Court Opinion

ID: 5850939
Source: CourtListenerOpinion
Date Created: 2022-01-13 00:01:15.007096+00
Date Added: 2024-06-11T08:44:05.467086
License: Public Domain

Callahan and Schnepp, JJ. (dissenting).
We do not agree that article 4 lends support to plaintiff’s claim that it is a “holder” of the checks and thus a “holder in due course”. Plaintiff argues that since subdivision (1) of section 4-205 empowered it, as a depositary bank, to supply its customer’s indorsement, no indorsement whatever is necessary to qualify it as a “holder” of the checks and permit it to sue the drawer without first obtaining the indorsement of its transferor. The purpose of the indorsement power is to facilitate the check collection process by relieving banks of the necessity of returning items for indorsement (Uniform Commercial Code, § 4-205, Comment 1). It permits a drawee bank to pay a check presented by a collecting bank without the customer’s indorsement. The checks in this case, however, were not dishonored by the drawee bank because of the lack of the customer’s indorsement, but because of the stop payment order. Plaintiff does not seek to collect the checks through regular banking channels and within the bank collection system which is regulated by article 4, but rather seeks, as a holder in due course, to recover their proceeds from the drawer under article 3. Section 4-209 provides that a bank may become a holder in due course if it complies “with the *905requirements of section 3-302 on what constitutes a holder in due course”. Under article 3, a transferee without indorsement is not a holder and cannot be a holder in due course (Uniform Commercial Code, § 1-201, subd [20]; §§ 3-201, 3-302, subd [1]). Plaintiff, therefore, never acquired holder in due course status simply because it was not a holder of the checks without Proctor’s indorsement. Any indorsement that plaintiff was authorized to supply (see Uniform Commercial Code, § 4-205, subd [1]) was for the limited purpose of collecting the item from the drawee bank and not for the purpose of taking the item as a holder. Although it has been suggested that a bank can use its indorsement power pursuant to subdivision (1) of section 4-205 to become a holder (see Marine Midland Bank — N.Y. v Graybar Elec. Co., 41 NY2d 703, 709; Investment Serv. Co. v Martin Bros. Container & Timber Prods. Corp., 255 Or 192; Pazol v Citizens Nat. Bank of Sandy Springs, 110 Ga App 319), plaintiff never exercised this power. It acknowledges that the stamp it used was inappropriate and mere surplusage and does not contend that the legend stamped on the backs of the checks qualifies it as a “holder”. Even if we were to agree that plaintiff can supply Proctor’s indorsement under article 4 to become a “holder” under article 3, we cannot sanction its supplying an inappropriate indorsement to acquire that status. Finally, the course of conduct between the parties cannot govern the determination of this issue and contravene the clear statutory language governing negotiable instruments. Accordingly, we would grant judgment to the defendant dismissing the action. (Submitted controversy.) Present — Simons, J. P., Callahan, Denman, Moule and Schnepp, JJ.