23.6. Holder in Due Course On December 10, 1987, National Financial Services (National) issued a check to Patrick J. Doherty for $62,812.36. The check was drawn on National's account at the Bank of New England. The next day, Doherty took the check to his bank, the M & I Marshall & Ilsley Bank (M & I), and properly indorsed it. The bank gave Doherty $1,350 in cash and deposited the remainder of the funds into his checking account at the bank. As soon as the check was deposited, M & I froze these funds to help offset a $90,000 overdraft in Doherty's account. When Doherty learned of this action, he contacted National and asked them to stop payment
on the check. Although National agreed to do so, it refused to issue a new check until the original was returned. In the meantime, M & I forwarded the check for payment to the Bank of New England. The Bank of New England returned the check to M & I, stamped "payment stopped." When M & I received the dishonored check, it sent it to Doherty, who forwarded it to National. National then issued Doherty a new check. M & I sued National to recover on the first check. M & I claims it was a holder in due course and that National could not stop payment on the check. Who wins?
M & I Marshall & Ilsley Bank v. National Financial Services Corporation, 704 F.Supp. 890, 1989 U.S.Dist. Lexis. 1233 (E.D.Wis.)
Is the Bank a holder in due course? Who should prevail in the litigation?
The bank is not a holder in due course. The holder in due course is a purchaser of debt where the buyer is assigned the right to receive the debt payments. The doctrine insulates the buyer of debt or other obligation to pay against charges that either party to the ...
The legal doctrine of holder in due course is discussed step-by-step in this solution. The response also has the sources used.