Some good news for consumers, as the Consumer Finance Protection Bureau launches a study on forced arbitration.
Accountability for civil misconduct has been becoming increasingly illusory over the past decade, especially with big business. In fact, the bigger the business, the greater the obstacle-course one must clear to enforce accountability. This is a serious systemic problem that we face, and Judge Seybert’s decision in Pandit v. Saxon Mortgage is perhaps the latest illustration of the lack of accountability of mammoth financial institutions which were bailed out with taxpayer dollars.
The Pandits, plaintiffs in that case, were homeowners in distress, who applied for a loan modification under the federal bailout program, HAMP, which everyone has heard about. The Pandit’s bank, a beneficiary of the bailout that you and I paid for, gave them the runaround for close to two years; anyone who’s dealt with a HAMP modification application is familiar with that. “We haven’t received your application”, “we’re looking into it”, “somebody will call you back,” “send us these documents immediately,” “you didn’t send documents in time,” “you may apply again,” and on and on – and, after interminable reiteration of these responses which alternated with each other in no particular order – “your application is rejected.” The Pandits sued, claiming that the bank had breached its bailout contract with the federal government, since the Pandits were indisputably among intended third party beneficiaries of that contract.
The Court held that they could not assert claims for breach of contract, because the contract had no such provision. However, the Court held, the Pandits did have a claim for deceptive practices under New York law. In other words, the bank could be held liable for deception, but it could not be held liable for breaching the contract with the federal government even though that contract was meant to benefit the Pandits. While the legal reasoning underlying the Court’s decision may be of questionable merit, what is not questionable is the clear failure of our Washington politicians to ensure accountability.
While doling out the money to the banks, the federal government could have insisted on a provision permitting lawsuits such as the Pandits. That would have given teeth to the high falutin intentions proclaimed from rooftops while the public treasury was raided. But the federal government didn’t. That is the major problem. Lobbyists try very hard – and succeed, with rare exceptions – in preventing such private rights of action. The absence of such private rights precludes the possibility – heaven forbid! – of the beneficiaries of government largesse from being held accountable before a jury or a court. So the only entity that can insist on accountability is the government. And with the government, the fat cats always win. Is anyone surprised – seriously – that four years after the bailout, the head honchos of the banks are rolling in eight and nine figure compensation once again while millions of homeowners are still struggling? The percentage of the money that actually went to the homeowners is abysmal?
Sheila Bair, the former head of the FDIC, explains this well in her just published “Bull by the Horns”, a breathtaking book about the manner in which Wall Street insiders Tim Geithner and Henry Paulson went about requiring the FDIC to ” back “everybody against everything in the $13 trillion banking system.” Ms. Bair was able, on a few instances, to push back, but the fundamental problem remains. “The balance of power has shifted too far in favor of large financial interests in Washington,” she said in the interview. “The bailouts, and the quantitative easing that continues, have overwhelmingly benefited the upper classes. Workers, homeowners, small businesses have by and large been left to fend for themselves.” See Gretchen Morgenson, Questions from a Bailout Eyewitness, N.Y. Times, Oct. 13, 2012, http://www.nytimes.com/2012/
The Pandits have been lucky in one sense. The Court was able to uphold at least their claim for deceptive practices under State law. That is a generic statute, which prohibits “deceptive and unfair trade practices”. Commonly called “UDAPS” (Unfair and Deceptive Acts and Practices Statute), most states have some version of such a statute. Some strong, some weak. States often also have other consumer protection statutes which permits the layperson to enforce accountability for business misconduct in Court.
However, that has been another target of the all-powerful business lobby which controls both political parties today (and most governments and government entities). Democrats and Republicans alike are bought and sold like commodities (vary the epithet, but you get the point). Most often, these lobbies succeed in getting these UDAPS and all other State statutes “preempted” by federal law, so that you cannot even enforce the State Statute. And of course, as big business has been telling us constantly, the federal government is already too big and must cut down and lay off employees. So less government oversight, less enforcement, less accountability. Remember Bernie Madoff?
