Business Law with UCC Applications 13th Edition by Gordon Brown,Paul Sukys

Exercise 1

This case is really three separate cases, each one adding a new twist to the life and times of Scranton Bank and Trust, a small banking firm in Scranton, Pennsylvania. In the first case, Norwalk Auto Mall sold a vintage Jaguar to George Montalbano for $34,000. In order to convince Montalbano to buy the vehicle, Jerry Morris, a sales rep for Norwalk, told him that the radiator was new and the brakes had been replaced three weeks earlier. Neither of these things had been done and everyone at Norwalk, including Harry Jameson, the owner, knew that. Montalbano gave Norwalk a check from his account at Scranton for the $34,000. While on his way to Plymouth, Massachusetts, the car's brakes failed and, after a quick investigation, Montalbano discovered the fraud. He immediately stopped payment on the check. However, back home in Scranton, Jameson had indorsed the check and given it to Calvin Calloway, a holder in due course. In the second case, in another part of town, Greg and Samantha Laszlo had contracted with Englehardt and Sons, Construction for the construction of their new home on the outskirts of Scranton. They financed their loan through a lending company named Lascher Loans which issued checks periodically as the construction continued. The checks were payable to Greg, Samantha, and Englehardt. By a strange twist of fate, on the day of the Montalbano fiasco, the last check was issued by Lascher and was deposited in Englehardt's account at Scranton Bank and Trust without Samantha's indorsement. In the third and last case, Norwalk Auto Mall purchased three vintage autos at a car auction from Gary Thatcher, paying for them with two checks that totaled $78,453.00. Thatcher presented the checks and asked for cash because he was going to another auction and needed it. Lew Oswald, the teller on duty did so without getting the bank manager's okay, which was standard procedure at Scranton (and in the business for that matter). A little while later, on the same day as the Englehardt deposit, Norwalk stopped payment on the checks because the title to the three cars was not clear. Scranton later found itself embroiled in several lawsuits. In all three lawsuits, the bank argued that it was a holder in due course of the checks in its possession and, therefore, could collect from Montalbano , Englehardt , and Norwalk. Somewhere in this tangle of legal technicalities there exists a rule that will unravel all of these cases and will tell Scranton what it has to do. As you read the chapter see if you can detect just what that rule is and how the courts should decide each of these cases.
What are the three characteristics of a holder in due course? Are all three necessary or will only one or two satisfy the court that "holder status" exists? Explain.