Buckeye Check Cashing, Inc. v. Camp

Citations: 825 N.E.2d 644; 159 Ohio App. 3d 784; 2005 Ohio 926Docket: No. 2004 CA 53.

Court: Ohio Court of Appeals; March 3, 2005; Ohio; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Shawn Sheth appeals a judgment from the Xenia Municipal Court that ruled in favor of Buckeye Check Cashing, Inc. The trial court found Buckeye to be a holder in due course of a postdated check issued by Sheth, which Sheth had subsequently ordered his bank to stop payment on. Sheth argues that the court misapplied the legal standard for holder-in-due-course status by using the pre-1990 definition of 'good faith'—defined as 'honesty in fact'—instead of the post-1990 expanded definition that includes 'the observance of reasonable commercial standards of fair dealing,' adopted by Ohio law in 1994. Sheth claims Buckeye failed to act commercially reasonably by cashing the postdated check. The trial court's decision was made after a bench trial held on April 19, 2004, with the judgment entered on April 28, 2004, confirming Buckeye's holder-in-due-course status. The court concluded that Buckeye did not meet the necessary good faith standard, as it was unaware of Sheth’s stop-payment order when it cashed the check. The relevant statute, R.C. 1303.32, outlines the requirements for holder-in-due-course status, which include taking the instrument for value, in good faith, and without notice of any defenses or claims against it. The appeal accepts Sheth's argument regarding the incorrect application of the good faith standard, leading to the reversal of the trial court's judgment.

The appeal centers on whether Buckeye acted in 'good faith' when honoring a postdated check from Sheth, as defined under R.C. 1303.01, which incorporates both subjective and objective tests of good faith. The subjective test, derived from R.C. 1301.01, emphasizes 'honesty in fact'—the absence of bad faith or dishonesty in a commercial transaction—while the 1994 amendment introduced an objective standard requiring adherence to reasonable commercial standards of fair dealing. The definition of what constitutes these reasonable standards remains undefined in Ohio.

Sheth contends that Buckeye does not qualify as a holder in due course, referencing a Maine Supreme Court case that clarifies the objective assessment of good faith. This involves evaluating whether the holder's conduct aligns with industry standards and whether those standards are reasonable for fair dealings in a specific transaction. If both criteria are met, the holder may be considered to have acted in good faith, even if the transaction outcome seems unreasonable.

Buckeye argues that cashing a postdated check does not preclude holder-in-due-course status. However, all cited cases predate the UCC's inclusion of the objective prong. Under a purely subjective analysis, Buckeye could be seen as acting in good faith. Nevertheless, applying the objective standard reveals that Buckeye failed to act in a commercially reasonable manner. The acceptance of a postdated check indicates potential issues, putting Buckeye on notice regarding the check's validity, thus accepting the risk associated with cashing it.

Verification of a postdated check is necessary before cashing it; failing to do so does not meet the good faith requirement under R.C. 1303.32, which mandates adherence to 'reasonable commercial standards.' The Ohio legislature aimed to impose a duty on holders of certain instruments to act responsibly to achieve holder-in-due-course status. Buckeye's decision to cash Camp's postdated check without any verification efforts violated this standard. Specifically, Buckeye was aware that the check was not valid until October 15, 2003, yet it did not take steps to determine the check's validity. Good faith, as defined by the UCC and Ohio law, encompasses both honesty and commercially reasonable conduct. Buckeye's lack of action to verify the check's validity resulted in its failure to qualify as a holder in due course. Consequently, Sheth's assignment of error was sustained, leading to the reversal of the Xenia Municipal Court's judgment and remanding the case for further proceedings. Judges Brogan and Wolff concurred with this decision.