Commercial Paper - Representment

Case on representment of Check

88 N.J.Super. 610, 36 UCC Rep.Serv. 227
PRESTIGE MOTORS, INC., a New Jersey corporation, Plaintiff-Respondent,
v.
CARTERET BANK & TRUST COMPANY, a banking institution of the State of New
Jersey, Defendant-Appellant.
Superior Court of New Jersey,
Appellate Division.
Argued Feb. 15, 1983.
Decided Feb. 23, 1983.

SYNOPSIS

The Superior Court, Law Division, Bergen County, 183 N.J.Super. 525, 444 A.2d 627,
entered judgment in favor of plaintiff in the amount of a check presented by plaintiff to
defendant bank after it had been previously returned by defendant "not paid as against
uncollected funds" in the account of defendant's customer who issued the check. The
Superior Court, Appellate Division, Botter, P.J.A.D., held that bank's prior dishonor of
check did not excuse it from giving notice of dishonor and protest for nonpayment absent
an intervening acceptance; statutory provision excusing further notice of dishonor with
respect to "drafts" once dishonored by "nonacceptance" did not apply to dishonor by
nonpayment of a demand instrument and did not waive midnight deadline rule as to check
re-presented for payment in absence of an appropriate agreement of the parties.

Affirmed.

Prestige Motors, Inc. v. Carteret Bank & Trust Co.

52 BANKS AND BANKING
52III Functions and Dealings
52III(C) Deposits
52k137 Payment of Checks
52k140 Obligation of Bank to Payee or Holder

52k140(3) k. Acceptance of check.
N.J.Super.A.D. Feb. 23, 1983
Bank's prior dishonor of check did not excuse it from giving notice of dishonor and protest
for nonpayment absent an intervening acceptance; statutory provision excusing further
notice of dishonor with respect to "drafts" once dishonored by "nonacceptance" did not
apply to dishonor by nonpayment of a demand instrument and did not waive midnight
deadline rule as to check re- presented for payment in absence of an appropriate
agreement of the parties. N.J.S.A. 12A:3-511(4), 12A:4-302.
Callaghan & Company's Headnote and Classification

P3511.10, P4302.1
Application of midnight deadline rule to re-representment of previously dishonored
check.
N.J.Super.A.D. Feb. 23, 1983
The UCC § 4-302 midnight deadline rule applies to the re-presentment of a check
previously dishonored for insufficient funds, unless the parties have agreed otherwise. The
bank's prior dishonor of a check does not excuse it, under UCC § 3-511(4)8 from giving
notice of dishonor and protest for nonpayment absent an intervening acceptance since that
Code section's waiver of the midnight deadline rule applies to a previous dishonor by
nonacceptance of a draft, not dishonor by nonpayment of a demand instrument, such as a
check.
Prestige Motors, Inc. v. Carteret Bank & Trust Co. 458 A.2d 140, 188 N.J.Super. 610, 36
UCC Rep.Serv. 227

UCC Section Cited: § 3-511(4).
*141
(Cite as: 458 A.2d 140, *141)

Barry A. Weisberg, Carteret, for defendant-appellant (Edward J. Dolan, Carteret, attorney;
Barry A. Weisberg, Carteret, on brief).

Michael E. Hubner, Kinnelon, for plaintiff-respondent (McKeon, Curtin, Hubner & McKeon,
Kinnelon, attorneys; Andrew M. Wubbenhorst, Kinnelon, on brief).

Before Judges BOTTER, POLOW and BRODY.

Barry A. Weisberg argued the cause for appellant (Edward J. Dolan, attorney; Barry A.
Weisberg on the brief).

Michael E. Hubner argued the cause for respondent (McKeon, Curtin, Hubner & McKeon,
attorneys; Andrew M. Wubbenhorst on the brief).
The opinion of the court was delivered by

MAJORITY OPINION

BOTTER, P.J.A.D.

