New Jersey Appellate Division Finds Lack of Endorsement Does Not Prevent Valid Transfer and Negotiation of an Electronically Deposited Check

In a decision approved for publication, New Jersey’s Appellate Division recently affirmed the dismissal of an enforcement action against an issuer of a dishonored check, finding that the lack of endorsement on the electronically deposited check did not prevent the valid transfer and negotiation of the check. See Triffin v. SHS Grp., LLC, 466 N.J. Super. 460 (App. Div. 2021). In the case, a hair styling school issued a check to one of its students in the amount of $1,431. That same day, the check was redeemed twice, once via electronic deposit in the student’s bank account and once at United Check Cashing, a check cashing business. The student electronically deposited the check by taking pictures of the check through an application on her cell phone. However, the check was not endorsed at the time it was electronically deposited. When cashed at the United Check Cashing, the check was endorsed, stamped and relinquished. Five days later, the check was dishonored when presented to a bank for payment and returned to United Check Cashing as a “Duplicate Presentment.” United Check Cashing then sold the dishonored check through an assignment agreement to plaintiff, who subsequently brought an enforcement action against the school and the student. The trial court dismissed plaintiff's claim, finding that the check had been electronically deposited and paid by defendants’ bank before the physical copy of the check was presented to United Check Cashing for payment. Relying on N.J.S.A. 12A:3-414(c), which discharges a drawer’s obligation to pay a check that had been accepted by a bank, the trial court also denied plaintiff’s motion for reconsideration.

On appeal, the Appellate Division affirmed the dismissal and denial of reconsideration. First, the Court noted that although endorsement is a prerequisite to negotiation of an instrument in most instances, N.J.S.A. 12A:4-205 permits a customer of a depository bank to transfer a draft without a prior endorsement. Further, commentary to N.J.S.A. 12A:4-205 explains that “‘[w]hether [a depository bank] supplies the customer’s endorsement is immaterial.’” Here, the student was a customer of the depository bank. Thus, the Court found that when the student electronically deposited the check into her account, valid transfer and negotiation of the instrument occurred. Second, the Court found that copies of the check provided by each party conclusively demonstrated that the check was electronically deposited and endorsed by the bank before it was cashed at the check cashing business. The Court noted that the presence of the additional markings such as the student’s endorsement and United Check Cashing’s dated stamp on plaintiff’s copy of the check indicated that it had been electronically deposited first. Further, the markings on the check, as well as the school’s bank statement showing $1,431 deducted from its account, clearly demonstrated that the check was processed and paid as a result of the electronic deposit. Given the foregoing, the Court affirmed the dismissal and denial of reconsideration.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, Desiree McDonald at dmcdonald@riker.com, or Andrew Raimondi at araimondi@riker.com.