit only" restrictive indorsements. The court found the bank was a holder in due course and rejected plaintiff's argument that "the bank was on constructive notice of a claim to the check as a result of obliteration of the restrictive endorsements." Id. at 721. "Because it is not an uncommon occurrence for a payee initially to decide to deposit a check and then decide to cash it, the obliteration of the 'for deposit only' endorsements is not the kind of alteration that would 'excite suspicion' on the part of the bank. . . ." Ibid. See also James J. White & Robert S. Summers, Uniform Commercial Code § 16-7 (5th ed. 2008) ("[T]he holder is free to modify his or her indorsement.").
This result is consistent with the Code provision on reacquisition of an instrument, which permits a holder who reacquires an instrument to cancel any indorsements.
A former holder who reacquires the instrument may cancel indorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An indorser whose indorsement is canceled is discharged, and the discharge is effective against any subsequent holder.The official comment to the provision on reacquisition specifically recognizes the power of a payee to strike out a special indorsement for the benefit of someone other than the payee. "[I]f the reacquisition is not the result of negotiation the former holder can obtain holder status only by striking the former holder's indorsement and any subsequent indorsements." N.J.S.A. 12A:3-207, comment.
[N.J.S.A. 12A:3-207.]
The comment addresses the following case: "X, the holder of an instrument payable to X, negotiates it to Y by special indorsement. The negotiation is part of an underlying transaction between X and Y. The underlying transaction is rescinded by agreement of X and Y, and Y returns the instrument without Y's indorsement." N.J.S.A. 12A:3-207, comment. The comment recognizes that in the absence of Y's indorsement, X's title may be "clouded." Ibid. However, as the original payee may not be able to obtain it conveniently, the section establishes "a rule of convenience which relieves X of the burden of obtaining an indorsement that serves no substantive purpose." Ibid. By contrast, where a restrictive indorsement is for the benefit of the original payee, and the payee herself strikes the restrictive indorsement, there is no apparent "cloud" on title.
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The court in Handley v. Horak, 370 N.Y.S.2d 313 (Sup. Ct. 1975), aff'd, 384 N.Y.S.2d 988 (App. Div. 1976), relied on the Code's reacquisition provision in finding effective a payee's obliteration of a special indorsement. In connection with a mortgage transaction, defendant Dorothy Horak received a check at closing payable to her, which she indorsed at the closing "pay to the Bankers Trust Company," to retire a loan from Bankers Trust that the plaintiff had guaranteed. Contrary to her promise to deliver the check to Bankers Trust, she obliterated the special indorsement and deposited it in her personal account at defendant Island State Bank. The court found no liability on the part of Island State Bank. "[I]f a holder can cancel an endorsement after delivery reacquisition it can cancel an endorsement before delivery, whatever the reasons for the cancellation." Id. at 316. See also Schoonmaker v. Merchants Nat'l Bank & Trust Co., 365 N.Y.S.2d 103, 106-07 (N.Y. Co. Ct. 1975) (original payee upon reacquisition authorized to obliterate restrictive indorsement placed by subsequent holder). Since the Code authorizes cancellation of an indorsement on a reacquired instrument, it would be incongruous to deem that expressly authorized action "apparent evidence of forgery or alteration" or irregularity so as to raise questions about authenticity. N.J.S.A. 12A:3-302(a)(1).
We need not decide whether a person with authority may waive a restrictive indorsement by means other than the obliteration of the indorsement. The Code provision on restrictive indorsements expressly states that the law on waiver of restrictive indorsements is unchanged. N.J.S.A. 12A:3-206, comment 3 ("This article does not displace the law of waiver as it may applied to restrictive indorsements."). Compare Wisner Elevator Corp. v. Richland State Bank, 862 So.2d 1112, 1118 (La. Ct. App. 2003) (sole payee may waive his own restrictive indorsement and direct payment inconsistent therewith), with Rutherford v. Darwin, 622 P.2d 245 (N.M. Ct. App. 1980) (rejecting doctrine of waiver of restrictive indorsement where bank paid inconsistently with restrictive indorsement based on deposit slip presented by authorized signer of payee business).
Applying these principles to the case at hand, Harris was authorized to strike the restrictive indorsement directing that the proceeds of Apollo's check be deposited in her account. She was also authorized to strike the illegible indorsement on the second line of the indorsement. Consequently, evidence of such authorized actions standing alone is not enough to defeat holder in due course status.
C.
Upon remand, the evidence developed in discovery conceivably may demonstrate the signature on plaintiff's check was indeed forged, or the instrument was so altered or irregular as to preclude holder in due course status. Conceivably, the proofs may show that Harris did not present the check to One Stop, and someone else forged her initials that ostensibly approved the striking of the restrictive indorsement. The evidence may also conceivably show that One Stop received not the original, but a photocopy that itself reflected "apparent evidence of forgery or alteration" or irregularity, N.J.S.A. 12A:3-302(a)(1), because the anti-counterfeiting watermark would have been indetectible. With the exercise of reasonable care, one could determine the photocopied check was a counterfeit upon confirming that there was no anti-counterfeiting watermark, despite the indication that the genuine instrument contained one. See Pomerantz Staffing Serv., LLC, supra, 370 N.J. Super. at 309-10 (in considering whether a licensed check casher acted in good faith and in accord with reasonable commercial standard, check casher is "expected to fully examine the front and back of the instrument and, where the instrument purports to contain a method by which its authenticity may be tested, that the holder actually utilize that method"). However, the sparse record before us does not support a finding that the instrument plaintiff purchased was a forgery, nor is it sufficient to deny One Stop, and derivatively, plaintiff, status as a holder in due course.
Reversed and remanded. We do not retain jurisdiction.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELATE DIVISION