State Security Check Cashing, Inc. v. American General Financial Services

In this case we are asked to determine which party, as between the issuer of a check and the check cashing business that cashed it, is liable under Md.Code, Commercial Law Art. § 3-404 (2002 Repl. Yol. & Supp. 2008) for the face amount of the check, when an imposter, posing successfully as another individual in securing a loan (the proceeds of which were represented by the check) from the issuer, subsequently negotiated the check at the check cashing business. We shall hold that, under the circumstances presented in this case, the issuer of the check is liable for the amount of the check.

I.

Factual and Procedural Background

On 20 June 2007, American General Financial Services, Inc., (“American General”) was contacted by telephone by a man, later revealed to be an imposter posing as Ronald E. Wilder (we shall refer to this person as the “imposter”, though he was not known to be so at most relevant times in this case). The imposter sought a $20,000.00 loan. Based on the information supplied by him over the telephone, American General ran a credit check on Ronald E. Wilder, finding his credit to be excellent. American General informed the imposter that it would need personal tax returns for the prior two years, and asked him what he intended to do with the proceeds of the desired loan. 1 The imposter sent by electronic facsimile to American General the requested tax returns of Mr. Wilder and explained that he wanted the loan to renovate a property he owned. On Friday, 22 June 2007, American General’s District Manager received the completed loan application and tax returns, performed a cash flow analysis, and obtained approval from senior management for an $18,000.00 loan.

*85 On that same morning, American General informed the imposter that the loan was approved. The imposter appeared at noon at American General’s Security Boulevard office in Baltimore County. He proffered an apparent Maryland driver’s license bearing Mr. Wilder’s personal information and the imposter’s photograph. He remained in the loan office for approximately thirty minutes, meeting with the branch manager and a customer account specialist during the loan closing. After all the loan documents were signed, American General issued to the imposter a loan check for $18,000.00, drawn on Wachovia Bank, N.A., and payable to Ronald E. Wilder.

Later that afternoon, the imposter presented the check to State Security Check Cashing, Inc. (“State Security”), a check cashing business. At the time the imposter appeared in State Security’s office, also on Security Boulevard in Baltimore County, only one employee was on duty, Wanda Decker. Decker considered the same driver’s license that the imposter presented to American General, and reviewed the American General loan documents related to the check. She also compared the check to other checks issued by American General which had been cashed previously by State Security. Deeming the amount of the check relatively “large,” Decker called Joel Deutsch, State Security’s compliance officer, to confirm that she had taken the proper steps in verifying the check. Deutsch directed Decker to verify the date of the check, the name of the payee on the check, the address of the licensee, the supporting loan paperwork, and whether the check matched other checks in State Security’s system from the issuer. Decker confirmed the results of all of these steps, and, upon Deutsch’s approval, cashed the check, on behalf of State Security, for the imposter for a fee of 3-5% 2 of the face value of the check.

On Monday, 25 June, the next business day after the imposter negotiated the check at State Security, the real *86 Ronald E. Wilder appeared at the offices of American General indicating that he had been notified by the U.S. Secret Service that a person applied for a loan in his name. At that time, the true Ronald E. Wilder completed an Affidavit of Forgery. As a result of the Affidavit, Thurman Toland, the Branch Manager of American General’s Security Boulevard branch, called Wachovia Bank to determine whether the $18,000.00 check had been presented for payment. Learning that the check had not been presented yet, Toland placed a “stop payment” on the check.

State Security filed a civil claim in the District Court of Maryland, sitting in Baltimore County, against American General for the face value of the check, plus interest, asserting that it was a holder in due course of American General’s check, that it received the check in good faith, without knowledge of fraud, and that it gave value for the check. On 3 December 2007, the District Court conducted a bench trial. During the trial, the testimonies of Deutsch and Toland revealed three additional, potentially important points: (a) had State Security personnel called American General on 22 June 2007 to verify that American General issued a check to Ronald E. Wilder for $18,000.00, Toland would have confirmed that to be the case; (b) State Security employed a thumb print identification system for its check-cashing business, but, at the time the imposter cashed the check, it was unclear whether it was functional; 3 and (c) although, as part of the loan application process, American General obtained names and telephone numbers of personal references from the imposter, it did not call any of the references before delivering the check.