So who enforces accountability? Fair play in the marketplace? Protects the consumers? The government of fat cats will not do it, and the courts are disabled from doing it. Welcome to . . Azerbejian? Iraq? Zambia? No, United States!
Krishnan Chittur, Esq.
Rhetoric about “frivolous lawsuits” has reached a feverish pitch. Doctors complaining about high insurance premiums, businessmen complaining about increased product safety costs, and stockbrokers complaining about blame-throwing investors, all claim an “epidemic” of frivolous lawsuits. Indeed, there’s even a wellfinanced group now to “fight” our “lawsuit culture”. Somehow, we seem to have started doubting that our greatest strength – our legal system – is actually our greatest weakness. Read more
New York’s Religious Corporation Law: An Exercise in Legal Gymnastics
By Krishnan S. Chittur, Esq.
(Published in New York Law Journal, May 14, 2008, at p. 4, col. 4)
New York’s Religious Corporation Law is a legislation of 1909, which essentially consolidated various earlier pieces of legislation from 1784. While it contains specific provisions concerning the organization of certain denominations, it provides for two general articles whereunder other denominations may incorporate: Article 9 and Article 10.
These provisions are blatantly unsatisfactory options for other denominations. This article discusses some salient aspects of the RCL, and how New York courts have dextrously avoided nettlesome constitutional issues by interpreting the RCL pragmatically.
Articles 9 and 10: The Two Statutory Provisions Hitherto Used by Unspecified Groups
Article 9 deals with “free churches’” A “free church” is one in which “no charge is generally to be made for the seats and pews of the church.” Application for New York Soul Clinic, Inc., 208 Misc. 612, 615 (N.Y. Sup. 1955). The hallmark of a “free church” is free pews. This feature is categorically declared in Section 183:
The seats and pews in every church, building or edifice, owned or occupied by any corporation organized under this article, shall be forever free for the occupation and use, during public worship, of all persons choosing to occupy the same, and conducting themselves with propriety, and no rent, charge or exaction shall ever be made or demanded for such occupation or use.
A pew is a long bench used for seating members of a church’s congregation. Diamond v. Art Contracting Co., 147 Misc. 88, 89 (N.Y.Sup.1933) (“The term ‘pews’ seems to have had its origin in the Dutch ‘puye,’ and to denote a seat inclosed in a religious edifice.”). It is a sacred part, and a valuable asset, of the church, see, e.g., Church of Our Lady of Vilna v. Archbishopric of New York, 2007 WL 1575509, 2 (N.Y.Sup. May 29, 2007) (referring to “many of the Church’s sacred items, including the pews . . .”). In fact, churches that are not “free churches” may sell pews, and pewholders may correspondingly buy, sell, transfer, or gift it, see, e.g., Witthaus v. St. Thomas’ Church in City and County of New York, 161 A.D. 208, 209 (1st Dept. 1914). Thus, absent pews, a religious organization cannot be a “free church,” Emmett v. American Equitable Assur. Co. of N.Y., 194 Misc. 529, 531 (N.Y.City Ct. 1949) (“a church is not a church without pews”).
Pews appear to be an integral feature of western religious practice. However, they are unknown in many other religions. For example, Hindu temples do not have “pews”. Nevertheless, such groups have been known to have incorporated under Article 9 as a “free church”. Talk of a contradiction in terms, a “Hindu church”.
Should such Article 9 temples be mandatorily required to install “pews” and keep them free as required by Article 9? Or should their failure to install pews subject them to revocation of the very incorporation itself as an error? The statute gives no guidance, but both options are unacceptable from a constitutional perspective.
