## Facts

- An insurer issued a $484.12 workers’ compensation draft payable to James Mills.
- Mills falsely reported nonreceipt and induced the insurer to stop payment and issue a replacement draft.
- Before the stop-payment notation was placed on the draft, Mills negotiated the original draft to Sun Corp., a merchant, for value and in good faith.
- Sun Corp. presented the draft for payment; the drawee/issuer’s bank dishonored it pursuant to the stop-payment order and returned it stamped “Stop Payment.”
- Sun Corp. assigned its interests in the dishonored draft to Robert J. Triffin, who was in the business of purchasing dishonored instruments.
- Triffin did not claim holder-in-due-course status in his own right because he took with notice of dishonor.
- It was undisputed that Sun Corp. was a holder in due course and could have recovered from the issuer if it had sued directly.

## Issues

1. Whether an assignee of a holder in due course, who takes the instrument with notice of dishonor and is not a holder in due course personally, may enforce the instrument with the transferor’s holder-in-due-course rights under the UCC shelter rule.
2. Whether the issuer may defeat the assignee’s claim based on defenses that would not have been effective against the holder in due course.

## Decision

- The Appellate Division reversed the summary judgment entered for the insurer.
- The court held that the assignee acquired the transferor’s holder-in-due-course rights under the UCC shelter rule.
- The assignee’s notice of dishonor did not strip him of the transferor’s holder-in-due-course protections.
- The matter was remanded for entry of judgment for the assignee consistent with those rights.

## Legal Principles

- Under the UCC shelter rule, a transferee of an instrument generally obtains the transferor’s rights, including holder-in-due-course rights, even if the transferee does not qualify as a holder in due course.
- An issuer/drawer cannot avoid liability it would have owed to a holder in due course merely because that holder transferred or assigned the instrument to another party.
- Defenses ineffective against a holder in due course remain ineffective against a transferee who claims through the holder in due course, absent a defense personal to the transferee.

## Conclusion

The court held that a purchaser-assignee of a dishonored instrument may enforce it with the same holder-in-due-course rights held by the assignor, so the issuer remained liable despite the assignee’s notice of dishonor.


Triffin v. Cigna Ins. Co., 297 N.J. Super. 199, 687 A.2d 1045 (App. Div. 1997)