*87 On 19 December 2007, the District Court held in favor of American General, explaining:

What was the one action that either party could have taken “to prevent the loss”? In the Court’s view Security could have withheld payment, to the imposter, until the check cleared on the Defendant’s “out of town” bank. But Security is in the business of cashing checks and charges a fee of between 3% and 5% for the check cashing service; and with a check of this amount, it probably earned a fee of approximately nine hundred ($900.00) dollars. If one is charging that type of a fee, a customer cashing a check on Friday is not going to wait until the following Monday to receive the proceeds. That is a risk of doing the type of business[ ] the Plaintiff chooses to do.

The District Court concluded that, under Md.Code, Commercial Law Art. § 3-404(d), 4 State Security had not exercised ordinary care in paying the imposter’s check, and that its failure to exercise ordinary care contributed substantially to the loss.

*88 State Security appealed to the Circuit Court for Baltimore County. A hearing was held on 24 July 2008, based on the record made in the District Court. On 8 August 2008, the Circuit Court issued its Memorandum Opinion and Order affirming the judgment of the District Court, reasoning:

[The District Court judge] applied the § 3-404(d) analysis to [State Security] as the “party who paid the instrument,” and determined that [State Security] failed to exercise ordinary care in paying the $18,000.00 check and that the failure to do so substantially contributed to the loss resulting from payment of the instrument. The decision of the District Court turned on the question of “what was the one action that either party could have taken to ‘prevent the loss?’ ” [The District Court judge] determined that [State Security] was the only party who could have prevented the loss by withholding payment to the “imposter” until the check cleared on [American General’s] out-of-town bank and that [State Security’s] failure to do so substantially contributed to the loss resulting from the payment of the $18,000.00 check.

The uncontroverted evidence at trial in the District Court shows that [State Security] immediately paid the $18,000.00 instrument to the imposter without utilizing its thumbprint identification system or waiting until the check cleared on [American General’s] bank. Therefore, there is substantial evidence to support [the District Court judge’s] determination that [State Security] failed to exercise ordinary care in paying the instrument as required by § 3-404(d), and that failure substantially contributed to the loss. Thus, the decision of the District Court is not clearly erroneous.

*89 State Security pressed on. It filed a petition for writ of certiorari with this Court, pursuant to Md.Code, Courts and Judicial Proceedings Art. §§ 12-305 and 12-307 (2006 Repl. Vol. & Supp. 2008), 5 seeking review of the Circuit Court’s judgment. We issued the writ. State Sec. v. Am. Gen., 406 Md. 443, 959 A.2d 793 (2008). 6

II.

Discussion

Tn the District Court and the Circuit Court, State Security argued that, under Md.Code, Commercial Law Art. § 3-302, it *90 was a holder in due course of the check issued by American General. Neither the District Court nor the Circuit Court, however, resolved that claim in reaching their respective judgments. In order to resolve the rights of the parties, it is necessary to address State Security’s § 3-302 claim.

A. Commercial Law Art. § 3-302

Section 3-302 of the Commercial Law Article provides, in its entirety, that the definition of a “holder in due course” is as follows:

(a) Subject to subsection (c) and § 3—106(d), “holder in due course” means the holder of an instrument if:

(1) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

(2) The holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in § 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in § 3-305(a).

(b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument.

(c) Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor’s sale or similar proceeding, (ii) by *91 purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in interest to an estate or other organization.

(d) If, under § 3-303(a)(l), the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

(e) If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

(f) To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

(g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

Neither party argues that any subsection other than subsection (a) is applicable to the case at hand.

