Opinion ID: 1599753
Heading Depth: 1
Heading Rank: 2

Heading: Farmers Coop as a Holder in Due Course.

Text: Allison-Kesley's first contention is that the district court's determination regarding Farmers Coop's holder-in-due-course status was not supported by substantial evidence. Our review of this assertion is for errors at law. Iowa R.App.P. 4. [F]indings of fact by the trial court in [a] law case are the equivalent of a jury verdict. If supported by substantial evidence and justified as a matter of law, they are binding on us. Gere v. Council Bluffs Community Sch. Dist., 334 N.W.2d 307, 309 (Iowa 1983); Iowa R.App.P. 14(f)(1). We have defined substantial evidence as follows: A finding of fact is supported by substantial evidence if the finding may reasonably be inferred from the evidence. In evaluating sufficiency of evidence, we view it in its light most favorable to sustaining the court's judgment. We need only consider evidence favorable to the judgment, whether or not it is contradicted. Briggs Transp. Co. v. Star Sales Co., 262 N.W.2d 805, 808 (Iowa 1978). Thus, [w]e do not weigh the evidence; we only decide if there is a proper basis upon which the trial court could find as it did. Arbie Mineral Feed Co. v. Nissen, 179 N.W.2d 593, 595 (Iowa 1970). Prior to discussing the issue of substantial evidence, we must first consider the requirements for attaining holder-in-due-course status. To become a holder in due course of a negotiable instrumentin this case, a PIK certificateone must, among other things, give value in exchange for the negotiable instrument one receives. Iowa Code § 554.3302(1)(a) (1991). Significantly, value is defined to include the giving of a negotiable instrument in return for the negotiable instrument that one receives. Iowa Code § 554.3303(c). The negotiable instrument is value because it carries the possibility of negotiation to a holder in due course, after which the party who gives it cannot refuse to pay. Iowa Code § 554.3303 comment 6. In addition to giving value, one must take the instrument without notice of any defense against or claim to it on the part of any person. Iowa Code § 554.3302(1)(c). The proper time for determining whether the recipient of an instrument has notice of a claim or defense is the time of negotiation of the instrument to the holder. Mecham v. United Bank of Arizona, 107 Ariz. 437, 442, 489 P.2d 247, 252 (1971) (critical time for notice is when party comes into possession as a holder); Kroh v. Pronto Petroleum Co., 536 P.2d 860, 862 (Colo.Ct.App.1975) (same); Hatton v. Money Lenders & Assocs., 127 Ill.App.3d 577, 580, 82 Ill.Dec. 826, 829, 469 N.E.2d 360, 363 (1984) (same); Sullivan v. United Dealers Corp., 486 S.W.2d 699, 701 (1972) (same); Weast v. Arnold, 299 Md. 540, 563, 474 A.2d 904, 916 (1984) (same); Lynnwood Sand & Gravel, Inc. v. Bank of Everett, 29 Wash.App. 686, 691, 630 P.2d 489, 492 (1981) (Subsequent notice of infirmities in the instrument has no effect upon the rights of a holder in due course, absent a showing of bad faith.); J. White & R. Summers Uniform Commercial Code § 14-2, at 696 (Notice after value has been given does not deprive [the holder] of holder-in-due-course status. If such notice coming after possession and giving of value deprived the holder of his holder-in-due-course status, the status would have no value at all.). Based on the evidence presented at trial, the district court could have reasonably concluded that Moser, the Farmers Coop representative who conducted the Hildebrand transaction at the time he bought the PIK certificates, neither had actual knowledge nor reason to know of the fraud perpetrated by the Hildebrands. See Iowa Code § 554.1201(25) (defining notice for purposes of Uniform Commercial Code). On the contrary, it was not until after the Hildebrands had left and Moser further examined the certificates that he became suspicious of possible wrongdoing, at which time Moser initiated an investigation that ultimately led to a discovery of the Mexican draft's fraudulent origin. We also conclude that, based on the trial record, the district court could reasonably conclude that Farmers Coop took the PIK certificates for value since they issued a negotiable instrumentnamely their checkin exchange for the PIK certificates. See Iowa Code § 554.3104 (defining a negotiable instrument to include a check). There is substantial evidence in the record to support the district court's determination that Farmers Coop took the PIK certificates for value, in the form of a negotiable instrument, and without notice of any claim to the certificates on the part of Allison-Kesley or any other entity. Accordingly, the court's determination that Farmers Coop was a holder in due course is supported by substantial evidence. See Iowa Code § 554.3302 (defining a holder in due course).