Case: Buckeye Check Cashing, Inc. v. Camp[1] Facts: On October 12, Shawn Sheth a
ID: 2564161 • Letter: C
Question
Case: Buckeye Check Cashing, Inc. v. Camp[1] Facts: On October 12, Shawn Sheth and James Camp agreed that Camp would provide services to Sheth by October 15. In payment, Sheth gave Camp a check for $1,300 that was postdated October 15. On October 13, Camp sold the check to Buckeye Check Cashing for $1,261.31. On October 14, fearing that Camp would violate the contract, Sheth stopped payment on the check. Also, on October 14, Buckeye deposited the check with its bank, believing that the check would reach Sheth's bank on October 15. Buckeye was unaware of the stop payment order. Sheth’s bank refused to pay the check. Buckeye filed suit against Sheth. The trial court ruled that, because Buckeye was a holder in due course, the check was valid and Sheth had to pay Buckeye. Sheth appealed. Issues: Was Buckeye a holder in due course? Must Sheth pay Buckeye? Excerpts from Justice Donovan’s Decision: At issue is whether Buckeye acted in "good faith" when it chose to honor the postdated check originally drawn by Sheth. "Honesty in fact" is defined as the absence of bad faith or dishonesty with respect to a party's conduct within a commercial transaction. Under that standard, absent fraudulent behavior, an otherwise innocent party was assumed to have acted in good faith. The "honesty in fact" requirement, also known as the "pure heart and empty head" doctrine, is a subjective test under which a holder had to subjectively believe he was negotiating an instrument in good faith for him to become a holder in due course. [H]owever, the Ohio legislature amended the definition of "good faith" to include not only the subjective "honesty in fact" test, but also an objective test: "the observance of reasonable commercial standards of fair dealing." A holder in due course must now satisfy both a subjective and an objective test of good faith. Check cashing is an unlicensed and unregulated business in Ohio. Thus, there are no concrete commercial standards by which check cashing businesses must operate. Buckeye argues that its own internal operating policies do not require that it verify the availability of funds, nor does Buckeye apparently have any guidelines with respect to the acceptance of postdated checks. Under a purely subjective "honesty in fact" analysis, it is clear that Buckeye accepted the check from Camp in good faith and would therefore achieve holder in due course status. When the objective prong of the good faith test is applied, however, we find that Buckeye did not conduct itself in a commercially reasonable manner. [T]he presentation of a postdated check should put the check cashing entity on notice that the check might not be good. Some attempt at verification should be made before a check cashing business cashes a postdated check. Such a failure to act does not constitute taking an instrument in good faith under the current objective test of "reasonable commercial standards." This court in no way seeks to curtail the free negotiability of commercial instruments. [However, without] taking any steps to discover whether the postdated check issued by Sheth was valid, Buckeye failed to act in a commercially reasonable manner and therefore was not a holder in due course. Judgment reversed, and cause remanded. Question: Where did Buckeye go wrong?
Explanation / Answer
Buck eye has given the cash against the post dated check. In this case the check was given to Camp against performance of a contract, but the right for encashing the check arises to camp only upon performance of the contract. Since it is a post dated check, the check could very well be cancelled also.As Buck is not a party to contract between Sheth and Camp, he is not entitled to sue Sheth. He can file a suit against Camp for the recovery of the money taken by him and not on Sheth. As Check itself got invalid before it becomes live, he cannot sue Sheth for an invalid check.