18-7. Case Problem with Sample Answer

18-7. Case Problem with Sample Answer

In October 1998, Somerset Valley Bank notified Alfred Hauser, president of Hauser Co., that the bank had begun to receive what appeared to be Hauser Co. payroll checks. None of the payees were Hauser Co. employees, however, and Hauser had not written the checks or authorized anyone to sign them on his behalf. Automatic Data Processing, Inc., provided payroll services for Hauser Co. and used a facsimile signature on all its payroll checks. Hauser told the bank not to cash the checks. In early 1999, Robert Triffin, who deals in negotiable instruments, bought eighteen of the checks, totaling more than $8,800, from various check-cashing agencies. The agencies stated that they had cashed the checks expecting the bank to pay them. Each check was payable to a bearer for a fixed amount, on demand, and did not state any undertaking by the person promising payment other than the payment of money. Each check bore a facsimile drawer’s signature stamp identical to Hauser Co.’s authorized stamp. Each check had been returned to an agency marked “stolen check” and stamped “do not present again.” When the bank refused to cash the checks, Triffin filed a suit in a New Jersey state court against Hauser Co. Were the checks negotiable instruments? Why or why not? [Triffin v. Somerset Valley Bank, 343 N.J.Super. 73, 777 A.2d 993 (2001)]

18-7. Answer

Triffin filed a motion for summary judgment, which the court granted. On Hauser Co.’s appeal, the state intermediate appellate court affirmed, holding that “the eighteen checks meet the definition of a negotiable instrument. Each check is payable to a bearer for a fixed amount, on demand, and does not state any other undertaking by the person promising payment, aside from the payment of money. In addition, each check appears to have been signed by Mr. Hauser, through the use of a facsimile stamp, permitted by the UCC to take the place of a manual signature.” UCC 3–401(b) “provides that a ‘signature may be made manually or by means of a device or machine * * *with present intention to authenticate a writing.’ It is uncontroverted by Hauser Co. that the facsimile signature stamp on the checks is identical to Hauser Co.’s authorized stamp.” Hauser Co. contended that the checks were not negotiable instruments because Hauser did not sign the checks, did not authorize their signing, and ADP did not “produce” the checks. “Lack of authorization, however, is a separate issue from whether the checks are negotiable instruments.” Ultimately (according to principles discussed in the next chapters), the court determined that the agencies from which Triffin acquired the checks had not acted fraudulently, that Triffin acquired the agencies’ right to payment as a holder in due course, and that thus Hauser Co. was liable to him for payment of the checks.