Besides, groups could have a religious belief in mandatory tithing, jaziya, or similar charges. They cannot be prevented from living by those beliefs. Section 183, which requires “free seats and pews,” would appear to forbid this. Article 9 contains other problematic provisions. Sections 180-182 prescribe qualifications for trustees which can’t survive scrutiny. For example, all trustees should be U.S. citizens. This requirement is prima facie unconstitutional under the Equal Protection Clause:
As a general matter, a state law that discriminates on the basis of alienage can be sustained only if it can withstand strict judicial scrutiny. In order to withstand strict scrutiny, the law must advance a compelling state interest by the least restrictive means available.
Bernal v. Fainter, 467 U.S. 216, 219-220 (1984). Accord, DeSousa v. Reno, 190 F.3d 175, 184 (3d Cir.1999) (“It is undisputable that our constitution provides due process and equal protection guarantees to aliens as well as citizens.”). State statutes have been routinely invalidated on this ground, see, e.g., Sugarman v. Dougall, 413 U.S. 634 (1973) (voiding law barring aliens from employment in permanent positions in the competitive class of the state civil service); In re Griffiths, 413 U.S. 717 (1973) (voiding law excluding aliens from eligibility for membership in the State Bar); Board v. Flores de Otero, 426 U.S. 572 (1976) (voiding law that excluded aliens from the practice of civil engineering). As the United States Court of Appeals for the Tenth Circuit reiterated, “Under Equal Protection Clause, states on their own cannot treat aliens differently from citizens without a compelling justification.” Soskin v. Reinertson, 353 F.3d 1242 (10th Cir. 2004).
Just what is a state interest in prohibiting aliens or non-citizens from being trustees of an Article 9 corporation? We cannot conceive of any.
Moreover, Article 9 also mandates that a majority of the board should not be “ministers of the gospel or priests of any denomination”, and that they be New York residents. This would also appear to be an equally clear violation of the First Amendment. What concern is it of the State of New York if a religious organization chooses to have ministers or priests in its board, or that several board members are not New Yorkers? No such restriction appears in the provisions for other corporations.
Article 10 provides for congregational groups, but imposes restrictions on structure and governance. For example, Section 195, R.C.L. prescribes a 3-year term of office for elected trustees. This 3-year restriction could well be subject to religious objections. For example, many faiths have a religious belief in numerology – e.g., tithing – and may find a 3 year term religiously unacceptable.
The problem is further exacerbated by the fact that Articles 9 and 10 do not appear to be mutually exclusive. Section 190 – the first section under Article 10, RCL – enumerates a number of religious denominations to which Article 10 is not applicable and declares that
This article is applicable to churches of all other denominations. R.C.L. §190. Article 9 entities are not amongst those enumerated.
In other words, Article 10 provisions would appear to be fully applicable to Article 9 entities also. That only adds to the confusion and unacceptable statutory prescriptions.
New York Courts’ Approach
Clearly, if the RCL provisions were to be strictly construed, it would be requiring “minority faiths . . . to distort their religious structures to conform with” the legal category, Members of the City Council of the City of Los Angeles v. Taxpayers for Vincent, 466 U.S. 789, 796 (1984)). Religious groups that are not one of the enumerated ones would be unable to incorporate, which would be prima facie unconstitutional. The “clearest command of the Establishment Clause is that one religious denomination cannot be officially preferred over another,” Larson v. Valente, 456 U.S. 228, 244 (1982).
But New York courts appear to have taken a pragmatic approach in construing this mish- mash of a statute. Thus, for example, courts have held that a religious corporation may exist “in fact without being legally constituted.” Matter of Kaminsky, 251 A.D. 132, 136 (4th Dep’t 1937), aff’d mem., 277 N.Y. 524 (1938); Kroth, 105 Misc.2d at 910. Indeed, even with respect to applicability of the RCL, courts have not restricted themselves to the certificate of incorporation; instead, they have looked at the totality of the situation. Id.; see also Watt Samakki Dhammikaram, Inc. v. Thenjitto, 166 Misc.2d 16, 19 (N.Y.Sup. 1995) (“The only conclusion that can thus be drawn is that the plaintiff corporation was established primarily for religious purposes, continues to operate as such, and thus falls within the ambit of the Religious Corporations Law”).