The first prerequisite to being deemed a holder in due course is that the item held must be an “instrument.” As used in Title 3 of the Commercial Law Article, “ ‘[¡Instrument’ means a negotiable instrument.” Md.Code, Com. Law Art. § 3-104. Section 3-104, in relevant part, defines “negotiable instrument”:

(a) Except as provided in subsections (c) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

*92 (1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

(2) Is payable on demand or at a definite time; and

(3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.

(c) An order that meets all of the requirements of subsection (a), except paragraph (1), and otherwise falls within the definition of “check” in subsection (f) is a negotiable instrument and a check.

(f) “Check” means (i) a draft, other than a documentary draft, payable on demand and drawn on a bank or (ii) a cashier’s check or teller’s check. An instrument may be a check even though it is described on its face by another ' term, such as “money order”.

The parties do not dispute that the check issued to the imposter by American General satisfies the definition of a negotiable instrument for the purposes of Title 3 of the Commercial Law Article.

Under subsection (a) of section 3-302 of the Commercial Law Article, there are multiple additional requirements that the holder of the instrument must satisfy in order to be a holder in due course. As iterated previously, those requirements are: the “instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity”; and the holder took the instrument (1) for value, (2) in good faith, (3) “without notice that the instrument is overdue or has been dishonored or that *93 there is an uncured default with respect to payment of another instrument issued as part of the same series,” (4) without notice that the instrument contains an unauthorized signature or has been altered, (5) “without notice of any claim to the instrument described in § 3-306,” and (6) “without notice that any party has a defense or claim in recoupment described in § 3-305(a).” State Security alleges that all of the requirements are satisfied in the present case. American General disputes State Security’s allegations as to only one of the prerequisites—the good faith requirement.

American General argues that, because of the “suspicious circumstances” under which the imposter negotiated the check with State Security, State Security failed to satisfy the Title 3 requirement of good faith. In support of this position, American General advances five points, which, the company argues, when considered together, should defeat State Security’s claim: (1) State Security’s failure to develop any special procedures to validate the authenticity of large checks being presented at its check cashing business, as confirmed by the testimony of Decker and Deutsch that all checks are treated the same, regardless of amount, and that when Decker called Deutsch for assistance, Deutsch merely re-traced the steps Decker already had taken; (2) State Security “should have known that no competent businessman uses a check-cashing facility for an $18,000 check unless a stop payment order is likely” (in support of this contention, American General states:

State Security was much better positioned to detect the fraud because reasonable businessmen, while they commonly use finance companies to obtain $18,000 loans to develop property, rarely, if ever, use check-cashing services that immediately slice 3-5% off their investment to process their loans....

Appellee American General, a finance company, had no reason to suspect a customer who had two years of tax returns showing he was self-employed, a high credit score, and a valid Maryland driver’s license was perpetrating a crime when seeking an $18,000 loan purportedly to develop a property he owned. Appellant State Security, however, a *94 fee-charging check cashing service, had every reason to suspect wrongdoing when someone walked in off the street with an out-of-state $18,000 loan check and agreed to share several hundred dollars of it with State Security. Yet, seeing a hefty transaction fee, State Security turned a blind eye to these suspicious circumstances.

(footnote omitted)); (3) Wilder had not been a customer of State Security previously and was not a member of State Security’s business. (See Md.Code, Fin. Inst. Art. § 12-120(b) (2003 Repl. Vol. & Supp. 2008) (capping check cashing service membership fees at a one-time fee of $5); (4) State Security’s failure to use its thumbprint identification system, even though the system may not have been functioning at the time of the transaction, was critical because “[h]ad State Security told the impostor that it would not complete the transaction without his thumbprint, he likely would not have proceeded and looked instead for a more careless victim”; and, 5) the imposter presented the check to State Security on a Friday afternoon, “just hours before most banks and businesses closed for the weekend.”

