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Triffin v. Dillabough

Supreme Court of Pennsylvania
716 A.2d 605, 552 Pa. 550, 36 U.C.C. Rep. Serv. 2d (West) 255 (1998)
ELI5:

Sections

Rule of Law:

Under the Uniform Commercial Code, a money order remains a negotiable instrument even if stolen and completed without authorization, and warning legends regarding theft or alteration are considered restatements of statutory defenses rather than express conditions that would destroy negotiability.


Facts:

  • American Express sold money orders through agents, providing them with documents containing the pre-printed signature of the American Express Chairman but leaving the amount, sender, and payee blank.
  • Thieves stole blank money orders from two American Express agent locations: Chase Savings Bank and a shipment destined for I.W. Levin & Company.
  • Stacey Anne Dillabough and Robert Lynn presented three of these stolen money orders, which had been filled out with various amounts and names, to Chuckie's Enterprises, a check-cashing agency.
  • Charles Giunta, the owner of Chuckie's, recognized the individuals from prior business, checked their photo identification, and paid them the face value of the money orders minus a fee.
  • Giunta was unaware that the money orders were stolen at the time he cashed them.
  • When Chuckie's presented the money orders for payment, American Express refused to pay, stamping them 'REPORTED LOST OR STOLEN' because they appeared on their theft log.
  • Chuckie's subsequently sold and assigned its rights in the dishonored money orders to Robert Triffin, a commercial discounter.

Procedural Posture:

  • Triffin filed separate complaints against the presenters (Dillabough/Lynn) and American Express in the Court of Common Pleas of Philadelphia County (trial court).
  • Triffin obtained default judgments against Dillabough and Lynn.
  • The trial court held a non-jury trial between Triffin and American Express, ruling the money orders were not negotiable instruments and entering a verdict for American Express.
  • Triffin appealed the decision to the Superior Court of Pennsylvania.
  • The Superior Court reversed the trial court's decision, holding the money orders were negotiable and Triffin had rights of a holder in due course.
  • American Express petitioned the Supreme Court of Pennsylvania for allowance of appeal.

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Issue:

Are pre-signed money orders that are stolen in blank and subsequently filled out negotiable instruments under the Uniform Commercial Code, such that a good faith purchaser can enforce them against the issuer despite warning legends on the instrument?


Opinions:

Majority - Justice Newman

Yes, the money orders are negotiable instruments and the assignee is entitled to payment. The Court reasoned that the money orders met the four statutory requirements for negotiability under the Uniform Commercial Code (UCC) § 3104: they were signed (via pre-printed signature), contained an unconditional promise to pay, were payable on demand, and were payable to order. American Express argued that the legend on the back stating the order "WILL NOT BE PAID IF... STOLEN" made the promise conditional. However, the Court rejected this, finding that the legend merely restated statutory defenses available against non-holders in due course and did not condition the underlying promise to pay. Furthermore, the UCC allows a Holder in Due Course (HIDC) to enforce an incomplete instrument that is later completed, even if that completion was unauthorized (i.e., by thieves). Because Chuckie's took the instruments for value, in good faith, and without notice of the theft, Chuckie's was an HIDC. Under the 'shelter rule,' Triffin acquired Chuckie's HIDC status through the assignment, even though Triffin knew of the dishonor when he bought them. Therefore, American Express is liable for the face value.


Dissent - Justice Castille

No, the money orders are not negotiable instruments because they contain an express condition precedent to payment. The Dissent argued that the language on the money order stating it "WILL NOT BE PAID IF IT HAS BEEN ALTERED OR STOLEN" creates an express condition under UCC § 3104(a)(2). Because the statute explicitly requires an "unconditional" promise for a document to be negotiable, and the word "IF" introduces a clear condition, the instruments fail the negotiability test. Consequently, the Holder in Due Course protections should not apply, and American Express should be able to assert the defense of theft against the payment.



Analysis:

This decision reinforces the high value the legal system places on the free transferability of commercial paper. By ruling that 'warning legends' are not conditions that destroy negotiability, the Pennsylvania Supreme Court prioritized the confidence of merchants and banks in accepting financial instruments over the issuer's desire to limit liability for stolen blank stock. The ruling places the burden of loss on the entity best positioned to prevent the theft (the issuer, American Express) rather than on innocent good-faith purchasers (like Chuckie's). It also clarifies that statutory defenses restated on a document do not convert an unconditional promise into a conditional one.

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