Courts have also held that mere incorporation under a specific Article of the RCL does not mandate a specific structure of a religious organization; in fact, such incorporation is far from conclusive. As the Appellate Division held:
The mere act of incorporating under article 10 was not determinative of the issue of whether Calvary was independent or hierarchical. Special Term reasoned that if Calvary intended to become an independent church it would have incorporated under article 8. We find no support for this conclusion.
New York Dist. of Assemblies of God v. Calvary Assembly of God, 64 A.D.2d 311, 314 (4th Dep’t 5 1978). Consistent with this, another Appellate Division has held that a religious corporation under Article 10,
for the purpose of exercising its contractual right to withdraw must be considered a congregational church, is governed by Religious Corporations Law article 8.
York Annual Conference of the Methodist Church v. Nam Un Cho, 156 A.D.2d 511, 514 (2nd Dep’t 1989).2 See also St. Matthew Church of Christ Disciples of Christ, Inc. v. Creech, 196 Misc.2d 843, 851 (N.Y.Sup. 2003); NYJUR 2d, Religious Organizations § 5.
But then, what is the implication of incorporation? If, for example, an Article 10 corporation wants to have a 2-year term for its board, or wants to have a self-perpetuating board, the mandatory language of Section 195 would appear to forbid that. The answer may lie in construing these provisions permissively, so that mandatory statutory provisions are, in view of the First Amendment, construed as discretionary or default provisions.
“[T]he line between mandatory and directory statutes cannot be drawn with precision,” People v. Karr, 240 N.Y. 348, 351 (1925) (“shall” construed as “not mandatory”); accord, People ex rel. Huff v. Graves, 277 N.Y. 115, 119-120 (1938); Matter of King v. Carey, 57 N.Y.2d 505, 513 (1982) .
Whether a statute * * * is framed in mandatory language is not necessarily of paramount importance in determining whether the provision in question is in fact mandatory or permissive. Rather, the considerations which control are the intent of the provision, gleaned from the entire [statute] and the surrounding circumstances, the purpose of the provision, the policy to be promoted, and the results which would obtain if one conclusion were followed to the exclusion of another.
State v. Town of Wallkill, 170 A.D.2d 8, 10-11 (3rd Dept. 1991) (citations omitted). Here, the “policy to be promoted” is simply the First Amendment, and a contrary conclusion would lead to an unconstitutional result.
By this construction, Section 5 would provide the outlet for complete First Amendment freedom. That provision indisputably applies to all religious corporations in New York; it is part of the “General Provisions” of the RCL. Providing for the “powers and duties” of such corporation’s trustees, it details the procedure for adoption and amendment of bylaws in mandatory terms:
By-laws may be adopted or amended, by a two-thirds vote of the qualified voters present and voting at the meeting for incorporation or at any subsequent meeting, after written notice, embodying such by-laws or amendment, has been openly given at a previous meeting, and also in the notices of the meeting at which such proposed by-laws or amendment is to be acted upon. By-laws thus adopted or amended shall control the action of the trustees.
The Section goes on to impose restrictions in certain respects, e.g., with respect to “calling, settlement, dismissal or removal of its minister,” id. Significantly, however, it does not impose any restriction on bylaws based on mere incorporation under a specific article of the RCL.
Thus, a religious organization’s bylaws should be supreme under Section 5. In other words, the mandatory language “shall” of Section 5 should be construed mandatorily, and overriding the other provisions which also contain the same mandatory language. That would permit any religious organization to function under its own Bylaws. While this would appear to permit certain provisions of the RCL to be trumped by bylaws, it appears to be the only way to save the statute from constitutional infirmity. That is, of course, short of the state legislature enacting a cleaned up legislation which would not require interpretational acrobatics.
