## Facts

- Beulah M. Hodge and her husband contracted with Fred Fentress to install a flood control system at their home for $900.
- Hodge issued a $500 check from a joint bank account payable to “Fred Fentress–A-OK Plumbing” as partial payment.
- The system components were not delivered and Fentress failed to appear for installation.
- Hodge’s husband notified Fentress the contract was cancelled and a stop-payment order would be placed; the bank recorded a stop-payment order that day.
- Fentress nevertheless cashed the check at Kedzie & 103rd Currency Exchange, endorsing it as “sole owner” of A-OK Plumbing.
- When the Currency Exchange presented the check to the bank, payment was refused due to the stop-payment order.
- The Currency Exchange sued Hodge (drawer) and Fentress, alleging it was a holder in due course and seeking the face amount of the check.
- Hodge moved to dismiss, asserting “illegality of the transaction” because Fentress allegedly performed plumbing work without the license required by state law.

## Issues

1. Whether “illegality of the transaction” bars enforcement of a check by a holder in due course when the underlying services were performed by an unlicensed plumber.
2. Whether the relevant licensing statute must expressly render the instrument void (or the obligation null) for illegality to constitute a real defense under UCC § 3-305(2)(b).

## Decision

- The Supreme Court of Illinois reversed the dismissal and remanded.
- The court held that illegality defeats a holder in due course only when other law expressly nullifies the obligation by declaring the transaction or the instrument void.
- Because the plumbing licensing statute did not expressly void checks or negotiable instruments issued for unlicensed work, the drawer could not assert illegality as a defense against a holder in due course.
- The case was remanded for further proceedings, including determination of whether the Currency Exchange in fact qualified as a holder in due course.

## Legal Principles

- Under UCC § 3-305(2)(b), “illegality of the transaction” is a defense against a holder in due course only if, under other law, the illegality nullifies the obligation on the instrument.
- Illegality in the underlying contract is generally a personal defense and does not defeat a holder in due course unless the legislature expressly makes the instrument (or the obligation on it) void.
- Regulatory and licensing statutes that impose penalties or limit enforceability between contracting parties do not, without explicit voiding language, eliminate holder-in-due-course protections.
- A check creates an obligation governed by commercial paper rules that is distinct from defenses arising solely from the underlying transaction.

## Conclusion

The court held that a drawer may not use the unlicensed nature of underlying plumbing work to defeat a holder-in-due-course claim unless the governing statute expressly voids the instrument or otherwise nullifies the obligation, and it remanded to determine whether the plaintiff met holder-in-due-course requirements.


Kedzie & 103rd Currency Exch., Inc. v. Hodge, 156 Ill. 2d 112, 619 N.E.2d 732 (Ill. 1993)