Why Is It Important For A Business To Have HIDC Status?

When a business cashes a check they act as an intermediary between the maker of the check and the payee. This status is known by the Uniform Commercial code (UCC) as a “holder in due course” (HIDC). An analysis of Any kind checks cashed,inc v. Talcott will illustrate how fragile HIDC status is. There are benefits for a business to have HIDC status, which will protect them in the event of check fraud. However, businesses must perform some due diligence in order to maintain this status. Ultimately, a business should lose their holder in good faith status when they fail to act responsibly with negotiable instruments, and that irresponsibility facilitates fraud. Checks cashed inc v. Talcott is one such example of HIDC status being lost for lack
The instrument must be taken for value and in good faith and without notice that the instrument has been dishonored.” This means that in order for someone to be considered a holder in due course they need to accept the instrument, inspect it for fraud or alteration and have no notice that the instrument has been dishonored. In the case of a check cashing business they are acting as a fourth party as they are agreeing to cash a check when they are not the maker, payee or the issuing/depositing banks moreover there tends to be a level of anonymity when dealing with a check cashing company. This puts additional burden on the check cashing company to ensure that the maker and payee are acting in good faith before they cash the check. The check cashing company has no way of determining if a check has been dishonored if additional steps are not taken. In the event of fraud and if the company has taken the proper steps they can lose HIDC status. HIDC status is extremely important for anyone who is honoring checks because it will limit the liability of the holder if they have taken precautions that are ordinary and responsible for their industry. In determining the fairness of the case ruling in Any Checks Cashed inc. v. Tolcott, we must determine if ACC acted with ordinary and responsible precautions when they agreed to cash that
Check cashing companies are often in lower income sections and charge large fees for their services that a bank would not charge (5% and 3%). The question of the legitimacy of their broker status immediately rises when they do business in one of these establishments; their only benefit is anonymity in the transaction. This should have tipped off the managers of ACC that authorized the cashing of these checks. In either case ACC should have checked with the maker and the maker’s bank to determine the validity of the checks. ACC was in a real position to stop the fraud and failed to do so. If Tolcott was contacted regarding the cashing of the $10,000, check ACC would have retained their holder in due course status and therefore not been liable when the deal went sour. This would have put the loss entirely on Tolcott and he would have to recover his losses by filing suit on Guarino and Rivera. In light of these facts it is perfectly reasonable to hold ACC liable for the $10,000 check because ACC could have easily determined that there was fraudulent activity going on if they would have contacted Tolcott. The Judge found that Tolcott was liable for the loss of the other check because ACC’s holder in due course status wasn’t revoked in that case; ACC had taken ordinary and responsible measures to avoid the