Political Integration of Minorities:
Seeking Participation In an All-White Community
By Krishnan S. Chittur
Despite significant progress, minorities seeking to participate in hitherto closed all-white enclaves still face significant hurdles. For an electorally significant portion of such enclaves, “diversity” continues to be an hobby indulged in for political correctness. While many others consider cross-cultural understanding as beneficial – or even necessary – they need to be louder and much more assertive to have any meaningful effect. Until then, minorities in such communities will continue to be marginalized by unspoken xenophobia, the hypocrisy being masked by much-trumpeted “diversity” events which have, put bluntly, nothing more than entertainment value. My experience as an Indian American in one such enclave is typical.
In late summer last year, a vacancy arose in our local school board. I decided to get involved to make some much needed changes to our schools. A publicly televised interview of all candidates followed, and the board picked me unanimously to fill a 9-month slot until the next elections in May 2010. Delighted at the opportunity, I plunged headlong into the task.
Many applauded my appointment; no rumbles of dissent. It appeared that I had been “accepted.” But I did pause to wonder, to paraphrase the old classic song, “Will you love me in May as you did last August?” Little did I know the petty politics brewing in the backyards.
Lightning Strikes: Willie Hortonizing the Minority
The schools were mostly all-white, reflecting the enclave but unaffected by the demographics of the County or the metropolitan area. This was not healthy from an educational perspective. We were not meeting the challenge of preparing children to thrive in an evershrinking world with people of various races and religions. I started exchanging ideas about activities to promote diversity and educate children about the “world outside”, among other things.
Meanwhile, the proposed school calendar for the next year was distributed to the Board. I raised a concern about the psychological effect on children of certain calendar entries concerning one religion. After all, children understand our priorities through the programs and schedules we set, and an isolated entry sent the wrong message. A series of emails followed, one building on the other. One of them summarized some of my thoughts, forthrightly stating that this issue called for deliberations with care and sensitivity, not for an ugly and divisive confrontation.
I thought these were confidential communications, part of the deliberative process where board members bounce ideas and concerns off each other. Boy, was I naive! One board member, in utter disregard of elemental standards of decency let alone legal constraints of confidentiality, took a few words of this email completely out of context, and converted this complex, vexing issue into an incendiary and grossly misleading 30-second soundbite in public, effectively communicating that a serious proposal was under consideration to abolish a religious holiday! In other words, she Willie Hortonized me.
I don’t need to detail what happened next. The fires of bigotry were lit, and I was inundated with hate mail and harassment, and spent several sleepless, anguish filled nights. One irresponsible rumor was all it took to have the flames leaping sky-high. The campaign to shut me out had begun – elections were due five months away.
I was stunned. At the advice of some friends, I sent an open email to the community explaining the real issues, and concerns that everyone should be focusing on. I also got several emails of support. Many people of goodwill exerted themselves to disseminate my explanatory email to the community. That gave me hope.
The “Diversity Initiative” To Make Me “Comfortable”
But this conflagration perverted the direction of what ought to have been a responsible dialog. Other groups – although minuscule in terms of numbers – sought a holiday for their own religious festivals. I suggested some diversity initiatives, every one of which was summarily dismissed with “we’re already doing that.” No, they were not, but I was not looking to pick a spat; I was trying to have some movement in the right direction.
In a politically astute move – which I did not realize at the time – the powers that be organized a “Diversity Initiative.” The overwhelming majority – over 75% – of the persons who attended that event were minority parents, enthused at having me, a minority member, on the Board, and at the prospect of finally being heard. These were not busybodies populating late night meetings to hassle the Board on picayune details. No, these were minority parents – people who had learnt to keep their heads low as a survival technique, but had been emboldened to come out with high hopes of being counted and of contributing to making a difference.
At that so-called “Initiative”, these minority parents made several worthwhile suggestions. They received the time-honored bureaucratic response: “Good idea. We’ll look into that.” But nothing happened. Not a single idea was implemented or even heard about thereafter.