State Security retorts that, under the circumstances of this case, its actions were sufficient to satisfy the good faith statutory requirement. State Security argues:

It cannot be seriously argued that State Security did not act in good faith. There was no evidence that it had any idea that the person presenting the check was not Ronald E. Wilder. To the contrary, all the evidence points to State Security having made all commercially reasonable efforts to verify that the person presenting the check was the person who was intended to have the check. By matching the signatures on the loan documents with the signature of the person who presented the check, and by verifying that against the driver’s license, State Security did all that could be expected of it.

The definition of “good faith,” for the purposes of Title 3 of the Commercial Law Article, is found in Commercial Law Article § 3-103(a)(4): “ ‘Good faith’ means honesty in fact and *95 the observance of reasonable commercial standards of fair dealing.” Md.Code, Com. Law Art. § 3-103. Official Comment 4 to § 3-103 expounds further regarding the intended meaning of “good faith”:

■4. Subsection (a)(4) introduces a definition of good faith to apply to Titles 3 and 4. Former Titles 3 and 4 used the definition in Section 1-201(19). The definition in Subsection (a)(4) is consistent with the definitions of good faith applicable to Titles 2, 2A, 4, and 4A. The definition requires not only honesty in fact, but also “observance of reasonable commercial standards of fair dealing.” Although fair dealing is a broad term that must be defined in context, it is clear that it is concerned with the fairness of conduct rather than the care with which an act is performed. Failure to exercise ordinary care in conducting a transaction is an entirely different concept than failure to deal fairly in conducting the transaction. Both fair dealing and ordinary care, which is defined in Section 3-103(a)(7), are to be judged in the light of reasonable commercial standards, but those standards in each case are directed to different aspects of commercial conduct.

Md.Code, Com. Law Art. § 3-103 cmt. 4. Professors White and Summers explain this definition of “good faith,” and the commentary provided in Comment 4, as follows:

What does all of that mean? And what evidence is likely to be introduced to prove lack of reasonable commercial standards? Note that under section 3-308(b) a plaintiff confronted with defenses or claims has the burden of proving “rights of a holder in due course,” and thus the burden will be on the creditor plaintiff to show good faith.

Where might this arise? One can imagine many variations on this basic theme: a depositary bank takes a check, only to have other banks say they would not have taken such a check and that to do so violated commercial standards. For example, would it violate commercial standards for a bank to take a $100,000 cheek to open an account and later to allow the depositor to withdraw the funds? If not, the bank could be a holder in due course who might take *96 free of a drawer’s claim to that instrument even though the person with whom it dealt was a thief, not so? For reasons stated below we think the bank here would be in good faith. Can a payee violate commercial standards by demanding payment on a “demand note” where there has been no default in the underlying obligation?

Similar arguments might well arise at the closing of a kite, where one of the banks seeks to defend itself against a restitution claim by arguing it gave value in good faith and is protected by 3-418. That bank might be met with the argument that it was not a good faith holder of the checks passing through its hands because by observing reasonable commercial standards it should have understood the checks to be part of a kite. As we indicate elsewhere, we hope that few people are successful in asserting restitution causes of action after kites, but we anticipate that those arguments will be made.

Before one concludes that the banks described in the preceding paragraphs are not in good faith, return to the definition. A bank that fails to follow commercial standards is not in good faith only if it deviates from commercial standards of “fair dealing.” Deviating from such standards on the side of generosity and gullibility rather than venality does not render one’s act in bad faith. So beware, good faith does not require general conformity to “reasonable commercial standards,” but only to “reasonable commercial standards of fair dealing.” The issue is one of “unfairness” not of “negligence.” If the Code is tilting back toward an objective standard, it is going only so far. We are clear on that point, but the courts are divided. As we see below, some courts insist on confusing negligence with unfairness. Some also find a duty for a depositary bank to consider the interests of all parties involved, including the drafter of the note with whom the banks has never had dealings.

