1. Does suspicion cause a holder to lose holderin- due-course status?

2. What is the impact of the phone call and verification being sought?

Regent served as a settlement agent for closing real estate transactions. Regent cut checks to distribute funds to all the parties to such transactions. On December 23, 2005, New Randolph cashed a check from Regent, which was made out to Charae Pearson, for $1,945.99. Four days later, New Randolph cashed another check for Pearson, again from Regent, this time for $2,500. On January 11, 2006, Pearson brought Regent’s check number 22221 for $29,588.31 to New Randolph. Unlike the prior checks, which spelled Pearson’s name correctly, this check showed the payee as “CHAREA PAERSON.” The check indicated that Pearson received it as a “LOAN PAYOFF.” Pearson presented the check to Patrice Keys, manager of New Randolph. Pearson showed Keys her state identification card, which had been issued on December 30, 2005. Pearson told Keys that Regent issued the check to her to pay her a commission she earned from the sale of property.

PLS Check Cashers, which owned New Randolph, did not authorize Keys to cash checks in excess of $5,000 without approval from her supervisor. Keys contacted Sandra Arizaga of PLS. Arizaga authorized Keys to cash the check.

Arizaga, who worked as director of operations for PLS, testified that she approved about three checks each week for amounts exceeding the amount of Regent’s check number 22221. She spoke with Keys about the check, and then she looked up the phone number for Regent at Regent’s Web site. Arizaga spoke with a woman who confirmed that Regent issued the check to Pearson in the amount shown. Arizaga then contacted American Chartered Bank, which confirmed that the check came from a valid account with sufficient funds to cover the check, and that Regent had not stopped payment on the check.

Regent introduced PLS’s manual into evidence. The manual emphasizes that PLS earns its fees by cashing checks, so the employee should “[s]pend * * * time proving that the check can be cashed and not looking for excuses not to cash it.” The manual identifies several signs that a check might not be valid, including several of the factors present in this case. According to the manual, the employee should “verify that the check is good” by “phoning the maker.”

Police arrested Pearson, charging her with check fraud. Two days later, police arrested Tatiana Auson, an employee of Regent, on the same charge. Auson had checks intended for parties to real estate transactions canceled and then issued new checks to different payees for the amounts of the original checks. Pearson admitted that Auson gave her the three checks that New Randolph cashed for Pearson. Pearson kept about $5,000 of the proceeds from the checks, and she gave the remainder to Auson. All three checks appeared to bear the signature of Karen Hendricks, who had authority to sign checks on behalf of Regent.

Regent told its bank to stop payment on the check. New Randolph sued Regent for payment of the check, claiming that its status as a holder in due course entitled it to payment, despite the evidence that Auson and Pearson conspired to defraud Regent. New Randolph appealed. ………………