That raised questions about how serious were the organizers in fostering diversity. Several aspects of that event were telling. The so-called “initiative” was held in a private residence, not in any of the many auditoriums, cafeterias, classrooms, gymnasiums, or libraries in our two school campuses with three schools. Why? Some minority parents believe that was because of concern about bespoiling the lily-white image of the community by having too many colored people in the school. Others thought it was simply a method to launch the political career of a supporter of the powers that be, a person who would not raise inconvenient questions but let business continue as usual with a charade of such meaningless “initiatives.”
I finally learnt the truth several weeks later, on the eve of the election for the seat that I had been appointed to in August. A key organizer of that event revealed that in fact, the event was organized so that I “would feel comfortable.”
In other words, their organizing the “Initiative” was akin to getting a doghouse comforter so that the new puppy “would feel comfortable.” That puppy probably had a better chance of making it to the living room than I did.
What was even more disturbing was the circumstances under which this revelation came about. My wife had sent an email to someone questioning the Teachers’ Union’s endorsement of one candidate, who was supported by the key organizer. And the key organizer’s question, full of self-righteous indignation was, how dare my wife send such an email? Apparently they believed that my wife, the spouse of a minority member of the board, should have been genuflecting before them for their efforts to “make me comfortable.”
We minorities had been naively believing all along that we were being invited for enhancing opportunities for cross-cultural understanding. But after all the platitudes over the months – never mind that we have been residents of the community for about a decade – the powers that be still did not consider me one of “them”. I had to stay in my dog house, and could come out only when someone else blew the dogwhistle. I was sick to my stomach.
An Ambitious Program for Cross-Cultural Understanding
Meanwhile, at my own initiative, I laid the groundwork for the school to launch an ambitious initiative, Student Exchange Digital Learning, and International Collaboration, which was a whole new dimension in education. We would collaborate with schools abroad to develop student and faculty exchange programs, expand curriculum offerings with joint or cross-school teaching ventures, and encourage first hand cross-cultural understanding.
The program would considerably widen our students’ and teachers’ cultural horizons, present them unique opportunities for personal growth and for forming friendships across the oceans, and prepare them to meet the challenges of the next decade. It would catapult our schools to the top in national and international rankings and also improve property values significantly.
I got polite applause. And a couple of supportive emails. “Great idea!” “Terrific proposal!” But no action. “If tan were the criteria, I’d be number one”
Then came the “Meet the Candidates” night. Televised live, in a crowded auditorium with a couple of hundred people in attendance. A candidate looking to unseat me unabashedly declared to thunderous applause, “If tan were the criteria, I’d be number one.”
I was sitting one chair away, and was the only person of tan. Just what did he mean? That but for my skin color – and, I suppose, the visual need for some color in the Board – I would not even be there? To say that quite a few people were highly offended at that would be an understatement. A lot of minorities were stunned.
In the face of such overt racism, should I dare a confrontation which was guaranteed to be ugly? We live here. My child goes to the same school. Every day is spent in this community. What price am I willing to pay – or ask my family to pay – for the minority demand to participate, to have a place at the table equal to everyone else?
To have minorities treated with genuine respect, not lip-service? To have all children – majority and minority – prepare to thrive in the world of globalized commerce and security?
Where are we headed?
A good family friend, who I had known for several years, backed out of hosting a campaign event supporting my election. “ I have to live here,” he explained. “I fully agree with your platform, and what you’re trying to do. I will certainly vote for you, but please understand, I cannot host this.” Yes, I understood, and that imbibed fear of a minority parent who has lived for over a couple of decades in this “land of the free” has haunted me.
So, although I initially chose discretion as the better part of valor, I have decided to raise these uncomfortable questions now. As the minority CEO of a major construction company said, “You should raise your hand when you want something, . . . it’s not always about you — it’s about opening doors for others” – Linda Alvarado, The Boss: Keep Opening Doors, N.Y. Times, May 30, 2010.