2 James J. White & Robert S. Summers, Uniform Commercial Code § 17-6, at 191-92 (5th ed. 2008).

Both parties here find solace in Any Kind Checks Cashed, Inc. v. Talcott, 830 So.2d 160 (Fla.Dist.Ct.App.2002), a case *97 from the Fourth District Court of Appeal of Florida, to support their respective positions regarding the “good faith” requirement. The issue before the Florida court was whether a check cashing store, Any Kind Checks Cashed, Inc., qualified as a holder in due course of a $10,000 check written by an elderly man, John G. Talcott, Jr., where Talcott was induced fraudulently to issue the check to the person who cashed it. Id. at 161-62. On 10 January 2000, D.J. Rivera, a “financial advisor,” called Talcott and talked him into sending a check for $10,000, made out to Salvatore Guarino, a cohort of Rivera, for travel expenses related to Rivera’s handling of an investment for Talcott. Id. at 162. Talcott and Rivera spoke again the next day, at which time Rivera indicated that $10,000 was more than was needed for expenses, and that $5,700 would be sufficient. Id. As a result of that conversation, Talcott called his bank and placed a stop payment on the $10,000 check. Id.

Despite the 11 January conversation between Talcott and Rivera, Guarino appeared at Any Kind’s office in Stuart, Florida, on 11 January and presented the $10,000 check. Id. The store supervisor, Nancy Michael, who had the authority to approve checks over $2,000, examined Guarino’s driver’s license and the Federal Express envelope from Talcott in which Guarino received the check. Id. She asked Guarino the purpose of the check, and, consistent with the information on Guarino’s customer card with Any Kind, he informed her that he was a broker and that the maker of the check sent it to him for investment purposes. Id. Michael was unable to contact Talcott by telephone. Id. Believing that the check was good, based on her experience, and the fact that it was sent to Guarino, the payee, in the Federal Express envelope, Michael cashed the check for Guarino for the $10,000 amount, minus a 5% check cashing fee. Id.

On 15 January 2000, Rivera called Talcott and asked about the requested $5,700. Id. That same day, Talcott sent a check for that amount, under the impression that Rivera knew that Talcott had stopped payment on the $10,000 check. Id. On 17 January, Guarino went into Any Kind and presented the $5,700 check to the teller on duty at the time, Joanne Kochaki *98 an. Id. Guarino also presented the Federal Express envelope in which the check had come. Id. Any Kind’s company policy required a supervisor to approve a check over $2,000. Id. Kochakian noticed that Michael approved previously the $10,000 check, and called Michael, who was working at another location, to notify her of the $5,700 check. Id.

Any Kind did not have any written procedures that a supervisor was required to follow in determining whether to cash a check over $2,000. Id. Michael possessed the discretionary power to decide whether a presented check was “good.” Id. On this occasion, Michael instructed Kochakian not to cash the check until she contacted the drawer, Talcott, and obtained approval. Id. at 163. Kochakian was able to reach Talcott by telephone, and Talcott approved cashing the $5,700 check. Id.

On 19 January, Rivera called Talcott to inform him that Guarino was a thief. Id. Talcott immediately contacted his bank and stopped payment on the $5,700 check. Id. The trial court found that there was no dispute that Guarino and Rivera had scammed Talcott by inducing him to issue both checks. Id.

Any Kind filed a two-count complaint against Guarino and Talcott, alleging that it was a holder in due course of both checks. Id. The trial court found in favor of Any Kind regarding the $5,700 check, but in favor of Talcott as to the $10,000 check. Id. The trial court found that the circumstances surrounding the cashing of the $10,000 check were sufficient to put Any Kind on notice that “some confirmation or explanation should be obtained.” Id.

