Any Kind Checks Cashed, Inc. v. Talcott
830 So. 2d 160, 48 U.C.C. Rep. Serv. 2d (West) 800 (2002)
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Rule of Law:
A check cashing business is not a holder in due course of a fraudulently obtained check if its procedures for cashing the check do not comport with reasonable commercial standards of fair dealing, which is a required objective component of "good faith" under Florida's Uniform Commercial Code, especially when faced with unusual circumstances or "red flags" in the transaction.
Facts:
- In the mid-1990s, D.J. Rivera, identifying himself as a "financial advisor," sold John G. Talcott, Jr., a 93-year-old Massachusetts resident, a $75,000 investment that subsequently produced no returns.
- On December 7, 1999, Salvatore Guarino established check cashing privileges at Any Kind Checks Cashed, Inc. ("Any Kind") by filling out a customer card and listing himself as a broker.
- On January 10, 2000, Rivera telephoned Talcott and induced him to send a $10,000 check payable to Guarino, purportedly to cover travel expenses to obtain a return on the original $75,000 investment.
- On the morning of January 11, Rivera informed Talcott that $10,000 was more than necessary for travel, suggesting $5,700 would suffice, prompting Talcott to call his bank and stop payment on the $10,000 check.
- Later on January 11, Guarino appeared at Any Kind's Stuart, Florida office and presented the $10,000 check to supervisor Nancy Michael, telling her it was for an investment, and she cashed it for $9,500 after a 5% fee, without successfully contacting Talcott for verification.
- On January 15, 2000, Rivera called Talcott and again promised a return on his investment, leading Talcott to send a $5,700 check.
- On January 17, 2000, Guarino presented the $5,700 check at Any Kind, and supervisor Michael instructed the teller to contact Talcott, who approved cashing the check.
- On January 19, 2000, Rivera called Talcott to warn him that Guarino was a cheat, causing Talcott to immediately call his bank to stop payment on the $5,700 check and his daughter to inform Any Kind of the stop payment.
Procedural Posture:
- Any Kind Checks Cashed, Inc. filed a two-count complaint against Salvatore Guarino and John G. Talcott, Jr., claiming it was a holder in due course of both the $10,000 and $5,700 checks.
- John G. Talcott, Jr. raised the defense that Any Kind was not a holder in due course and that his obligation on the checks was nullified due to Guarino's illegal acts.
- The trial court conducted a non-jury trial and entered final judgment, finding in favor of Any Kind for the $5,700 check, but in favor of Talcott on the $10,000 check, concluding that Any Kind was not a holder in due course for the larger amount.
- Any Kind Checks Cashed, Inc. (appellant) appealed the trial court's adverse ruling concerning the $10,000 check to the District Court of Appeal of Florida, Fourth District, with John G. Talcott, Jr. as the appellee.
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Issue:
Does a check cashing store qualify as a holder in due course for a $10,000 personal check, fraudulently induced from an elderly man, when its internal procedures for cashing that specific check did not involve contacting the maker for verification, despite recognizing unusual aspects of the transaction?
Opinions:
Majority - Gross, J.
No, Any Kind Checks Cashed, Inc. was not a holder in due course of the $10,000 check because the procedures it followed did not comport with reasonable commercial standards of fair dealing, which is a required component of "good faith" under Florida's Uniform Commercial Code. The court noted that Florida's 1992 amendment to the UCC's definition of "good faith" for holder in due course status added an objective component: "honesty in fact and the observance of reasonable commercial standards of fair dealing." This legislative change departed from the previous purely subjective "honesty in fact" standard, meaning a holder can no longer act with "a pure heart and an empty head." Adopting the analysis from Maine Family Fed. Credit Union v. Sun Life Assurance Co. of Canada, the court determined that a factfinder must assess, first, whether the holder's conduct comported with industry or "commercial" standards applicable to the transaction and, second, whether those standards were reasonable for fair dealing in the specific transaction. While there was no evidence presented regarding the general commercial standards of the check cashing industry, the court found that Any Kind's procedures, in this particular case, were not reasonably related to achieving fair dealing. The court identified several "red flags" that should have prompted greater caution from Any Kind: the unusual size of the $10,000 personal check for a typical check cashing outlet, Guarino (a broker) being an atypical customer who chose to pay a 5% fee rather than use a traditional bank, and the general purpose of check cashing businesses often serving individuals with limited resources for smaller, necessary checks. The court emphasized that "fair dealing" includes not acting as an easy refuge for dishonest individuals. It concluded that, given the specific, unusual nature of this transaction, reasonable commercial fairness required Any Kind to verify the $10,000 check with its maker, Talcott, to preserve its holder in due course status.
Analysis:
This case is highly significant for the interpretation and application of the "good faith" requirement under the Uniform Commercial Code (UCC) Article 3 in states that have adopted the 1992 revisions. By incorporating an objective "reasonable commercial standards of fair dealing" component, the ruling unequivocally mandates that commercial entities, particularly those in the "fringe banking" sector like check cashing businesses, must exercise greater diligence and caution when red flags are present in a transaction. It establishes that subjective honesty alone is insufficient for holder in due course status; rather, a holder must also demonstrate objectively fair conduct in line with reasonable commercial practices. This decision serves to allocate risk more equitably, placing the burden on the commercial entity to investigate suspicious transactions, thereby affording greater protection to consumers, especially vulnerable populations, against fraud.
