Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

تمرين 27

FACTS Over a ten-year period, Christine Mayfield worked for plaintiff Watson Coatings, Inc.-first as an accountant, then as the company controller, and finally as the company treasurer. Mayfield had authority to write checks on funds in Watson's corporate checking account. Watson placed no restrictions or dollar limitations regarding Mayfield's authority to sign checks. Mayfield was solely responsible for reconciling the company checkbook register with the bank statements. Although Watson received monthly bank statements with cancelled checks, Carol Watson, one of Watson's owners, delivered the unopened bank statements to Mayfield but never reviewed the bank statements or reconciled the checking account during Mayfield's tenure at Watson. Mayfield's husband, an American Express account holder, added Mayfield's name to his account in 1992. From August 1997 through October 2001, Mayfield wrote approximately forty-five to forty-seven checks (totaling more than $745,000) on Watson's corporate checking account payable to American Express for her or her husband's personal debt. Neither Mayfield's name nor her husband's name was printed on any of the checks. Each of the checks was made payable to the order of American Express and for credit to the American Express account of Mayfield's husband. American Express credited the Mayfield account for each of the checks. Watson informed American Express of Mayfield's fraud after Mayfield's employment with Watson ended. Watson filed suit to recover the funds. The district court granted American Express's motion for summary judgment. Watson filed an appeal.
DECISION Judgment affirmed.
OPINION Smith, J. Watson raises three arguments on appeal: *** (2) that American Express cannot qualify as a holder in due course because it is a payee or because it fails to meet the requirement of good faith …
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Watson's second argument is that a genuine issue of material fact exists as to whether American Express, as a payee, qualifies as a holder in due course. Watson further asserts that even if American Express did qualify for holder-in-due-course status, it failed to meet the requirement of good faith. *** ''The payee of an instrument can be a holder in due course, but use of the holder-in-due-course doctrine by the payee of an instrument is not the normal situation.'' [Citation.] (Explaining that ''the drafters of the U.C.C. did not categorically exclude a payee'' from holder-indue- course status but typically a payee is not a holder in due course). Thus, satisfaction of the requirements of a holder in due course is ''all that is necessary for a payee to obtain the special protections of a holder in due course.'' [Citation.] A bare assertion by the plaintiff that ''only in rare circumstances'' should a payee be regarded as a holder in due course is insufficient to establish how the payee failed to meet the requirements of a holder in due course. [Citation.] However, the payee bears the burden of establishing that it meets all the requirements of a holder in due course. [Citation.].
Given the facts in this case, we see no reason that if American Express meets the requirements of a holder in due course, it should not qualify for such status simply because it is also a payee. Watson only challenges American Express's fulfillment of the good faith requirement. '''Good faith' means honesty in fact in the conduct of the transaction concerned.'' [UCC] § 400.3-103(4). Because the UFL [Uniform Fiduciaries Law] uses a definition substantially similar to the UCC's definition, and because we have already held that *** American Express acted in good faith *** [we must conclude] that American Express was a holder in due course.
[The previous discussion of good faith under the UFL stated the following:] To establish bad faith, Watson had to show American Express knew or disregarded knowledge that Mayfield was breaching her fiduciary duty. [Citation.] ''[M]ere suspicious circumstances'' are insufficient to show bad faith. [Citation.] Furthermore, ''many legitimate reasons [exist as to] why an agent and principal might engage in odd checking practices.'' [Citation.] ***
Not only must the payee act honestly, but the payee must also act in a commercially reasonable manner to have acted in ''good faith.'' American Express processes over a million payments a day by electronic means-the only practical means to accomplish the task. We consider electronic, automated check processing to be commercially reasonable. [Citation.] Where a bank or payee electronically processes checks pursuant to its normal procedures and does not employ automated procedures that unreasonably vary from general banking usage, no genuine issue of material fact exists as to whether the payee's automated processing of checks is commercially reasonable.
In this case, American Express acted in good faith when it accepted the checks from Mayfield as payment for her husband's credit card bills because it acted honestly and in a commercially reasonable manner. *** American Express had no reason to suspect that it would have a problem collecting payment on the checks because they contained no facial irregularities. Finally, Mayfield drafted the checks over a four-year period without any complaint from Watson to American Express that Mayfield had no authority to pay for her husband's credit card with corporate checks.
In addition to acting honestly, American Express acted in a commercially reasonable manner by using an automated processing system. Watson does not argue that American Express violated its own procedures when it processed the checks. Also, Watson has not provided any evidence that American Express's automated procedures unreasonably vary from general banking usage.
INTERPRETATION A payee may be a holder in due course.
CRITICAL THINKING QUESTION Under what circumstances, if any, should a payee be permitted to be a holder in due course?