On review, the Florida appellate court affirmed the judgment of the trial court, finding that Any Kind was not a holder in due course of the $10,000 check because the company did not act “in good faith,” within the meaning provided in Florida’s commercial law statute. 7 Id. at 168. Citing Drysdale and *99 Keest’s study 8 as support for the proposition that check cashing businesses are a “major source of traditional banking services for low-income and working poor consumers, residents of minority neighborhoods, and people with blemished credit histories” 9 and businesses targeted to locations in which “traditional banks fear to tread” 10 , and noting on its own accord that check cashing businesses typically cash “small” checks, such as “a paycheck, child support, social security, or public assistance check” 11 and are businesses whose “[attractions ... are convenience and speed” 12 , the court concluded:

[WJe cannot say that the trial court erred in finding that the $10,000 check was a red flag. The $10,000 personal check was not the typical check cashed at a check cashing outlet. The size of the check, in the context of the check cashing business, was a proper factor to consider under the objective standard of good faith in deciding whether Any Kind was a holder in due course. See [Me. Family Fed. Credit Union v. Sun Life Assurance Co. of Can., 727 A.2d 335, 344 (Me.1999)].

Guarino was not the typical customer of a check cashing outlet. As the trial judge observed, because of the 5% fee charged, it is unusual for a small businessman such as a broker to conduct business through a check cashing store instead of through a traditional bank. Guarino did not have *100 a history with Any Kind of cashing checks of similar size without incident. The need for speed in a business transaction is usually less acute than for someone cashing a paycheck or welfare check to pay for life’s necessities. The need for speed in cashing a large business check is consistent with a drawer who, for whatever reason, might stop payment. Fair dealing in this case required that the $10,000 check be approached with a degree of caution.

If a drawer has a right to stop payment of a check, and a traditional bank usually places a hold on uncollected funds after a payee deposits a check into an account, then the legal dispute after a stop payment will usually be between the drawer of the check and the payee, the two parties that had the dealings leading to the payment. Thus, where a check is cashed at a bank or savings and loan, the law will often place the loss on the wrongdoer in the underlying transaction. This is a desirable goal.

When a check cashing store releases funds immediately, the holder in due course doctrine steps in, frequently putting the loss on a wronged maker, in furtherance of the policy that facilitating the transfer of checks benefits the economy. In this case, the policy reasons behind easy negotiability do not outweigh the reasons for caution. Very loose application of the objective component of “good faith” would make check cashing outlets the easy refuge of scam artists who want to take the money and run. The concept of “fair dealing” includes not being an easy, safe harbor for the dishonest.

Id. at 167-68.

Arguing that the policy rationale of Taleott, in particular the Talcott court’s association that the need for speed in cashing a large business check “is consistent with a drawer who, for whatever reason, might stop payment,” American General contends that the ersatz Wilder’s negotiation of the $18,000 check for a 3-5% fee at a check cashing store should have put State Security on “inquiry notice that some confirmation or explanation should be obtained,” and that because State Security applied the same level of scrutiny to checks presented, *101 regardless of their amounts, State Security “makes itself a magnet for impostors,” thereby shedding its ability to claim “good faith.”

State Security responds by noting a factual distinction between the situation presented in Talcott and the situation here. It points out that in Talcott the appellate court affirmed the trial court’s holding that the check cashing store was a holder in due course of the $5,700 check, but not the $10,000 check. State Security interprets the Florida court’s opinion as indicating that the real issue was whether, under the circumstances presented there, the check cashing company should have verified with the maker of the $10,000 check that the $10,000 check was valid. Had the check cashing store asked Talcott whether the $10,000 check was valid when it was presented by Guarino, it w’ould have learned that Talcott had placed a stop payment order on it. In contrast, by confirming with Talcott, the drawer, that the $5,700 check was valid at the time it was presented, the check cashing store satisfied the good faith requirement for a holder in due course.

