Opinion ID: 683516
Heading Depth: 2
Heading Rank: 3

Heading: The Close-Connectedness Theory

Text: 43 Finally, defendants contend that AITF could not have become a holder in due course because it had close connections with Delta. This contention need not detain us long. Under the so-called close-connectedness doctrine, which has not been recognized in New York, some states have endorsed the view that a transferee who has an  'unusually close relationship with the transferor'  may not take an instrument from the transferor as a holder in due course. Vitols v. Citizens Banking Co., 10 F.3d 1227, 1233 (6th Cir.1993) (quoting Arcanum National Bank v. Hessler, 69 Ohio St.2d 549, 549, 433 N.E.2d 204, 206 (1982)); see also Leasing Service Corp. v. River City Construction, Inc., 743 F.2d 871, 875-77 (11th Cir.1984) (discussing cases). At least one state court, however, noting the intimate relationship between the concepts of close connectedness and notice as defined in the UCC, has rejected the doctrine as only a substitute for a proper analysis of a party's holder-in-due-course status under UCC Sec. 3-302(1). Cessna Finance Corp. v. Warmus, 159 Mich.App. 706, 712, 407 N.W.2d 66, 69 (1987). 44 Further, even the courts that have adopted this doctrine have generally applied it only in cases involving consumer credit transactions in which the seller and the financing entity are intertwined or have an ongoing relationship encompassing many transactions. See, e.g., Unico v. Owen, 50 N.J. 101, 111-15, 232 A.2d 405, 410-12 (1967); see also Leasing Service Corp. v. River City Construction, Inc., 743 F.2d at 876 (concluding that doctrine has been applied only where there is a consumer involved who has been given a 'raw deal' ). But see St. James v. Diversified Commercial Finance Corp., 102 Nev. 23, 26, 714 P.2d 179, 181 (1986) (adopting doctrine with respect to all transactions where the buyer can demonstrate a close connection between the seller and lender). 45 We need not consider in this case whether or to what extent the New York courts would apply the close-connectedness doctrine where a seller and a lender have such a close relationship, or whether the doctrine would be applied to commercial credit transactions, for in the present case defendants have not pointed to any evidence suggesting that AITF and Delta had a close relationship. To the contrary, they concede that AITF had purchased notes from Delta on only one other occasion and that the two companies had no common management. Hence, even if recognized under New York law, the doctrine would afford defendants no basis for relief.