CASE 27-4
ANY KIND CHECKS CASHED, INC. v. TALCOTT
Court of Appeal of Florida, Fourth District, 2002
830 So.2d 160, 48 U.C.C. Rep.Serv.2d 800, rehearing denied
http://scholar.google.com/scholar_case?
case=12205265320792531036&q=830+So.2d+160&hl=en&as_sdt=2,10
Gross, J.
[In the mid-1990s, D. J. Rivera, a “financial advisor,” sold ninety-three-year-old John G.
Talcott, Jr. an investment for “somewhere in the amount of $75,000.” The investment
produced no returns. On December 7, 1999, Salvatore Guarino, a cohort of Rivera,
established check-cashing privileges at Any Kind Checks Cashed, Inc. That day, he cashed a
$450 check without incident. On January 10, 2000, Rivera telephoned Talcott and talked him
into sending him a check for $10,000 made out to Guarino, which was to be used for travel
In spite of what Rivera told Talcott, Guarino appeared at Any Kind’s Stuart, Florida,
office on January 11 and presented the $10,000 check to Nancy Michael. She was a
supervisor with the company with the authority to approve checks over $2,000. Guarino
showed Michael his driver’s license and the Federal Express envelope from Talcott in which
he received the check. She asked him the purpose of the check, and he told her that he was a
broker and that the maker of the check had sent it as an investment. She was unable to
contact Talcott by telephone. Based on her experience, Michael believed the check was
On her first attempt, Kochakian received no answer. On the second call, Talcott approved
cashing the $5,700 check. There was no discussion of the $10,000 check. Any Kind cashed
the second check for Guarino, and deducted a 3 percent fee.
On January 19, Rivera called Talcott to warn him that Guarino was a cheat and a thief.
Talcott immediately called his bank and stopped payment on the $5,700 check. Talcott’s
daughter called Any Kind and told it of the stop payment on the $5,700 check.
Using the terminology of the Uniform Commercial Code, Talcott was the maker or
“drawer” of the check, the person who signed the draft “as a person ordering payment.”
[UCC §3-103(3)(a)] By Federal Expressing the check to Guarino, Talcott issued the check to
him. See [UCC §3-105(a)] (defining “issue” as “the first delivery of an instrument by the
maker or drawer * * * for the purpose of giving rights on the instrument to any person”).
Guarino indorsed the check and cashed it with Any Kind. See [UCC §3-204 (a)] (defining
“indorsement”). Any Kind immediately made the funds available to Guarino, less its fee.
Talcott stopped payment on the check with his bank, so the check was returned to Any Kind.
See [UCC §4-403(a)] (regarding a customer’s right to stop payment).
When Guarino negotiated the check with Any Kind, it became a holder of the check,
making it a “person entitled to enforce” the instrument. See [UCC §§3-201(a), 3-203(b),
3-301(a)]. As the drawer of the check dishonored by his bank, Talcott’s obligation was to
pay the draft to a person entitled to enforce the draft “according to its terms at the time it
was issued. * * *” [UCC §3-414(a)].
* * *
The good faith requirement of the holder in due course doctrine “has been the source of
an ancient and continuing dispute.” [Citation]. On the one hand, should the courts apply a
so-called objective test, and ask whether a reasonably prudent person, behaving the way the
* * *
Application of [old UCC’s] “honesty in fact” standard to Any Kind’s conduct in this case
would clothe it with holder in due course status. It is undisputed that Any Kind’s employees
were pure of heart, that they acted without knowledge of Guarino’s wrongdoing.
However, in 1992, the legislature adopted a new definition of “good faith” that applies to
the [UCC §3-302] definition of a holder in due course: “‘good faith’ means honesty in fact
and the observance of reasonable commercial standards of fair dealing.” [Citation.] To the
old, subjective good faith, “honesty in fact” standard, the legislature added an objective
Comment 4 to section 3-103, Florida Statutes Annotated, attempts to shed light on how
to interpret the new standard:
Although fair dealing is a broad term that must be defined in context, it is clear that it is
concerned with the fairness of conduct rather than the care with which an act is
performed. Failure to exercise ordinary care in conducting a transaction is an entirely
different concept than failure to deal fairly in conducting the transaction.