Thus, not surprisingly, State Security reasons that the relevant inquiry in the present case is whether it took adequate steps before cashing the check to ensure that the $18,000 check issued by American General was valid. State Security posits that “fj]ust as [the check cashing store in TalcottJ was not required to make sure that Mr. Talcott was not the victim of a scam, so too, State Security cannot be legally obligated to determine that American General should not have wanted to issue the check it issued.” It points here to the testimony of Toland, American General’s Branch Manager, who stated that, had State Security called him, he would have verified that the check represented the proceeds of a loan transaction American General had closed with someone it believed to be Wilder. Based on this distinction, State Security argues that Talcott actually supports a finding of good faith here because had State Security contacted American General regarding the validity of the check presented by the imposter, it would have learned only that the check was valid.

*102 Professors White and Summers express some skepticism at how many courts have viewed check cashing businesses with regard to the good faith requirement for a holder in due course:

Check cashing companies appear to be the pariahs of holder in due course law. In Buckeye Check Cashing, Inc. v. Camp, [159 Ohio App.3d 784, 825 N.E.2d 644 (2005),] a check cashing company sued drawer for payment after drawer contacted his bank and ordered the bank to stop payment. Drawer of check had negotiated with a contractor for services to be completed over the next three days and drawer drafted a post-dated check as payment. (The check bore the date of the projected date of completion of the services.) Contractor immediately cashed check with plaintiff, who submitted the check for payment. The drawer, fearing services would not be completed, contacted his bank the same day and ordered it to stop payment. The court held that the future date on the check should have put the check cashing company on notice that the check might not be good. The court also held that the company failed to act in a commercially reasonable manner, and did not take the check in “good faith,” when it did not attempt to verify the check. We are less certain than the court is about the commercial practice with respect to postdated checks. In some circumstances it might be commercially unreasonable to take a postdated check over-the-counter without some explanation from the customer, but that surely would not be true of a check presented to an ATM.

In Any Kind Checks Cashed, Inc. v. Talcott, a court held that the check cashing service did not act in good faith and should have verified a $10,000 check drawn on a 93 year-old’s account when presented for cashing by a financial broker. “[The] procedures followed were not reasonably related to achieve fair dealing, ... taking into consideration all of the participants in the transaction.” The court held that the financial broker was not the typical customer of a check cashing outlet because small businessmen rarely use a check cashing service that charges a 5% fee instead of a *103 traditional bank. The business check is not the welfare or payroll check usually cashed at such an establishment. The court held that the need for speed in cashing a large business check is consistent with a drawer who might stop payment and fair dealing requires that the $10,000 check be approached with caution. “The concept of ‘fair dealing’ includes not being an easy, safe harbor for the dishonest.”

Both the Buckeye Check-Cashing case and the Any Kind Checks Cashed case show courts that are quick to deny holder in due course status to check cashing facilities. We wonder how these courts would have handled these cases had the plaintiffs been banks and not check cashing facilities. In effect the courts are asking check cashers to adhere to a higher standard than might be required of a bank. Given the clientele of check cashing facilities, the courts’ skepticism might be justified, but we would like to see a little more evidence that check-cashing facilities are a home for persons engaged in fraudulent behavior before we would subject them to higher standards than might be applied to a bank.

White & Summers, supra, § 17-6, at 197-98 (footnotes omitted).

Under § 3-308(b), 13 the burden is on a plaintiff to prove “rights of a holder in due course,” including situations *104 such as the present, where the defense is that the plaintiff did not take the instrument in good faith. White & Summers, supra, § 17-6, at 191; see Md.Code, Com. Law Art. § 3-308 cmt. 2 (“Subsection (b) means only that if the plaintiff claims the rights of a holder in due course against the defense or claim in recoupment, the plaintiff has the burden of proof on that issue.”). We conclude here that State Security is entitled to enforce the check because it has met its burden of proving that it took the check in good faith.

The core of the dispute between banking institutions over the good faith requirement most often distills to one banking institution taking a check, only to have another banking institution charge that, under the circumstances, it would not have taken that check, and that taking the check was a violation of commercial standards. See White & Summers, supra, § 17-6, at 191 (“Where might th[e good faith issue] arise? One can imagine many variations on this basic theme: a depositary bank takes a che