If we are serious about preparing our children for the next decade, diversity is neither a choice nor an entertainment, it’s a necessity. Shutting out minorities hurts everyone, minorities and majorities alike, and perpetuates ignorant stereotypes rendering people incapable of engaging persons from other backgrounds meaningfully. While I appreciate those who supported me, we need to be more assertive to avoid being drowned. In 20th century United States, living in a cave is a choice, not a compulsion.
“Stop Payment Orders” May Not Be Enough
Legal Tips For Business
Check Cashing now seeks the entire amount ($19,536.47) from us, and has threatened a lawsuit. Are we liable to pay this, although we already paid this amount to the State officials on account of Sub’s employees’ wages?
Also, we notice a slight irregularity in the endorsement on the back of the check: While we had issued the check in the name of “Sub Choice Clothing,” the endorsement is only in the name of “Sub Choice.” Is this of any consequence?
Yes, you are liable to pay Check Cashing, even though you may not be liable to Sub now. And No, the irregularity in endorsement does not matter. I sympathize with you, but here’s why. Check Cashing was a complete stranger to you as well as to Sub. It appears that Check Cashing promptly deposited the check with its bank, and nothing suggests that Check Cashing was aware of anything improper or irregular before it accepted the check and paid Sub. I’m sure you realize that your “Stop Payment Order” four days after issuing the check worked only because the check routing for payment(from Check Cashing to its bank to your bank) took some time, not because of any negligence of Check Cashing.
Check Cashing paid good money for the check, and accepted your check in good faith. Thereby, it became what the law calls a “holder in due course” of the check (“HIDC”). Under the Uniform Commercial Code (a statute which is the same throughout the United States and similar to that in most other countries), an HIDC is a (1) holder (2) of a negotiable instrument (3) who took it for value (4) in good faith and (5) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of another. Once these requirements are satisfied, someone who pays on a check, such as Check Cashing, gets the special protection specified by the Code.
This protection is detailed essentially in Section 3-305 of the Code. An HIDC “takes the instrument free from (1) all claims to it on the part of any person; and (2) all defenses of any party to the instrument with whom the holder has not dealt,” subject to exceptions that don’t help you now.
The reason for this special protection was best explained by New York’s highest court, the Court of Appeals, in a dispute between Hartford Accident & Indemnity Co. and American Express Co.: The holder in due course doctrine–which has particular importance in commercial transactions like those at issue here–has as its objective encouraging and facilitating the ready transaction of negotiable instruments, central to our credit economy; people can rely on the fact that negotiable instruments in the hands of good-faith purchasers will be paid according to their tenor and intent and not paid otherwise. Holder in due course status advances that objective by providing that persons in that category take free of virtually all claims and defenses.
You concede the validity of the check itself, i.e., that you signed it, that it was for the proper amount and to the proper person. The check was not materially altered. And since you have said nothing about the endorser’s signature, I assume that too is genuine. So also, since you have no evidence to the contrary, the endorsement is presumed to be authorized by Sub.
True, the endorsement is in the name of “Sub Choice,” not “Sub Choice Clothing.” But courts have not permitted such minor irregularities in name or endorsement — even spelling errors and incorrect names — to defeat the holder in due course. “A signature made by use of any name, including an assumed name, or other symbol, with intention to authenticate a writing, would appear to be sufficient,” as one court observed. Indeed, even where a person deposits a
check without endorsing it, his bank’s stamp placed on the check indicating that it was credited to his account may be sufficient. Thus, the irregularity in endorsement will not help you at all in court.
In sum, Check Cashing acquired the check in good faith, for value, and without notice of any defenses; it became an “HIDC.” Hence, you’d be better off talking settlement with Check Cashing instead of wasting your time and money litigating a sure loser. And send those blood hounds out to find Sub, with a hope and a prayer that Sub now has the money to repay you.
Lesson for the future: You should have retained a good lawyer when you got that first phone call from the State officials. Obviously, you didn’t, and saved a few dollars then. But that’s costing you a bundle. I’m sure you realize now that one has to be filthy rich, with money to throw away, to try to work through business problems without lawyers!
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