The Code does not define the term “fair dealing.” * * *
Application of holder in due course status is the law’s value judgment that certain
holders are worthy of protection from certain types of claims. For example, it has been
argued that application of the old subjective standard facilitated the transfer of checks in the
stream of commerce; arguably one would be “more willing to accept the checks if * * * she
To apply the law requiring “good faith” under section 3-302(a), we adopt the analysis set
forth by the Supreme Court of Maine:
The fact finder must * * * determine, first, whether the conduct of the holder comported
with industry or “commercial” standards applicable to the transaction and, second,
whether those standards were reasonable standards intended to result in fair dealing.
Each of those determinations must be made in the context of the specific transaction at
* * *
Check cashing businesses occupy a special niche in the financial industry. They are part
of the “alternative financial services” or “fringe banking” sector, a part of the market that
“has become a major source of traditional banking services for low-income and working
poor consumers, residents of minority neighborhoods, and people with blemished credit
histories.” [Citations.]
* * *
Against this backdrop, we cannot say that the trial court erred in finding that the $10,000
check was a red flag. The $10,000 personal check was not the typical check cashed at a
check cashing outlet. The size of the check, in the context of the check cashing business,
was a proper factor to consider under the objective standard of good faith in deciding
whether Any Kind was a holder in due course. [Citation.]
* * *
To affirm the trial court is not to wreak havoc with the check cashing industry.
Verification with the maker of a check will not be necessary to preserve holder in due course
status in the vast majority of cases arising from check cashing outlets. This was neither the
typical customer, nor the typical transaction of a check cashing outlet.
* * *
The legislature’s addition of an objective standard of conduct may well have the effect of
“slowing the ‘wheels of commerce”’ in some transactions. [Citation.] However, by adopting
Lack of Notice
A holder in due course must take the instrument without notice of
dishonorment — that it is overdue, that it is forged or altered, or that it
is subject to any claims or defenses.
Visible evidence of a forgery or alteration will make the instrument irregular
and will require a transferee to question its authenticity.
Under the Code, a person has notice of a fact when “(a) he has actual
knowledge of it; or (b) he has received a notice or noti%cation of it; or (c)
from all the facts and circumstances known to him at the time in question he
outstanding for an unreasonable length of time.
Notice an Instrument Has Been Dishonored — Dishonor is the refusal to
pay or accept an instrument when it becomes due; notice of a dishonored
instrument prohibits the holder from becoming a holder in due course.
Notice of a Claim or Defense — A defense protects a person from liability
while a claim is an assertion of ownership.
B. HOLDER IN DUE COURSE STATUS
A Payee May Be a Holder in Due Course
A payee may become a holder in due course if she satis%es all of the
requirements.
*** Chapter Outcome ***
Explain the shelter rule and when a payee can have the rights of a holder in due course.
The Shelter Rule
Someone who has not satistied the holder in due course requirements may
assert such rights if the instrument was received from a previous party who
did qualify as a holder in due course. An exception to this rule provides that
a prior holder who himself has been a party to any illegality may not improve
his legal standing by taking the instrument from a holder in due course.
CASE 27-5
TRIFFIN v. CIGNA INSURANCE
Superior Court of New Jersey, Appellate Division, 1997
297 N. J. Super 199, 687 A.2d 1045, 31 UCC Rep.Serv.2d 1040
http://scholar.google.com/scholar_case?
case=11522573068990632822&q=687+A.2d+1045&hl=en&as_sdt=2,10
Dreier, J.
Plaintiff, Robert J. Triffin, appeals from a * * * summary judgment dismissing his complaint
for payment of a draft of defendant Cigna Insurance Company transferred to plaintiff by a
holder in due course after Cigna had stopped payment on the instrument.