Defendant appeals from a judgment entered in a nonjury trial in favor of plaintiff in the sum
of $16,516, plus interest and costs. The damage award represents the amount of a check
presented by plaintiff to defendant after it had been previously returned by defendant "not
paid as against uncollected funds" in the account of defendant's customer who issued the
check. In finding for plaintiff Judge Schiaffo, in the Law Division, adopted the majority view
that applies the "midnight deadline" rule upon re-presentment of a check in the absence of
a contrary agreement between the parties. See e.g., Bank Leumi Trust Co. v. Bank of
Mid-Jersey, 499 F.Supp. 1022 (D.N.J.1980), aff'd 659 F.2d 1065 (3 Cir.1981). We affirm
substantially for the reasons given by Judge Schiaffo in his published opinion. 183
N.J.Super. 525, 444 A.2d 627 (Law Div.1982).
We reject defendant's sole contention on this appeal, that by the terms of N.J.S.A.
12A:3-511(4) <<UCC § 3-511>> the bank's prior dishonor of the check excuses it from
giving notice of dishonor and protest for nonpayment absent an intervening acceptance.
N.J.S.A. 12A:3-511(4) <<UCC § 3-511>> applies to a previous "dishonor by
nonacceptance" of a draft, not dishonor by nonpayment of a demand instrument, and does
not waive the midnight deadline rule of § 302 as to checks re-presented for payment in the
absence of an appropriate agreement of the parties. One reason for this is set forth in David
Graubart, Inc. v. Bank Leumi Trust Co., 48 N.Y.2d 554, 559-560, 399 N.E.2d 930, 933, 423
N.Y.S.2d 899, 902-903 (Ct.App.1979), as follows:
... The Leaderbrand [Leaderbrand v. Central State Bank, 202 Kan. 450, 450 P.2d 1
(Sup.Ct.1969) ] court reasoned that subdivision (4) of section 3- 511 of the code, in
excusing further notice of dishonor with respect to "drafts" once dishonored by
"nonacceptance", necessarily encompassed dishonor of "checks" by "nonpayment". But,
while a check is a kind of draft (Uniform Commercial Code, § 3-104, subd. [2], par. [b] ),
"nonpayment" and "nonacceptance" are distinctly different concepts, the latter referring
specifically to a payor's refusal to certify that it will honor a time instrument when later
presented for payment (Uniform Commercial Code, § 3- 410, subd. 1; see Wiley v. Peoples
Bank & Trust Co., 438 F.2d 513, 516- 517 (5th Cir.); Comment, 18 Kan.L.Rev. 679,
682-684, n. 48). Since it would be futile to present for payment a draft that has been
dishonored by nonacceptance (when the obligation is conditioned on acceptance [see
Uniform Commercial Code, § 3-501, subd. (1), par. (a) ] ), such presentment and further
notice are excused as superfluous. In contrast, a demand item such as a check may
eventually be paid if resubmitted at a time when the drawer's account has an adequate
balance. This possibility makes *142
(Cite as: 458 A.2d 140, *142)

it entirely reasonable to afford redeposited checks the full panoply of article 4 protections.
(See, generally, Clark & Squillante, Law of Bank Deposits, Collections and Credit Cards
[1970], pp. 71-72.)
The history of the rule and its application are thoroughly discussed in Blake v. Woodford
Bank & Trust Co., 555 S.W.2d 589 (Ky.Ct.App.1977). See also, Clark, The Law of Bank
Deposits, Collections and Credit Cards (rev. ed. 1981), ś 3.4(2) at 3-23 to 3-24. In Blake
the court gave a persuasive explanation for the majority rule:
... If a payor bank was not required to meet its midnight deadline with respect to previously
dishonored items, then none of the other banks involved in the collection process could
safely assume that the check had been paid. Consider the problems of the [depositary]
bank. It must permit its customer to withdraw the amount of the credit given for the check
when provisional settlements have become final by payment and the bank has had "a
reasonable time" to learn that the settlement is final. See UCC § 4- 213(4)(a). The
[depositary] bank will rarely receive notice that an item has been paid. In actual practice,
the [depositary] bank will utilize availability schedules to compute when it should receive
the check if it is to be returned unpaid. [Citation omitted.] If a payor bank is not bound by
its midnight deadline as to previously dishonored items, then there is no way for the
[depositary] bank to know whether a previously dishonored item has been paid upon
re-presentment except by direct communication with the payor bank. Such a procedure
would impose an unnecessary burden upon the check collection process. [555 S.W.2d at
601]
We recognize that it may be in the holder's interest to have a drawee bank hold an item
until sufficient funds arrive in the drawer's account to permit payment of the item ahead of
other items that may thereafter be presented. As indicated in David Graubart, Inc., supra,
48 N.Y.2d at 563, 399 N.E.2d at 935, 423 N.Y.S.2d at 905, the re-presentment of a
dishonored check may be accompanied by instructions that identify the item as "an
exceptional one" calling for special treatment as to which a depositary bank by custom
would not expect the midnight deadline to apply. But it is relatively simple for the drawee
bank to comply with the midnight deadline rule unless contrary instructions have been
received. The drawee bank can easily protect itself against liability by satisfying the
midnight deadline rule. In the case at hand the trial judge found no justification for the
bank's noncompliance. He found that "there was no agreement ... between plaintiff and
defendant authorizing the bank to keep the check beyond the midnight deadline
requirement of the statute." 183 N.J.Super. at 530, 444 A.2d 627. At oral argument
appellant's attorney conceded that there is sufficient evidence in the record to support this
finding; therefore, we accept it for the purposes of this appeal. Rova Farms Resort, Inc. v.
Investors Ins. Co., 65 N.J. 474, 484, 323 A.2d 495 (1974).
Affirmed.
END OF DOCUMENT