* * * The defaulting defendant, James Mills, received a draft in the amount of $484.12,
dated July 7, 1993 from one of Cigna’s constituent companies, Atlantic Employers Insurance
Company. The draft had been issued for workers’ compensation benefits. Mills falsely
indicated to the issuer that he had not received the draft due to a change in his address and
requested that payment be stopped and a new draft issued by defendant. The insurer
complied and stopped payment on the initial draft. Mills nevertheless negotiated the initial
draft to plaintiff’s assignor, Sun Corp. t/a Sun’s Market, before the stop payment notation
Thereafter, plaintiff, who apparently is in the business of purchasing dishonored
instruments, obtained an assignment of Sun Corp.’s interests in this instrument and
proceeded with this law suit. Plaintiff does not contend that he is a holder in due course of
the instrument by virtue of it being negotiated to him for value, in good faith, without notice
of dishonor, under the former holder in due course statute, UCC §3-302, nor under the
present statute, §3-302a(2).
vests in the transferee such rights as the transferor has therein * * *.” Official Comment 3 to
that section sets to rest any question of whether this section applies to the transfer by
assignment of the rights of a holder in due course. The Comment reads: “A holder in due
course may transfer his rights as such * * *. [The former Negotiable Instruments Law
section’s] policy is to assure the holder in due course a free market for the paper, and that
policy is continued in this section.” Example (a) following this comment could have been
drawn from this case, but is even stronger because it adds an element of fraud and posits a
gratuitous transfer rather than a purchase, as in our case:
(a) A [Mills] induces M [Cigna] by fraud to make an instrument payable to A. A
* * *
The Uniform Commercial Code Comment 2 to this [Revised] section similarly states:
Under subsection (b) a holder in due course that transfers an instrument transfers those
rights as a holder in due course to the purchaser. The policy is to assure the holder in due
course a free market for the instrument.
* * *
These sections could not be clearer. Plaintiff received by [negotiation] the right of a
holder in due course to this instrument, which apparently had been presented and then
*** Chapter Outcomes ***
Identify, de%ne and explain the real defenses. De%ne and explain personal defenses.
C. THE PREFERRED POSITION OF A HOLDER IN DUE
COURSE
In a nonconsumer transaction, a holder in due course takes the instrument
(1) free from all claims and (2) free from all defenses of any party with whom
she has not dealt, except for a few real defenses available against anyone,
including a holder in due course. Defenses that may not be asserted against
a holder in due course are called personal defenses, or contractual defenses.
Real Defenses
Infancy — State law recognizes a public policy of protecting minors in
contractual arrangements. The UCC recognizes this defense against a holder
in due course to the extent that it is a defense to a simple contract under
state law.
Void Obligations — Any incapacity, duress, or illegality are valid defenses
against a holder in due course if they are void under state law.
Discharge in Insolvency Proceedings — A discharge in bankruptcy
creates a real defense valid against a holder in due course.
Discharge of Which the Holder has Notice — Any other discharge of
which the holder has notice when he takes the instrument creates a real
defense valid against a holder in due course.
Unauthorized Signature — A person will not be held liable on a negotiable
instrument where their name has been forged. Exceptions: if he has not
Fraudulent Alteration — An alteration is (1) any unauthorized change that
modi%es the obligation of any party to the instrument, or (2) an unauthorized
addition or change to an incomplete instrument concerning the obligation of
Personal Defenses
These defenses are not valid against a holder in due course. The most
common personal defenses include lack of consideration, breach of contract,
fraud in the inducement, economic duress, mistake, undue influence, and
misrepresentation. These transactions are typically voidable, as opposed to
void, under state law.
NOTE: See Figure 26-6 and Gentner and Company, Inc. v. Wells Fargo Bank
D. LIMITATIONS UPON HOLDER IN DUE COURSE RIGHTS
The Federal Trade Commission promulgated a rule a5ecting consumer credit
contracts that undercuts much of the protection a5orded a holder in due
course. In such contracts a provision must be included that warns any
holder that she takes the instrument subject to all claims or defenses,